Assured Guaranty(US:AGO)2025-05-09 12:33PART I Financial Information Financial Statements Q1 2025 net income surged to $176 million, driven by fair value gains and FX, with total assets at $11.94 billion and positive operating cash flow Condensed Consolidated Balance Sheet Highlights (As of March 31, 2025 vs. December 31, 2024) | Metric | March 31, 2025 ($M) | December 31, 2024 ($M) | | :--- | :--- | :--- | | Total Investments | 8,670 | 8,663 | | Total Assets | 11,938 | 11,901 | | Total Liabilities | 6,281 | 6,348 | | Total Shareholders' Equity | 5,657 | 5,553 | Condensed Consolidated Statement of Operations Highlights (Q1 2025 vs. Q1 2024) | Metric | Q1 2025 ($M) | Q1 2024 ($M) | | :--- | :--- | :--- | | Total Revenues | 345 | 245 | | Net Earned Premiums | 91 | 119 | | Fair Value Gains on Credit Derivatives | 104 | 10 | | Foreign Exchange Gains (Losses) | 37 | (12) | | Total Expenses | 169 | 125 | | Loss and Loss Adjustment Expenses | 40 | (1) | | Net Income Attributable to AGL | 176 | 109 | | Diluted EPS | $3.44 | $1.89 | Condensed Consolidated Cash Flow Summary (Q1 2025 vs. Q1 2024) | Metric | Q1 2025 ($M) | Q1 2024 ($M) | | :--- | :--- | :--- | | Net Cash from Operating Activities | 87 | (74) | | Net Cash from Investing Activities | 134 | 253 | | Net Cash from Financing Activities | (170) | (327) | | Repurchases of Common Shares | (120) | (129) | | Dividends Paid | (19) | (19) | - During Q1 2025, the company repurchased 1.34 million common shares for $120 million and paid dividends of $18 million ($0.34 per share)20 Business and Basis of Presentation Assured Guaranty operates in Insurance and Asset Management, providing credit protection and managing investments through Sound Point - The company provides credit protection products to public finance (including infrastructure) and structured finance markets in the U.S. and internationally through its insurance subsidiaries3132 - The company participates in the asset management business via its ~30% ownership in Sound Point and has committed to invest $1 billion in Sound Point managed funds and vehicles3334 Segment Information Q1 2025 saw Insurance segment adjusted operating income rise to $168 million and Asset Management to $12 million, with reduced corporate losses Segment Adjusted Operating Income (Loss) (Q1 2025 vs. Q1 2024) | Segment | Q1 2025 ($M) | Q1 2024 ($M) | | :--- | :--- | :--- | | Insurance | 168 | 149 | | Asset Management | 12 | 1 | | Corporate Division | (20) | (37) | | Other | 2 | 0 | | Total Adjusted Operating Income | 180 | 150 | - The Chief Operating Decision Maker (CODM) primarily uses adjusted operating income to assess performance and allocate resources for each segment4344 Outstanding Exposure Net par outstanding increased to $263.6 billion, with 96.4% investment grade and below-investment-grade exposure decreasing to $9.5 billion Financial Guaranty Portfolio - Net Par Outstanding | Category | March 31, 2025 ($M) | Dec 31, 2024 ($M) | | :--- | :--- | :--- | | Public Finance | 252,531 | 250,375 | | Structured Finance | 11,060 | 11,177 | | Total Net Par | 263,591 | 261,552 | - The portfolio is heavily weighted towards investment-grade credits, with 96.4% of net par outstanding rated BBB or higher as of March 31, 202581 Components of BIG Net Par Outstanding | Category | March 31, 2025 ($M) | Dec 31, 2024 ($M) | | :--- | :--- | :--- | | BIG 1 | 7,079 | 8,102 | | BIG 2 | 1,099 | 706 | | BIG 3 | 1,364 | 1,374 | | Total BIG | 9,542 | 10,182 | Expected Loss to be Paid (Recovered) Net expected loss to be paid increased to $150 million, driven by public finance losses but offset by structured finance recoveries from LBIE litigation Net Expected Loss to be Paid (Recovered) Roll Forward - Q1 2025 | (in millions) | Amount | | :--- | :--- | | Beginning Balance (Dec 31, 2024) | $106 | | Total Economic Loss Development (Benefit) | ($15) | | Net (Paid) Recovered Losses | $59 | | Ending Balance (Mar 31, 2025) | $150 | - Economic loss development for public finance in Q1 2025 was primarily due to higher expected losses for Puerto Rico Electric