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ý
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Bermuda
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98-0429991
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(State or other jurisdiction
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(I.R.S. employer
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of incorporation)
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identification no.)
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Title of each class:
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Trading Symbol(s)
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Name of exchange on which registered
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Common Shares, $0.01 per share
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AGO
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New York Stock Exchange
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Page
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ITEM 1.
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FINANCIAL STATEMENTS
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As of
March 31, 2019 |
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As of
December 31, 2018 |
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Assets
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Investment portfolio:
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Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $9,590 and $9,884)
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$
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9,989
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$
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10,089
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Short-term investments, at fair value
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727
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729
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Other invested assets
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61
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55
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Total investment portfolio
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10,777
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10,873
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Cash
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123
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104
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Premiums receivable, net of commissions payable
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897
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904
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Deferred acquisition costs
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104
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105
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Salvage and subrogation recoverable
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522
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490
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Financial guaranty variable interest entities’ assets, at fair value
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560
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569
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Other assets
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568
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558
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Total assets
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$
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13,551
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$
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13,603
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Liabilities and shareholders’ equity
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Unearned premium reserve
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$
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3,437
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$
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3,512
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Loss and loss adjustment expense reserve
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1,032
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1,177
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Long-term debt
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1,232
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1,233
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Credit derivative liabilities
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229
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209
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Financial guaranty variable interest entities’ liabilities with recourse, at fair value
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505
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517
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Financial guaranty variable interest entities’ liabilities without recourse, at fair value
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104
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102
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Other liabilities
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343
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298
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Total liabilities
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6,882
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7,048
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Commitments and contingencies (see Note 12)
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Common stock ($0.01 par value, 500,000,000 shares authorized; 102,270,409 and 103,672,592 shares issued and outstanding)
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1
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1
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Additional paid-in capital
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—
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86
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Retained earnings
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6,406
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6,374
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Accumulated other comprehensive income, net of tax of $63 and $38
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261
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93
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Deferred equity compensation
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1
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1
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Total shareholders’ equity
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6,669
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6,555
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Total liabilities and shareholders’ equity
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$
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13,551
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$
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13,603
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Three Months Ended March 31,
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2019
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2018
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Revenues
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Net earned premiums
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$
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118
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$
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145
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Net investment income
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98
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100
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Net realized investment gains (losses)
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(12
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)
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(5
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)
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Net change in fair value of credit derivatives
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(22
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)
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34
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Fair value gains (losses) on financial guaranty variable interest entities
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5
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4
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Other income (loss)
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8
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15
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Total revenues
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195
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293
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Expenses
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Loss and loss adjustment expenses
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46
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(18
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)
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Amortization of deferred acquisition costs
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6
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5
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Interest expense
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23
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24
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Other operating expenses
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64
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65
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Total expenses
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139
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76
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Income (loss) before income taxes and equity in net earnings of investees
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56
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217
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Equity in net earnings of investees
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2
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—
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Income (loss) before income taxes
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58
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217
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Provision (benefit) for income taxes
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4
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20
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Net income (loss)
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$
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54
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$
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197
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Earnings per share:
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Basic
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$
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0.52
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$
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1.71
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Diluted
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$
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0.52
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$
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1.68
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Three Months Ended March 31,
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2019
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2018
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Net income (loss)
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$
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54
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$
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197
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Change in net unrealized gains (losses) on:
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Investments with no other-than-temporary impairment, net of tax provision (benefit) of $25 and $(29)
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163
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(128
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)
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Investments with other-than-temporary impairment, net of tax provision (benefit) of $0 and $(1)
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5
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(2
