Assured Warranty Ltd. (AGO) Q1 2024 Earnings Name Transcript

Assured Warranty Ltd. (NYSE:AGO) Q1 2024 Outcomes Convention Name Could 8, 2024 8:00 AM ET

Firm Members

Robert Tucker – Senior Managing Director-Investor Relations and Company Communications
Dominic Frederico – President and Chief Government Officer
Rob Bailenson – Chief Working Officer
Ben Rosenblum – Chief Monetary Officer

Convention Name Members

Tommy McJoynt – KBW

Operator

Good morning, and welcome to the Assured Warranty Restricted First Quarter 2024 Earnings Convention Name. My title is Carla, and I shall be your operator for at this time’s name. All individuals shall be in listen-only mode. [Operator Instructions]. Please word that at this time’s occasion is being recorded.

I’d now like to show the convention name over to your host, Robert Tucker, Senior Managing Director, Investor Relations and Company Communications. Please go forward.

Robert Tucker

Thanks, operator. And thanks all for becoming a member of Assured Warranty for our first quarter 2024 monetary outcomes convention name. At the moment’s presentation is made pursuant to the Protected Harbor provisions of the Personal Securities Litigation Reform Act of 1995. The presentation might include forward-looking statements about our new enterprise and credit score outlooks, market circumstances, credit score spreads, monetary rankings, loss reserves, monetary outcomes or different gadgets that will have an effect on our future outcomes. These statements are topic to alter resulting from new data or future occasions.

Subsequently, you shouldn’t place undue reliance on them as we don’t undertake any obligation to publicly replace or revise them besides as required by regulation. If you’re listening to a replay of this name, or in case you’re studying the transcript of the decision, please word that our statements made at this time might have been up to date since this name. Please confer with the Investor Data part of our web site for our most up-to-date displays and SEC filings, each present monetary filings and for the danger components.

This presentation additionally consists of references to non-GAAP monetary measures. We current the GAAP monetary measures most instantly akin to the non-GAAP monetary measures referenced on this presentation together with a reconciliation between such GAAP and non-GAAP monetary measures in our present monetary complement and fairness investor presentation, that are on our web site at assuredguaranty.com.

Turning to the presentation. Our audio system at this time are Dominic Frederico, President and Chief Government Officer of Assured Warranty Ltd; Rob Bailenson, our Chief Working Officer; and Ben Rosenblum, our Chief Monetary Officer. After their remarks, we are going to open the decision to your questions. Because the webcast will not be enabled for Q&A, please dial into the decision if you would like to ask query.

I’ll now flip the decision over to Dominic.

Dominic Frederico

Thanks, Robert, and welcome to everybody becoming a member of at this time’s name. I need to start with a bit historical past. Final month, we celebrated the twentieth anniversary of our IPO. Since that point, via the top of first quarter of 2024, we produced cumulative web adjusted working revenue of virtually $9 billion enhance our adjusted ebook worth by 542%, returned $1 billion in dividends to our shareholders and elevated our share value by 385%.

Of word, the rise in our share value over that interval exceeded these of the S&P 500 Financials, the S&P 500, the Dow Jones Industrial Common and New York Inventory Alternate Composite Index. We show the effectiveness and prudence of our earnings technique in addition to the resilience of our enterprise mannequin via tough circumstances. These embody the 2008 international monetary disaster with its many high-profile municipal and company bankruptcies, the elevated prevalence and scale of pure disasters and the impacts of the COVID-19 pandemic with its far-reaching international results.

Throughout these intervals, we maintained our rankings and declare paying assets at excessive ranges and proceed to put in writing new enterprise. We additionally diminished our insured leverage, our single danger exposures, whereas on the identical time returning greater than $6 billion to our shareholders via share buybacks and dividends and sustaining vital extra S&P capital. Whereas we sought to protect enough extra capital, we didn’t lose sight of our shareholders’ want for applicable returns on their investments. We started our share repurchase program in 2013 and since then via Could 7 this 12 months, we repurchased a complete of 75% of the shares that have been excellent at the moment.

This 12 months, we’re generally ramping up our expectations for share buybacks to the extent that prevailed in earlier years, once we typically purchased again about $500 million per 12 months. In 2024, we repurchased $129 million of frequent shares within the first quarter alone, which equals 2.7% of the shares excellent when the 12 months started and positions us to achieve our $500 million goal for 2024.

Moreover, on Could 2nd, our Board of Administrators approved an extra $300 million of share repurchases according to our goal, which brings us to the opposite spectacular results of the quarter. Adjusted working revenue per share got here in at $1.96 for first quarter 2024 in contrast with $1.12 within the first quarter of final 12 months. Our key non-GAAP valuation measures once more reached new highs on a per share foundation, with adjusted working shareholders’ fairness at $107.69 in contrast with $94.58 within the first quarter of 2023, and adjusted ebook worth of $157.31, $14 increased than a 12 months in the past. Shareholders’ fairness per share at quarter’s finish was $102.19 additionally at $14 increased, additionally a file.