Power Authority (PREPA) and U.K. regulated utilities exposures120 - The economic benefit in structured finance was mainly driven by recoveries from the resolution of the LBIE litigation116 - As of March 31, 2025, the company's only unresolved defaulting Puerto Rico exposure was PREPA, with net par outstanding of $532 million124 Contracts Accounted for as Insurance Net earned premiums decreased to $91 million in Q1 2025 due to fewer accelerations, while loss and LAE expense rose to $40 million Net Earned Premiums (Q1 2025 vs. Q1 2024) | Category | Q1 2025 ($M) | Q1 2024 ($M) | | :--- | :--- | :--- | | Scheduled Net Earned Premiums | 76 | 71 | | Accelerations from Refundings | 5 | 39 | | Accretion of Discount | 9 | 7 | | Specialty Net Earned Premiums | 1 | 2 | | Total Net Earned Premiums | 91 | 119 | Loss and LAE (Benefit) by Sector (Q1 2025 vs. Q1 2024) | Sector | Q1 2025 ($M) | Q1 2024 ($M) | | :--- | :--- | :--- | | Public Finance | 42 | (2) | | Structured Finance | (2) | 1 | | Total Loss and LAE (Benefit) | 40 | (1) | Contracts Accounted for as Credit Derivatives Credit derivative net par was $3.76 billion, with Q1 2025 fair value gains of $104 million driven by a $103 million LBIE litigation resolution gain - In Q1 2025, the company recognized a realized gain of $103 million from the full satisfaction of the judgment in the LBIE litigation204 Fair Value Gains (Losses) on Credit Derivatives (Q1 2025 vs. Q1 2024) | Category | Q1 2025 ($M) | Q1 2024 ($M) | | :--- | :--- | :--- | | Realized Gains (Losses) & Settlements | 105 | (1) | | Net Unrealized Gains (Losses) | (1) | 11 | | Total Fair Value Gains (Losses) | 104 | 10 | Investments The investment portfolio remained stable at $8.67 billion, generating $87 million in net investment income and $53 million in equity earnings from investees Investment Portfolio Carrying Value | Category | March 31, 2025 ($M) | Dec 31, 2024 ($M) | | :--- | :--- | :--- | | Fixed-maturity securities, available-for-sale | 6,415 | 6,369 | | Fixed-maturity securities, trading | 137 | 147 | | Short-term investments | 1,158 | 1,221 | | Other invested assets | 960 | 926 | | Total | 8,670 | 8,663 | Income from Investments (Q1 2025 vs. Q1 2024) | Category | Q1 2025 ($M) | Q1 2024 ($M) | | :--- | :--- | :--- | | Net Investment Income | 87 | 84 | | Equity in Earnings of Investees | 53 | 24 | | Fair Value Gains on Trading Securities | 1 | 26 | - As of March 31, 2025, the company had $608 million in unfunded commitments to alternative investments as part of its $1.5 billion total commitment214 Financial Guaranty Variable Interest Entities and Consolidated Investment Vehicles The company consolidates 23 structured finance FG VIEs and one CIV, with their assets held separately and not available to general creditors - The company consolidates 23 structured finance FG VIEs, all of which are RMBS, for which it has elected the fair value option for all assets and liabilities251 - As of March 31, 2025, one CIV was consolidated with assets of $119 million, consisting of investments with Sound Point affiliated entities259 - The assets of consolidated FG VIEs and CIVs are held in separate legal entities and are not available to creditors of Assured Guaranty, and vice versa248258 Fair Value Measurement As of March 31, 2025, $8.11 billion in assets and $197 million in liabilities were at fair value, with $1.42 billion of assets and all liabilities classified as Level 3 Fair Value Hierarchy (As of March 31, 2025) | (in millions) | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Assets at Fair Value | $1,222 | $5,467 | $1,421 | $8,110 | | Liabilities at Fair Value | $0 | $0 | $197 | $197 | - Level 3 assets are primarily composed of fixed-maturity securities ($1,142M), FG VIEs' assets ($145M), and assets of CIVs ($118M)296 - Level 3 liabilities consist of FG VIEs' liabilities ($163M) and other liabilities including credit derivatives ($34M)296 Income Taxes The Q1 2025 effective tax rate was 18.9%, influenced by jurisdictional income distribution and the OECD Pillar Two minimum tax rule - The