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)
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Change in net unrealized gains (losses) on investments
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168
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(130
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)
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Change in net unrealized gains (losses) on financial guaranty variable interest entities' liabilities with recourse resulting from a change in the instrument-specific credit risk, net of tax
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—
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(2
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)
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Other, net of tax provision (benefit) of $0 and $1
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—
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6
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Other comprehensive income (loss)
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168
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(126
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)
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Comprehensive income (loss)
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$
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222
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$
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71
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Common Shares Outstanding
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Common
Stock
Par Value
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Additional
Paid-in
Capital
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Retained Earnings
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Accumulated
Other
Comprehensive Income
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Deferred
Equity Compensation
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Total
Shareholders’ Equity
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|||||||||||||
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Balance at
December 31, 2018 |
103,672,592
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$
|
1
|
|
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$
|
86
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|
|
$
|
6,374
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|
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$
|
93
|
|
|
$
|
1
|
|
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$
|
6,555
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|
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Net income
|
—
|
|
|
|
—
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|
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—
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|
|
54
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|
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—
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—
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54
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Dividends ($0.18 per share)
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—
|
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—
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—
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(19
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)
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—
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—
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(19
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)
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Common stock repurchases
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(1,908,605
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)
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—
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(76
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)
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(3
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)
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—
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|
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—
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|
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(79
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)
|
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Share-based compensation and other
|
506,422
|
|
|
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—
|
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(10
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)
|
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—
|
|
|
—
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|
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—
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(10
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)
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Other comprehensive income
|
—
|
|
|
|
—
|
|
|
—
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|
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—
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|
|
168
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|
|
—
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|
|
168
|
|
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Balance at
March 31, 2019 |
102,270,409
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|
|
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$
|
1
|
|
|
$
|
—
|
|
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$
|
6,406
|
|
|
$
|
261
|
|
|
$
|
1
|
|
|
$
|
6,669
|
|
|
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Common Shares Outstanding
|
|
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Common
Stock
Par Value
|
|
Additional
Paid-in
Capital
|
|
Retained Earnings
|
|
Accumulated
Other
Comprehensive Income
|
|
Deferred
Equity Compensation
|
|
Total
Shareholders’ Equity
|
|||||||||||||
|
Balance at
December 31, 2017 |
116,020,852
|
|
|
|
$
|
1
|
|
|
$
|
573
|
|
|
$
|
5,892
|
|
|
$
|
372
|
|
|
$
|
1
|
|
|
$
|
6,839
|
|
|
Net income
|
—
|
|
|
|
—
|
|
|
—
|
|
|
197
|
|
|
—
|
|
|
—
|
|
|
197
|
|
||||||
|
Dividends ($0.16 per share)
|
—
|
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
(19
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)
|
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Common stock repurchases
|
(2,787,936
|
)
|
|
|
—
|
|
|
(98
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(98
|
)
|
||||||
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Share-based compensation and other
|
476,406
|
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
||||||
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Other comprehensive loss
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(126
|
)
|
|
—
|
|
|
(126
|
)
|
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|
Effect of adoption of ASU 2016-01 (see Note 15)
|
—
|
|
|
|
—
|
|
|
—
|
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|
32
|
|
|
(32
|
)
|
|
—
|
|
|
—
|
|
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Balance at
March 31, 2018 |
113,709,322
|
|
|
|
$
|
1
|
|
|
$
|
466
|
|
|
$
|
6,102
|
|
|
$
|
214
|
|
|
$
|
1
|
|
|
$
|
6,784
|
|
|
|
Three Months Ended March 31,
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|
2019
|
|
2018
|
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Net cash flows provided by (used in) operating activities
|
$
|
(332
|
)
|
|
$
|
27
|
|
|
Investing activities
|
|
|
|
|
|
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Fixed-maturity securities:
|
|
|
|
|
|
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Purchases
|
(196
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)
|
|
(411
|
)
|
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Sales
|
471
|
|
|
409
|
|
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Maturities
|
177
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|
|
225
|
|
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Short-term investments with original maturities of over three months:
|
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|
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Purchases
|
(107
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)
|
|
(47
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)
|
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Sales
|
2
|
|
|
—
|
|
||
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Maturities
|
67
|
|
|
45
|
|
||
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Net sales (purchases) of short-term investments with original maturities of less than three months
|
25
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|
|
(114
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)
|
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Net proceeds from paydowns on financial guaranty variable interest entities’ assets
|
26
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|
|
33
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|
||
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Other
|
27
|
|
|
(14
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)
|
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Net cash flows provided by (used in) investing activities
|
492
|
|
|
126
|
|
||
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Financing activities
|
|
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|
|
|
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Dividends paid
|
(20
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)
|
|
(18
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)
|
||
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Repurchases of common stock
|
(80
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)
|
|
(100
|
)
|
||
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Repurchases of common stock to pay withholding taxes
|
(15
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)
|
|
(12
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)
|
||
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Net paydowns of financial guaranty variable interest entities’ liabilities
|
(25
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)
|
|
(33
|
)
|
||
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Paydown of long-term debt
|
(3
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)
|
|
(19
|
)
|
||
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Proceeds from option exercises
|
1
|
|
|
1
|
|
||
|
Net cash flows provided by (used in) financing activities
|
(142
|
)
|
|
(181
|
)
|
||
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Effect of foreign exchange rate changes
|
1
|
|
|
1
|
|
||
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Increase (decrease) in cash and restricted cash
|
19
|
|
|
(27
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)
|
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Cash and restricted cash at beginning of period (see Note 9)
|
104
|
|
|
144
|
|
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Cash and restricted cash at end of period (see Note 9)
|
$
|
123
|
|
|
$
|
117
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
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Cash paid (received) during the period for:
|
|
|
|
|
|
||
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Income taxes
|
$
|
—
|
|
|
$
|
10
|
|
|
Interest on long-term debt
|
$
|
9
|
|
|
$
|
21
|
|
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1.
|
Business and Basis of Presentation
|
|
•
|
Assured Guaranty Municipal Corp. (AGM), domiciled in New York;
|
|
•
|
Municipal Assurance Corp. (MAC), domiciled in New York;
|
|
•
|
Assured Guaranty Corp. (AGC), domiciled in Maryland;
|
|
•
|
Assured Guaranty (Europe) plc (AGE), organized in the U.K.;
|
|
•
|
Assured Guaranty Re Ltd. (AG Re), domiciled in Bermuda; and
|
|
•
|
Assured Guaranty Re Overseas Ltd. (AGRO), domiciled in Bermuda.
|
|
•
|
improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows,
|
|
•
|
simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts,
|
|
•
|
simplify the amortization of deferred acquisition costs, and
|
|
•
|
improve the effectiveness of the required disclosures.
|
|
|
S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC
|
|
Kroll Bond Rating
Agency
|
|
Moody’s Investors Service, Inc.
|
|
A.M. Best Company,
Inc.
|
|
AGM
|
AA (stable) (6/26/18)
|
|
AA+ (stable) (12/21/18)
|
|
A2 (stable) (5/7/18)
|
|
—
|
|
AGC
|
AA (stable) (6/26/18)
|
|
AA (stable) (11/30/18)
|
|
(1)
|
|
—
|
|
MAC
|
AA (stable) (6/26/18)
|
|
AA+ (stable) (7/12/18)
|
|
—
|
|
—
|
|
AG Re
|
AA (stable) (6/26/18)
|
|
—
|
|
—
|
|
—
|
|
AGRO
|
AA (stable) (6/26/18)
|
|
—
|
|
—
|
|
A+ (stable) (7/13/18)
|
|
AGE
|
AA (stable) (6/26/18)
|
|
AA+ (stable) (12/21/18)
|
|
A2 (stable) (5/7/18)
|
|
—
|
|
(1)
|
AGC requested that Moody’s Investors Service, Inc. (Moody’s) withdraw its financial strength ratings of AGC in January 2017, but Moody's denied that request. Moody’s continues to rate AGC A3 (stable).
|
|
3.
|
Outstanding Exposure
|
|
•
|
BIG Category 1: Below-investment-grade transactions showing sufficient deterioration to make future losses possible, but for which none are currently expected.