New enterprise manufacturing within the quarter was robust and I will let Rob offer you extra particulars in a second. Our strategic method to asset administration to our 30% curiosity in Sound Level is producing fee-based earnings in step with our expectations and our funding portfolio is benefiting from returns on our various investments via Sound Level. As we’ve got beforehand mentioned, we resolved all of our non-paying Puerto Rico exposures with the only real exception of the Electrical Energy Authority, PREPA, which is presently solely $624 million of web par publicity.

The truth is, PREPA plus all the opposite under funding grade exposures represent simply 2.1% for our present web par excellent. We favor to resolve PREPA consensually if attainable, however we’ll proceed to make use of the authorized course of to vigorously oppose any plan of adjustment that doesn’t embody a good remedy of our bond claims.

At the moment, I firmly imagine our insured portfolio and monetary situation are stronger than ever. After I mirror on how far our firm has come, growth and evolution of our completely different enterprise methods, our proactive and strategic method to operating the corporate, and the way in which we’ve got protected buyers, served issuers and created worth for each our policyholders and shareholders, I am extraordinarily optimistic about not solely the remainder of the 12 months, but additionally our future for years to come back.

Now I will flip the decision over to Rob.

Rob Bailenson

Thanks, Dominic, and good morning to everybody on the decision. Our Monetary Warranty new enterprise manufacturing was robust within the first quarter of 2024, through which we closed $63 million of PVP. U.S. Public finance led the way in which with $43 million of PVP roughly double its PVP for the primary quarter final 12 months, regardless that the corresponding gross par written closed was comparable. Supported by progress within the general municipal market, whole first quarter major market volumes offered using bond insurance coverage was up 24% year-over-year. Main market insurance coverage penetration continued to exceed 7% of par offered because it typically has since 2020 when the COVID-19 pandemic reminded buyers of the worth of bond insurance coverage in an unpredictable world.

It is price noting that in our goal ranking class of transactions with single A underlying rankings from S&P and/or Moody’s, insurance coverage penetration was 27% of par offered and 53% of the variety of transactions offered. Assured Warranty remained the market chief in U.S. Municipal bond insurance coverage making certain roughly 53% of all major market insured par offered through the first quarter of 2024.

The $3.8 million of recent issued par offered with our insurance coverage through the quarter was 12% increased than in first quarter 2023. We proceed to profit from institutional investor demand for brief ensures insurance coverage on bigger transactions. Throughout the quarter we insured 7 transactions with $100 million or extra in insured par totaling roughly $1.4 billion together with the two transactions offered with the most important insured par quantities through the quarter.

The $340 million of insured income bonds for the North Carolina Turnpike Authority Triangle Expressway System and the $380 million of insured income bonds for the Decrease Colorado River Authority. We additionally proceed so as to add worth on AA credit through the first quarter, as we insured $605 million par on 23 such offers. We imagine buyers in these transactions are exhibiting each a excessive regard for our monetary power and an understanding of the vary of advantages in our worth proposition, together with potential mitigation of downgrade danger.

The second quarter is off to an excellent begin, together with our participation in Florida’s BrightLine high-speed rail refinancing anticipated to shut on Could ninth, the place we are going to guarantee an quantity exceeding $1.1 billion of senior bonds, representing greater than half of the $2.2 billion of senior bonds to be issued.

The underlying mission, a 235-mile high-speed rail system between Miami and Orlando is the primary non-public passenger rail system in-built the USA in over a century. This transaction demonstrates the worth buyers place on Assured Warranty’s in depth due diligence, underwriting expertise, and monetary power. We’ve unequalled capability and transaction expertise to ensure large-scale investment-grade municipal bonds and infrastructure financings.

We anticipate our public finance enterprise to proceed to carry out effectively within the present atmosphere as municipalities prioritize much-needed infrastructure restore and growth. Our product will help them optimize their bond executions to allow them to accomplish extra with a decrease financing burden.

In different monetary warranty enterprise through the first quarter, international structured finance made a major contribution of $19 million of PVP from 11 transactions throughout primarily the insurance coverage securitization and subscription finance sectors. This group has expanded the applying of our assure into varied new sectors and I imagine they’ll proceed to develop further product functions to additional help our enterprise progress.

Non-U.S. Public finance produced an extra $2 million from renewals of two liquidity amenities that contain no enhance to our insurance coverage publicity. We’ve a big pipeline of worldwide infrastructure transactions and we anticipate sure transactions to generate vital PVP particularly within the second half of this 12 months.

Exterior of the U.S., we’re working onerous to increase our attain extra broadly past the UK with personnel in France, Spain and Australia centered on further new enterprise alternatives.

I will now flip the decision over to Ben.

Ben Rosenblum

Thanks, Rob and Dominic, and good morning. I’m happy to report first quarter 2024 adjusted working revenue of $113 million or $1.96 per share in contrast with $68 million or $1.12 per share within the first quarter of 2023. On a per share foundation, this represents a year-over-year enhance of 75%. The Insurance coverage section contributed $149 million of adjusted working revenue within the first quarter of 2024 in contrast with $117 million in the identical interval final 12 months.