effective tax rate was 18.9% for Q1 2025, compared to 21.4% for Q1 2024327 - The company is subject to the OECD Pillar Two income inclusion rule, requiring a minimum effective tax rate of 15% in all jurisdictions of operation323 - Bermuda enacted a 15% corporate income tax effective for accounting periods starting on or after January 1, 2025324 Contingencies The company is involved in ordinary course legal proceedings, including PREPA litigation, with no expected material adverse financial impact - Management believes the outcome of current litigation will not have a material adverse effect on the company's financial position329 - The company is actively involved in legal actions concerning its insured exposure to PREPA in Puerto Rico330 Shareholders' Equity The company repurchased 1.34 million shares for $120 million in Q1 2025, with $181 million remaining under authorization as of May 8, 2025 Share Repurchases | Period | Number of Shares | Total Payments ($M) | Average Price Paid | | :--- | :--- | :--- | :--- | | Q1 2025 | 1,335,228 | 120 | $89.72 | | Apr 1 - May 8, 2025 | 603,103 | 51 | $84.43 | - As of May 8, 2025, the remaining share repurchase authorization was approximately $181 million338 Earnings Per Share Basic EPS for Q1 2025 increased significantly to $3.49, with diluted EPS at $3.44, driven by higher net income Earnings Per Share (Q1 2025 vs. Q1 2024) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Basic EPS | $3.49 | $1.94 | | Diluted EPS | $3.44 | $1.89 | | Diluted Shares (millions) | 50.7 | 57.1 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 performance drivers and outlines key strategies for insurance, asset management, and capital management - Net income attributable to AGL for Q1 2025 was $176 million, up from $109 million in Q1 2024401 - The increase in net income was primarily driven by a $103 million gain on credit derivatives from the LBIE litigation resolution and $37 million in foreign exchange gains402380 - Key business strategies are focused on four areas: insurance growth, asset management, alternative investments, and capital management365 - Management notes that new U.S. tariff strategies have heightened volatility and raised the risk of recession, which could increase defaults in the insured portfolio but also create new business opportunities from wider credit spreads357 Overview The overview details segment operations, performance drivers, and strategic focus areas including insurance, asset management, and capital management - The company's key business strategies are centered on four areas: (i) insurance; (ii) asset management, (iii) alternative investments; and (iv) capital management365 - Management notes that a new U.S. "reciprocal tariff" strategy announced in April 2025 has heightened market volatility and recession risk, which may increase defaults among insured obligors but could also widen credit spreads, creating new business opportunities357 - The company has repurchased approximately 78% of its shares outstanding since the program began in 2013, for a total of $5.5 billion through May 8, 2025387 Key Financial Metrics (Q1 2025 vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Income (attributable to AGL) | $176M | $109M | | Adjusted Operating Income | $162M | $113M | | Gross Written Premiums (GWP) | $35M | $61M | | PVP | $39M | $63M | Results of Operations Q1 2025 net income rose to $176 million, driven by credit derivative gains and FX, partially offset by higher loss expenses and lower earned premiums - The primary drivers of increased net income were a $104M fair value gain on credit derivatives and a $37M foreign exchange gain, partially offset by a $40M loss expense401402 - Insurance segment adjusted operating income increased to $168 million in Q1 2025 from $149 million in Q1 2024, driven by credit derivative revenues from the LBIE litigation resolution423431 - Asset Management segment adjusted operating income grew to $12 million in Q1 2025 from $1 million in Q1 2024, primarily due to higher equity in earnings from Sound Point476 Reconciliation