|
|
•
|
BIG Category 2: Below-investment-grade transactions for which future losses are expected but for which no claims (other than liquidity claims, which are claims that the Company expects to be reimbursed within one year) have yet been paid.
|
|
•
|
BIG Category 3: Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid.
|
|
|
Gross Debt Service
Outstanding
|
|
Net Debt Service
Outstanding
|
||||||||||||
|
|
March 31,
2019 |
|
December 31,
2018 |
|
March 31,
2019 |
|
December 31,
2018 |
||||||||
|
|
(in millions)
|
||||||||||||||
|
Public finance
|
$
|
354,406
|
|
|
$
|
361,511
|
|
|
$
|
351,396
|
|
|
$
|
358,438
|
|
|
Structured finance
|
13,290
|
|
|
13,569
|
|
|
13,245
|
|
|
13,148
|
|
||||
|
Total financial guaranty
|
$
|
367,696
|
|
|
$
|
375,080
|
|
|
$
|
364,641
|
|
|
$
|
371,586
|
|
|
|
|
Public Finance
U.S.
|
|
Public Finance
Non-U.S.
|
|
Structured Finance
U.S
|
|
Structured Finance
Non-U.S
|
|
Total
|
|||||||||||||||||||||||||
|
Rating
Category
|
|
Net Par
Outstanding
|
|
%
|
|
Net Par
Outstanding
|
|
%
|
|
Net Par
Outstanding
|
|
%
|
|
Net Par
Outstanding
|
|
%
|
|
Net Par
Outstanding
|
|
%
|
|||||||||||||||
|
|
|
(dollars in millions)
|
|||||||||||||||||||||||||||||||||
|
AAA
|
|
$
|
412
|
|
|
0.3
|
%
|
|
$
|
2,442
|
|
|
5.5
|
%
|
|
$
|
1,510
|
|
|
14.6
|
%
|
|
$
|
246
|
|
|
25.5
|
%
|
|
$
|
4,610
|
|
|
1.9
|
%
|
|
AA
|
|
21,666
|
|
|
11.9
|
|
|
1,710
|
|
|
3.8
|
|
|
4,230
|
|
|
40.9
|
|
|
24
|
|
|
2.5
|
|
|
27,630
|
|
|
11.6
|
|
|||||
|
A
|
|
101,576
|
|
|
56.0
|
|
|
13,305
|
|
|
29.8
|
|
|
950
|
|
|
9.2
|
|
|
204
|
|
|
21.1
|
|
|
116,035
|
|
|
48.9
|
|
|||||
|
BBB
|
|
51,697
|
|
|
28.5
|
|
|
26,157
|
|
|
58.6
|
|
|
1,166
|
|
|
11.3
|
|
|
404
|
|
|
41.9
|
|
|
79,424
|
|
|
33.5
|
|
|||||
|
BIG
|
|
6,057
|
|
|
3.3
|
|
|
1,001
|
|
|
2.3
|
|
|
2,481
|
|
|
24.0
|
|
|
87
|
|
|
9.0
|
|
|
9,626
|
|
|
4.1
|
|
|||||
|
Total net par outstanding
|
|
$
|
181,408
|
|
|
100.0
|
%
|
|
$
|
44,615
|
|
|
100.0
|
%
|
|
$
|
10,337
|
|
|
100.0
|
%
|
|
$
|
965
|
|
|
100.0
|
%
|
|
$
|
237,325
|
|
|
100.0
|
%
|
|
|
|
Public Finance
U.S.
|
|
Public Finance
Non-U.S.
|
|
Structured Finance
U.S
|
|
Structured Finance
Non-U.S
|
|
Total
|
|||||||||||||||||||||||||
|
Rating
Category
|
|
Net Par
Outstanding
|
|
%
|
|
Net Par
Outstanding
|
|
%
|
|
Net Par
Outstanding
|
|
%
|
|
Net Par
Outstanding
|
|
%
|
|
Net Par
Outstanding
|
|
%
|
|||||||||||||||
|
|
|
(dollars in millions)
|
|||||||||||||||||||||||||||||||||
|
AAA
|
|
$
|
413
|
|
|
0.2
|
%
|
|
$
|
2,399
|
|
|
5.4
|
%
|
|
$
|
1,533
|
|
|
15.4
|
%
|
|
$
|
273
|
|
|
22.9
|
%
|
|
$
|
4,618
|
|
|
1.9
|
%
|
|
AA
|
|
21,646
|
|
|
11.6
|
|
|
1,711
|
|
|
3.9
|
|
|
3,599
|
|
|
36.2
|
|
|
65
|
|
|
5.4
|
|
|
27,021
|
|
|
11.2
|
|
|||||
|
A
|
|
105,180
|
|
|
56.4
|
|
|
13,013
|
|
|
29.5
|
|
|
1,016
|
|
|
10.2
|
|
|
206
|
|
|
17.3
|
|
|
119,415
|
|
|
49.4
|
|
|||||
|
BBB
|
|
52,935
|
|
|
28.4
|
|
|
25,939
|
|
|
58.8
|
|
|
1,164
|
|
|
11.7
|
|
|
550
|
|
|
46.1
|
|
|
80,588
|
|
|
33.3
|
|
|||||
|
BIG
|
|
6,388
|
|
|
3.4
|
|
|
1,041
|
|
|
2.4
|
|
|
2,632
|
|
|
26.5
|
|
|
99
|
|
|
8.3
|
|
|
10,160
|
|
|
4.2
|
|
|||||
|
Total net par outstanding
|
|
$
|
186,562
|
|
|
100.0
|
%
|
|
$
|
44,103
|
|
|
100.0
|
%
|
|
$
|
9,944
|
|
|
100.0
|
%
|
|
$
|
1,193
|
|
|
100.0
|
%
|
|
$
|
241,802
|
|
|
100.0
|
%
|
|
|
BIG Net Par Outstanding
|
|
Net Par
|
||||||||||||||||
|
|
BIG 1
|
|
BIG 2
|
|
BIG 3
|
|
Total BIG
|
|
Outstanding
|
||||||||||
|
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
|
Public finance:
|
|
|
|
|
|
|
|
|
|
||||||||||
|
U.S. public finance
|
$
|
1,711
|
|
|
$
|
398
|
|
|
$
|
3,948
|
|
|
$
|
6,057
|
|
|
$
|
181,408
|
|
|
Non-U.S. public finance
|
1,001
|
|
|
—
|
|
|
—
|
|
|
1,001
|
|
|
44,615
|
|
|||||
|
Public finance
|
2,712
|
|
|
398
|
|
|
3,948
|
|
|
7,058
|
|
|
226,023
|
|
|||||
|
Structured finance:
|
|
|
|
|
|
|
|
|
|
||||||||||
|
U.S. residential mortgage-backed securities (RMBS)
|
441
|
|
|
104
|
|
|
1,694
|
|
|
2,239
|
|
|
4,064
|
|
|||||
|
Life insurance transactions
|
—
|
|
|
—
|
|
|
85
|
|
|
85
|
|
|
1,751
|
|
|||||
|
Other structured finance
|
115
|
|
|
76
|
|
|
53
|
|
|
244
|
|
|
5,487
|
|
|||||
|
Structured finance
|
556
|
|
|
180
|
|
|
1,832
|
|
|
2,568
|
|
|
11,302
|
|
|||||
|
Total
|
$
|
3,268
|
|
|
$
|
578
|
|
|
$
|
5,780
|
|
|
$
|
9,626
|
|
|
$
|
237,325
|
|
|
|
BIG Net Par Outstanding
|
|
Net Par
|
||||||||||||||||
|
|
BIG 1
|
|
BIG 2
|
|
BIG 3
|
|
Total BIG
|
|
Outstanding
|
||||||||||
|
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
|
Public finance:
|
|
|
|
|
|
|
|
|
|
||||||||||
|
U.S. public finance
|
$
|
1,767
|
|
|
$
|
399
|
|
|
$
|
4,222
|
|
|
$
|
6,388
|
|
|
$
|
186,562
|
|
|
Non-U.S. public finance
|
796
|
|
|
245
|
|
|
—
|
|
|
1,041
|
|
|
44,103
|
|
|||||
|
Public finance
|
2,563
|
|
|
644
|
|
|
4,222
|
|
|
7,429
|
|
|
230,665
|
|
|||||
|
Structured finance:
|
|
|
|
|
|
|
|
|
|
||||||||||
|
U.S. RMBS
|
368
|
|
|
214
|
|
|
1,805
|
|
|
2,387
|
|
|
4,270
|
|
|||||
|
Life insurance transactions
|
—
|
|
|
—
|
|
|
85
|
|
|
85
|
|
|
1,184
|
|
|||||
|
Other structured finance
|
127
|
|
|
79
|
|
|
53
|
|
|
259
|
|
|
5,683
|
|
|||||
|
Structured finance
|
495
|
|
|
293
|
|
|
1,943
|
|
|
2,731
|
|
|
11,137
|
|
|||||
|
Total
|
$
|
3,058
|
|
|
$
|
937
|
|
|
$
|
6,165
|
|
|
$
|
10,160
|
|
|
$
|
241,802
|
|
|
|
|
Net Par Outstanding
|
|
Number of Risks (2)
|
|||||||||||||||||
|
Description
|
|
Financial
Guaranty
Insurance (1)
|
|
Credit
Derivative
|
|
Total
|
|
Financial
Guaranty
Insurance (1)
|
|
Credit
Derivative
|
|
Total
|
|||||||||
|
|
|
(dollars in millions)
|
|||||||||||||||||||
|
BIG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Category 1
|
|
$
|
3,191
|
|
|
$
|
77
|
|
|
$
|
3,268
|
|
|
128
|
|
|
6
|
|
|
134
|
|
|
Category 2
|
|
573
|
|
|
5
|
|
|
578
|
|
|
31
|
|
|
1
|
|
|
32
|
|
|||
|
Category 3
|
|
5,709
|
|
|
71
|
|
|
5,780
|
|
|
142
|
|
|
8
|
|
|
150
|
|
|||
|
Total BIG
|
|
$
|
9,473
|
|
|
$
|
153
|
|
|
$
|
9,626
|
|
|
301
|
|
|
15
|
|
|
316
|
|
|
|
|
Net Par Outstanding
|
|
Number of Risks (2)
|
|||||||||||||||||
|
Description
|
|
Financial
Guaranty
Insurance (1)
|
|
Credit
Derivative
|
|
Total
|
|
Financial
Guaranty
Insurance (1)
|
|
Credit
Derivative
|
|
Total
|
|||||||||
|
|
|
(dollars in millions)
|
|||||||||||||||||||
|
BIG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Category 1
|
|
$
|
2,981
|
|
|
$
|
77
|
|
|
$
|
3,058
|
|
|
128
|
|
|
6
|
|
|
134
|
|
|
Category 2
|
|
932
|
|
|
5
|
|
|
937
|
|
|
39
|
|
|
1
|
|
|
40
|
|
|||
|
Category 3
|
|
6,090
|
|
|
75
|
|
|
6,165
|
|
|
145
|
|
|
8
|
|
|
153
|
|
|||
|
Total BIG
|
|
$
|
10,003
|
|
|
$
|
157
|
|
|
$
|
10,160
|
|
|
312
|
|
|
15
|
|
|
327
|
|
|
(2)
|
A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments.
|
|
•
|
Constitutionally Guaranteed. The Company includes in this category public debt benefiting from Article VI of the Constitution of the Commonwealth, which expressly provides that interest and principal payments on the public debt are to be paid before other disbursements are made.