This section is the most important element of adjusted working revenue and had a number of notable gadgets driving the quarter-over-quarter enhance. First, web earned premiums have been $38 million increased in contrast with final 12 months, primarily because of the refunding of 1 giant transaction.

Second, mark-to-market beneficial properties on Puerto Rico contingent worth devices have been $26 million in contrast with a lack of $2 million within the first quarter of 2023. Our remaining CDIs have a good worth of $272 million as of March 31, 2024. And final, fairness and earnings from our various investments was a achieve of $40 million in contrast with a achieve of $30 million within the first quarter of 2023.

Investments in CLO fairness tranches have been the first element of the choice funding beneficial properties in each intervals. Truthful worth modifications of belongings underlying the choice investments might trigger volatility in adjusted working revenue from quarter-to-quarter. Nevertheless, on an inception-to-date foundation, they’ve generated an annualized inner price of return of 14.4%. These year-over-year will increase within the insurance coverage section have been partially offset by a decline in different revenue which included a nonrecurring profit associated to the discharge of a litigation accrual within the first quarter of 2023.

Our deferred premium and credit score by-product income which characterize the storehouse of future earnings within the insurance coverage section stays robust at $3.8 billion. Within the Asset Administration section, the 2023 partnership distribution from our 30% possession curiosity in Sound Level was $17 million and was acquired in 2024. On the capital administration entrance, within the first quarter of 2024, we purchased again 1.5 million shares for $129 million at a median value of $84.07 per share. We proceed to imagine that that is one among our most accretive methods.

Consequently, our Board of Administrators final week approved an extra $300 million of share repurchases, which brings our present remaining authorization to roughly $414 million. By way of our holding firm liquidity place, we’ve got money and investments of roughly $239 million of which $67 million resides in AGL.

The share repurchase program, together with adjusted working revenue and new enterprise manufacturing collectively contributed to new information for adjusted working shareholders’ fairness per share of over $107 and adjusted ebook worth per share of over $157. Whereas adjusted working revenue varies from interval to interval, the constant quarterly will increase in these ebook worth metrics mirror how the profitable execution of our key strategic initiatives construct shareholder worth over the long-term.

One different optimistic growth to notice, on April thirtieth, Moody’s upgraded the insurance coverage monetary power ranking of AGC and affirmed the ranking of AGM, each with a secure outlook. Within the report, Moody cited AGC’s robust risk-adjusted capital adequacy, the numerous enchancment within the credit score high quality of the insured portfolio, and an elevated strategic position inside Assured Warranty. About AGM, Moody’s famous AGM’s robust capital profile and main market place within the monetary assure sector.

I will now flip the decision over to our operator to provide the directions for the Q&A interval.

Query-and-Reply Session

Operator

[Operator Instructions]. Our first query comes from Tommy McJoynt from KBW.

Tommy McJoynt

Good morning, guys. Thanks for taking my questions. The primary query is on the web funding revenue line. So, it appears prefer it had been averaging, trying on the insurance coverage section, round $99 million in per quarter within the second half of final 12 months, and it dropped sequentially to $83 million. Are you able to stroll via a few of the places and takes for what drove that decline? After which how we must always take into consideration the run price from that going ahead?

Ben Rosenblum

I believe the reply is in case you look again a few quarters beforehand, you may see it was a bit decrease. What occurred on the finish of the final 12 months, the final two quarters, we had revenue from some loss mitigation bonds that got here via. I’d say that what you are observing this quarter might be a comparatively constant run price of what I’d anticipate all year long.

Tommy McJoynt

Okay. Received it. Thanks for that. After which are you able to remind me, what is occurring within the different section, when it comes to the, I forgot type of mechanically the way it works with the massive destructive fairness and web earnings of investees the final couple of quarters. I believe that is offsetting a few of the truthful worth beneficial properties on the CIBs. However are you able to simply remind us mechanically what’s taking place there?

Dominic Frederico

I believe what you are taking a look at is you are trying on the impression of a few of the consolidation of the SG and CVI which might be coming via and a few of the volatility coming via that consolidation. Only a reclass, not on the bottom-line impression.

Tommy McJoynt

After which simply final query. I believe there’s nonetheless a particular dividend request pending in New York for AGM. Is there any standing replace on that or something you need to share there? Certain.

Rob Bailenson

As you already know, we filed a request again in fall final 12 months, and New York goes via its course of to approve the dividend. We haven’t any expectation of points. So, it is simply them going via their course of at this cut-off date. Hopefully, we’ll hear one thing within the close to future.

Tommy McJoynt

Understood. thanks.

Operator

[Operator Instructions]. I’d now like to show the convention again over to your host, Robert Tucker for closing remarks.

Robert Tucker

Thanks, operator. I would wish to thank everybody for becoming a member of us on at this time’s name. When you have further questions, please be at liberty to present us a name. Thanks very a lot.

Operator

This concludes at this time’s convention name. Thanks all for attending. You could now disconnect your traces. Have an excellent day.