of Net Income to Adjusted Operating Income (Q1 2025) | (in millions) | Amount | | :--- | :--- | | Net Income Attributable to AGL | $176 | | Less: Realized (gains) losses on investments | ($16) | | Less: Non-credit unrealized gains on credit derivatives | ($2) | | Less: Fair value gains on CCS | $2 | | Less: Foreign exchange gains on remeasurement | $33 | | Less: Tax effect on adjustments | ($3) | | Adjusted Operating Income | $162 | Insured Portfolio The insured portfolio's net par outstanding reached $263.6 billion, predominantly public finance, with $637 million exposure to Puerto Rico Net Par Outstanding by Sector (As of March 31, 2025) | Sector | Net Par ($M) | | :--- | :--- | | Total Public Finance | 252,531 | | U.S. Public Finance | 202,417 | | Non-U.S. Public Finance | 50,114 | | Total Structured Finance | 11,060 | | Total Net Par Outstanding | 263,591 | - Total insured net par exposure to Puerto Rico was $637 million as of March 31, 2025534 - The only remaining unresolved defaulting Puerto Rico exposure is PREPA, with $532 million in net par outstanding535 Liquidity and Capital Resources Holding company liquidity relies on subsidiary distributions, with Q1 2025 operating cash flow at $87 million, supported by an $8.67 billion investment portfolio - The liquidity of AGL and its U.S. Holding Companies is largely dependent on dividends and other distributions from their operating subsidiaries540 - For 2025, the maximum amount available for AG to distribute as ordinary dividends is approximately $287 million, while AG Re has the capacity to pay dividends of approximately $222 million569570 - The total investment portfolio carrying value was $8.67 billion as of March 31, 2025578 - Net cash flow from operating activities was an inflow of $87 million in Q1 2025, compared to an outflow of $74 million in Q1 2024, primarily due to the $97 million receipt from the LBIE litigation resolution600603 Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk exposures have occurred since December 31, 2024 - There were no material changes to the company's market risk exposures since December 31, 2024608 Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2025, with no material changes to internal controls - The President and Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2025610 - No changes in internal control over financial reporting occurred during Q1 2025 that have materially affected, or are reasonably likely to materially affect, the company's internal controls611 PART II Other Information Legal Proceedings The company is subject to various legal proceedings, including those related to Puerto Rico, as detailed in financial statement notes - The company is subject to legal proceedings and claims, with further details provided in Notes 4 and 11 of the financial statements, particularly concerning Puerto Rico612 Risk Factors No material changes to the risk factors disclosed in the 2024 Annual Report on Form 10-K have occurred - No material changes to the risk factors disclosed in the 2024 Annual Report on Form 10-K have occurred613 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1.34 million shares for $120 million in Q1 2025, with $181 million remaining for future repurchases Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Jan 2025 | 427,425 | $91.02 | 427,425 | | Feb 2025 | 741,194 | $91.35 | 428,486 | | Mar 2025 | 479,444 | $86.44 | 479,317 | | Total | 1,648,063 | $89.83 | 1,335,228 | - As of May 8, 2025, the remaining authorization for share repurchases was approximately $181 million617 Other Matters No directors or officers adopted, terminated, or modified Rule 10b5-1 trading arrangements during Q1 2025 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading plan during Q1 2025616 Exhibits This section lists exhibits filed with the Form 10-Q, including certifications, subsidiary lists, and Inline XBRL financial data - The exhibits filed with the report include CEO and CFO certifications (Sections 302 and 906), a list of subsidiaries, and financial statements in Inline XBRL format618