|
|
•
|
Public Corporations – Certain Revenues Potentially Subject to Clawback. The Company includes in this category the debt of public corporations for which applicable law permits the Commonwealth to claw back, subject to certain conditions and for the payment of public debt, at least a portion of the revenues supporting the bonds the Company insures. As a constitutional condition to clawback, available Commonwealth revenues for any fiscal year must be insufficient to pay Commonwealth debt service before the payment of any appropriations for that year. The Company believes that this condition has not been satisfied to date, and accordingly that the Commonwealth has not to date been entitled to claw back revenues supporting debt insured by the Company.
|
|
•
|
Other Public Corporations. The Company includes in this category the debt of public corporations that are supported by revenues it does not believe are subject to clawback.
|
|
|
Gross Par Outstanding
|
|
Gross Debt Service Outstanding
|
||||||||||||
|
|
March 31, 2019
|
|
December 31, 2018
|
|
March 31, 2019
|
|
December 31, 2018
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
Exposure to Puerto Rico
|
$
|
4,698
|
|
|
$
|
4,971
|
|
|
$
|
7,318
|
|
|
$
|
8,035
|
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
|
|
(in millions)
|
||||||
|
Commonwealth Constitutionally Guaranteed
|
|
|
|
||||
|
Commonwealth of Puerto Rico - General Obligation Bonds (1)
|
$
|
1,340
|
|
|
$
|
1,340
|
|
|
PBA
|
142
|
|
|
142
|
|
||
|
Public Corporations - Certain Revenues Potentially Subject to Clawback
|
|
|
|
||||
|
PRHTA (Transportation revenue) (1)
|
844
|
|
|
844
|
|
||
|
PRHTA (Highways revenue) (1)
|
475
|
|
|
475
|
|
||
|
PRCCDA
|
152
|
|
|
152
|
|
||
|
PRIFA
|
16
|
|
|
16
|
|
||
|
Other Public Corporations
|
|
|
|
||||
|
PREPA (1)
|
848
|
|
|
848
|
|
||
|
PRASA
|
373
|
|
|
373
|
|
||
|
MFA
|
303
|
|
|
303
|
|
||
|
COFINA
|
—
|
|
|
273
|
|
||
|
U of PR
|
1
|
|
|
1
|
|
||
|
Total net exposure to Puerto Rico
|
$
|
4,494
|
|
|
$
|
4,767
|
|
|
(1)
|
As of the date of this filing, the Oversight Board has certified a filing under Title III of PROMESA for these exposures.
|
|
|
Scheduled Net Par Amortization
|
|
Scheduled Net Debt Service Amortization
|
||||
|
|
(in millions)
|
||||||
|
2019 (April 1 - June 30)
|
$
|
—
|
|
|
$
|
3
|
|
|
2019 (July 1 - September 30)
|
224
|
|
|
335
|
|
||
|
2019 (October 1 - December 31)
|
—
|
|
|
3
|
|
||
|
Subtotal 2019
|
224
|
|
|
341
|
|
||
|
2020
|
286
|
|
|
503
|
|
||
|
2021
|
149
|
|
|
351
|
|
||
|
2022
|
139
|
|
|
332
|
|
||
|
2023
|
205
|
|
|
392
|
|
||
|
2024-2028
|
1,213
|
|
|
1,978
|
|
||
|
2029-2033
|
884
|
|
|
1,392
|
|
||
|
2034-2038
|
957
|
|
|
1,184
|
|
||
|
2039-2043
|
176
|
|
|
259
|
|
||
|
2044-2047
|
261
|
|
|
300
|
|
||
|
Total
|
$
|
4,494
|
|
|
$
|
7,032
|
|
|
|
|
Gross Exposure
|
|
Net Exposure
|
||||||||||||
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||
|
|
|
(in millions)
|
||||||||||||||
|
Life insurance transactions (1)
|
|
$
|
912
|
|
|
$
|
880
|
|
|
$
|
788
|
|
|
$
|
763
|
|
|
Aircraft residual value insurance policies
|
|
360
|
|
|
340
|
|
|
239
|
|
|
218
|
|
||||
|
(1)
|
The life insurance transactions net exposure is expected to increase to approximately $1.0 billion prior to September 30, 2036.
|
|
4.
|
Expected Loss to be Paid
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Net expected loss to be paid, beginning of period
|
$
|
1,183
|
|
|
$
|
1,303
|
|
|
Economic loss development (benefit) due to:
|
|
|
|
||||
|
Accretion of discount
|
8
|
|
|
8
|
|
||
|
Changes in discount rates
|
(4
|
)
|
|
(6
|
)
|
||
|
Changes in timing and assumptions
|
(6
|
)
|
|
(26
|
)
|
||
|
Total economic loss development (benefit)
|
(2
|
)
|
|
(24
|
)
|
||
|
Net (paid) recovered losses
|
(218
|
)
|
|
19
|
|
||
|
Net expected loss to be paid, end of period
|
$
|
963
|
|
|
$
|
1,298
|
|
|
|
Net Expected
Loss to be Paid (Recovered) as of December 31, 2018 |
|
Economic Loss
Development / (Benefit) |
|
(Paid)
Recovered
Losses (1)
|
|
Net Expected
Loss to be Paid (Recovered) as of March 31, 2019 |
||||||||
|
|
(in millions)
|
||||||||||||||
|
Public finance:
|
|
|
|
|
|
|
|
||||||||
|
U.S. public finance
|
$
|
832
|
|
|
$
|
62
|
|
|
$
|
(228
|
)
|
|
$
|
666
|
|
|
Non-U.S. public finance
|
32
|
|
|
(1
|
)
|
|
—
|
|
|
31
|
|
||||
|
Public finance
|
864
|
|
|
61
|
|
|
(228
|
)
|
|
697
|
|
||||
|
Structured finance:
|
|
|
|
|
|
|
|
||||||||
|
U.S. RMBS
|
293
|
|
|
(65
|
)
|
|
9
|
|
|
237
|
|
||||
|
Other structured finance
|
26
|
|
|
2
|
|
|
1
|
|
|
29
|
|
||||
|
Structured finance
|
319
|
|
|
(63
|
)
|
|
10
|
|
|
266
|
|
||||
|
Total
|
$
|
1,183
|
|
|
$
|
(2
|
)
|
|
$
|
(218
|
)
|
|
$
|
963
|
|
|
|
Net Expected
Loss to be Paid (Recovered) as of December 31, 2017 |
|
Economic Loss
Development / (Benefit) |
|
(Paid)
Recovered
Losses (1)
|
|
Net Expected
Loss to be Paid (Recovered) as of March 31, 2018 |
||||||||
|
|
(in millions)
|
||||||||||||||
|
Public finance:
|
|
|
|
|
|
|
|
||||||||
|
U.S. public finance
|
$
|
1,157
|
|
|
$
|
(39
|
)
|
|
$
|
(111
|
)
|
|
$
|
1,007
|
|
|
Non-U.S. public finance
|
46
|
|
|
(3
|
)
|
|
—
|
|
|
43
|
|
||||
|
Public finance
|
1,203
|
|
|
(42
|
)
|
|
(111
|
)
|
|
1,050
|
|
||||
|
Structured finance:
|
|
|
|
|
|
|
|
|
|
|
|||||
|
U.S. RMBS
|
73
|
|
|
16
|
|
|
130
|
|
|
219
|
|
||||
|
Other structured finance
|
27
|
|
|
2
|
|
|
—
|
|
|
29
|
|
||||
|
Structured finance
|
100
|
|
|
18
|
|
|
130
|
|
|
248
|
|
||||
|
Total
|
$
|
1,303
|
|
|
$
|
(24
|
)
|
|
$
|
19
|
|
|
$
|
1,298
|
|
|
(1)
|
Net of ceded paid losses, whether or not such amounts have been settled with reinsurers. Ceded paid losses are typically settled 45 days after the end of the reporting period. Such amounts are recorded in reinsurance recoverable on paid losses included in other assets. The amounts in First Quarter 2019 are net of the COFINA Exchange Senior Bonds and cash that were received pursuant to the Plan of Adjustment. See Note 3, Outstanding Exposure, for additional information.
|
|
|
Net Expected Loss to be Paid (Recovered)
|
|
Net Economic Loss Development (Benefit)
|
||||||||||||
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
|
First Quarter 2019
|
|
First Quarter 2018
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
Insurance
|
$
|
904
|
|
|
$
|
1,110
|
|
|
$
|
10
|
|
|
$
|
(33
|
)
|
|
Financial guaranty VIEs (FG VIEs) (See Note 8)
|
65
|
|
|
75
|
|
|
(10
|
)
|
|
2
|
|
||||
|
Credit derivatives (See Note 7)
|
(6
|
)
|
|
(2
|
)
|
|
(2
|
)
|
|
7
|
|
||||
|
Total
|
$
|
963
|
|
|
$
|
1,183
|
|
|
$
|
(2
|
)
|
|
$
|
(24
|
)
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
First lien U.S. RMBS
|
$
|
(31
|
)
|
|
$
|
24
|
|
|
Second lien U.S. RMBS
|
(34
|
)
|
|
(8
|
)
|
||
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Delinquent/Modified in the Previous 12 Months
|
|
|
|
|
Alt-A and Prime
|
20%
|
|
20%
|
|
Option ARM
|
20
|
|
20
|
|
Subprime
|
20
|
|
20
|
|
30 – 59 Days Delinquent
|
|
|
|
|
Alt-A and Prime
|
30
|
|
30
|
|
Option ARM
|
35
|
|
35
|
|
Subprime
|
40
|
|
40
|
|
60 – 89 Days Delinquent
|
|
|
|
|
Alt-A and Prime
|
40
|
|
40
|
|
Option ARM
|
45
|
|
45
|
|
Subprime
|
45
|
|
45
|
|
90+ Days Delinquent
|
|
|
|
|
Alt-A and Prime
|
50
|
|
50
|
|
Option ARM
|
55
|
|
55
|
|
Subprime
|
50
|
|
50
|
|
Bankruptcy
|
|
|
|
|
Alt-A and Prime
|
45
|
|
45
|
|
Option ARM
|
50
|
|
50
|
|
Subprime
|
40
|
|
40
|
|
Foreclosure
|
|
|
|
|
Alt-A and Prime
|
60
|
|
60
|
|
Option ARM
|
65
|
|
65
|
|
Subprime
|
60
|
|
60
|
|
Real Estate Owned
|
|
|
|
|
All
|
100
|
|
100
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||||||||
|
|
Range
|
|
Weighted Average
|
|
Range
|
|
Weighted Average
|
||||||
|
Alt-A First Lien
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Plateau CDR
|
1.0
|
%
|
-
|
10.7%
|
|
4.3%
|
|
1.2
|
%
|
-
|
11.4%
|
|
4.6%
|
|
Final CDR
|
0.0
|
%
|
-
|
0.5%
|
|
0.2%
|
|
0.1
|
%
|
-
|
0.6%
|
|
0.2%
|
|
Initial loss severity:
|
|
|
|
|
|
|
|
||||||
|
2005 and prior
|
60%
|
|
|
|
60%
|
|
|
||||||
|
2006
|
70%
|
|
|
|
70%
|
|
|
||||||
|
2007+
|
70%
|
|
|
|
70%
|
|
|
||||||
|
Option ARM
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Plateau CDR
|
2.1
|
%
|
-
|
9.3%
|
|
5.9%
|
|
1.8
|
%
|
-
|
8.3%
|
|
5.6%
|
|
Final CDR
|
0.1
|
%
|
-
|
0.5%
|
|
0.3%
|
|
0.1
|
%
|
-
|
0.4%
|
|
0.3%
|
|
Initial loss severity:
|
|
|
|
|
|
|
|
||||||
|
2005 and prior
|
60%
|
|
|
|
60%
|
|
|
||||||
|
2006
|
60%
|
|
|
|
60%
|
|
|
||||||
|
2007+
|
70%
|
|
|
|
70%
|
|
|
||||||
|
Subprime
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Plateau CDR
|
2.4
|
%
|
-
|
24.1%
|
|
6.2%
|
|
1.8
|
%
|
-
|
23.2%
|
|
6.2%
|
|
Final CDR
|
0.1
|
%
|
-
|
1.2%
|
|
0.3%
|
|
0.1
|
%
|
-
|
1.2%
|
|
0.3%
|
|
Initial loss severity:
|
|
|
|
|
|
|
|
||||||
|
2005 and prior
|
80%
|
|
|
|
80%
|
|
|
||||||
|
2006
|
75%
|
|
|
|
75%
|
|
|
||||||
|
2007+
|
95%
|
|
|
|
95%
|
|
|
||||||
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||||||||
|
|
Range
|
|
Weighted Average
|
|
Range
|
|
Weighted Average
|
||||||
|
Plateau CDR
|
5.5
|
%
|
-
|
25.6%
|
|
9.5%
|
|
4.6
|
%
|
-
|
26.8%
|
|
10.1%
|
|
Final CDR trended down to
|
2.5
|
%
|
-
|
3.2%
|
|
2.5%
|
|
2.5
|
%
|
-
|
3.2%
|
|
2.5%
|
|
Liquidation rates:
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Delinquent/Modified in the Previous 12 Months
|
20%
|
|
|
|
20%
|
|
|
||||||
|
30 – 59 Days Delinquent
|
30
|
|
|
|
35
|
|
|
||||||
|
60 – 89 Days Delinquent
|
45
|
|
|
|
50
|
|
|
||||||
|
90+ Days Delinquent
|
65
|
|
|
|
70
|
|
|
||||||
|
Bankruptcy
|
55
|
|
|
|
55
|
|
|
||||||
|
Foreclosure
|
60
|
|
|
|
65
|
|
|
||||||
|
Real Estate Owned
|
100
|
|
|
|
100
|
|
|
||||||
|
Loss severity (1)
|
98%
|
|
|
|
98%
|
|
|
||||||
|
5.
|
Contracts Accounted for as Insurance
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Financial guaranty:
|
|
|
|
||||
|
Scheduled net earned premiums
|
$
|
87
|
|
|
$
|
88
|
|
|
Accelerations from refundings and terminations
|
26
|
|
|
52
|
|
||
|
Accretion of discount on net premiums receivable
|
4
|
|
|
4
|
|
||
|
Financial guaranty insurance net earned premiums
|
117
|
|
|
144
|
|
||
|
Non-financial guaranty net earned premiums
|
1
|
|
|
1
|
|
||
|
Net earned premiums (1)
|
$
|
118
|
|
|
$
|
145
|
|
|
(1)
|
Excludes $3 million and $3 million for First Quarter 2019 and 2018, respectively, related to consolidated FG VIEs.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Beginning of year
|
$
|
904
|
|
|
$
|
915
|
|
|
Less: Non-financial guaranty insurance premium receivable
|
1
|
|
|
1
|
|
||
|
Financial guaranty insurance premiums receivable
|
903
|
|
|
914
|
|
||
|
Gross written premiums on new business, net of commissions
|
41
|
|
|
75
|
|
||
|
Gross premiums received, net of commissions
|
(54
|
)
|
|
(63
|
)
|
||
|
Adjustments:
|
|
|
|
||||
|
Changes in the expected term
|
(4
|
)
|
|
(3
|
)
|
||
|
Accretion of discount, net of commissions on assumed business
|
1
|
|
|
(4
|
)
|
||
|
Foreign exchange translation and remeasurement (1)
|
9
|
|
|
24
|
|
||
|
Financial guaranty insurance premium receivable (2)
|
896
|
|
|
943
|
|
||
|
Non-financial guaranty insurance premium receivable
|
1
|
|
|
1
|
|
||
|
March 31,
|
$
|
897
|
|
|
$
|
944
|
|
|
(1)
|
Includes foreign exchange gain (loss) on remeasurement recorded in the condensed consolidated statements of operations of $9 million in First Quarter 2019 and $23 million in First Quarter 2018. The remaining foreign exchange translation in First Quarter 2018 was recorded in other comprehensive income (OCI).
|
|
(2)
|
Excludes $8 million and $9 million as of March 31, 2019 and March 31, 2018, respectively, related to consolidated FG VIEs.
|
|
|
As of
March 31, 2019 |
||
|
|
(in millions)
|
||
|
2019 (April 1 - June 30)
|
$
|
39
|
|
|
2019 (July 1 - September 30)
|
26
|
|
|
|
2019 (October 1 - December 31)
|
19
|
|
|
|
2020
|
99
|
|
|
|
2021
|
79
|
|
|
|
2022
|
80
|
|
|
|
2023
|
66
|
|
|
|
2024-2028
|
285
|
|
|
|
2029-2033
|
190
|
|
|
|
2034-2038
|
100
|
|
|
|
After 2038
|
102
|
|
|
|
Total (1)
|
$
|
1,085
|
|
|
(1)
|
Excludes expected cash collections on consolidated FG VIEs of $11 million.
|
|
|
As of
March 31, 2019 |
||
|
|
(in millions)
|
||
|
2019 (April 1 - June 30)
|
$
|
85
|
|
|
2019 (July 1 - September 30)
|
83
|
|
|
|
2019 (October 1 - December 31)
|
80
|
|
|
|
Subtotal 2019
|
248
|
|
|
|
2020
|
304
|
|
|
|
2021
|
276
|
|
|
|
2022
|
251
|
|
|
|
2023
|
230
|
|
|
|
2024-2028
|
903
|
|
|
|
2029-2033
|
609
|
|
|
|
2034-2038
|
341
|
|
|
|
After 2038
|
286
|
|
|
|
Net deferred premium revenue (1)
|
3,448
|
|
|
|
Future accretion
|
181
|
|
|
|
Total future net earned premiums
|
$
|
3,629
|
|
|
(1)
|
Excludes net earned premiums on consolidated FG VIEs of $63 million.
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
|
|
(dollars in millions)
|
||||||
|
Premiums receivable, net of commission payable
|
$
|
896
|
|
|
$
|
903
|
|
|
Gross deferred premium revenue
|
1,280
|
|
|
1,313
|
|
||
|
Weighted-average risk-free rate used to discount premiums
|
2.3
|
%
|
|
2.3
|
%
|
||
|
Weighted-average period of premiums receivable (in years)
|
9.1
|
|
|
9.1
|
|
||
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
|
|
(in millions)
|
||||||
|
Public finance:
|
|
|
|
||||
|
U.S. public finance
|
$
|
459
|
|
|
$
|
612
|
|
|
Non-U.S. public finance
|
13
|
|
|
14
|
|
||
|
Public finance
|
472
|
|
|
626
|
|
||
|
Structured finance:
|
|
|
|
||||
|
U.S. RMBS (1)
|
(13
|
)
|
|
21
|
|
||
|
Other structured finance
|
35
|
|
|
30
|
|
||
|
Structured finance
|
22
|
|
|
51
|
|
||
|
Subtotal
|
494
|
|
|
677
|
|
||
|
Other payable (recoverable)
|
(2
|
)
|
|
(3
|
)
|
||
|
Total
|
$
|
492
|
|
|
$
|
674
|
|
|
(1)
|
Excludes net reserves of $41 million and $47 million as of March 31, 2019 and December 31, 2018, respectively, related to consolidated FG VIEs.
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
|
|
(in millions)
|
||||||
|
Loss and LAE reserve
|
$
|
1,032
|
|
|
$
|
1,177
|
|
|
Reinsurance recoverable on unpaid losses (1)
|
(40
|
)
|
|
(34
|
)
|
||
|
Loss and LAE reserve, net
|
992
|
|
|
1,143
|
|
||
|
Salvage and subrogation recoverable
|
(522
|
)
|
|
(490
|
)
|
||
|
Salvage and subrogation payable (2)
|
24
|
|
|
24
|
|
||
|
Other payable (recoverable) (1)
|
(2
|
)
|
|
(3
|
)
|
||
|
Salvage and subrogation recoverable, net, and other recoverable
|
(500
|
)
|
|
(469
|
)
|
||
|
Net reserves (salvage)
|
$
|
492
|
|
|
$
|
674
|
|
|
(1)
|
Recorded as a component of other assets in the condensed consolidated balance sheets.
|
|
(2)
|
Represents ceded reinsurance amounts recorded as a component of other liabilities in the condensed consolidated balance sheets.
|
|
|
As of
March 31, 2019 |
||
|
|
(in millions)
|
||
|
Net expected loss to be paid - financial guaranty insurance
|
$
|
903
|
|
|
Contra-paid, net
|
65
|
|
|
|
Salvage and subrogation recoverable, net, and other recoverable
|
500
|
|
|
|
Loss and LAE reserve - financial guaranty insurance contracts, net of reinsurance
|
(991
|
)
|
|
|
Net expected loss to be expensed (present value) (1)
|
$
|
477
|
|
|
|
As of
March 31, 2019 |
||
|
|
(in millions)
|
||
|
2019 (April 1 - June 30)
|
$
|
9
|
|
|
2019 (July 1 - September 30)
|
9
|
|
|
|
2019 (October 1 - December 31)
|
8
|
|
|
|
Subtotal 2019
|
26
|
|
|
|
2020
|
35
|
|
|
|
2021
|
35
|
|
|
|
2022
|
36
|
|
|
|
2023
|
36
|
|
|
|
2024-2028
|
150
|
|
|
|
2029-2033
|
103
|
|
|
|
2034-2038
|
46
|
|
|
|
After 2038
|
10
|
|
|
|
Net expected loss to be expensed
|
477
|
|
|
|
Future accretion
|
15
|
|
|
|
Total expected future loss and LAE
|
$
|
492
|
|
|
|
Loss (Benefit)
|
||||||
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Public finance:
|
|
|
|
||||
|
U.S. public finance
|
$
|
70
|
|
|
$
|
(28
|
)
|
|
Non-U.S. public finance
|
—
|
|
|
(1
|
)
|
||
|
Public finance
|
70
|
|
|
(29
|
)
|
||
|
Structured finance:
|
|
|
|
||||
|
U.S. RMBS (1)
|
(27
|
)
|
|
16
|
|
||
|
Other structured finance
|
3
|
|
|
(5
|
)
|
||
|
Structured finance
|
(24
|
)
|
|
11
|
|
||
|
Loss and LAE
|
$
|
46
|
|
|
$
|
(18
|
)
|
|
(1)
|
Excludes a benefit of $1 million and a loss of $6 million for First Quarter 2019 and 2018, respectively, related to consolidated FG VIEs.
|
|
|
BIG Categories
|
||||||||||||||||||||||||||||||||||
|
|
BIG 1
|
|
BIG 2
|
|
BIG 3
|
|
Total
BIG, Net
|
|
Effect of
Consolidating
FG VIEs
|
|
Total
|
||||||||||||||||||||||||
|
|
Gross
|
|
Ceded
|
|
Gross
|
|
Ceded
|
|
Gross
|
|
Ceded
|
|
|
|
|||||||||||||||||||||
|
|
(dollars in millions)
|
||||||||||||||||||||||||||||||||||
|
Number of risks (1)
|
128
|
|
|
(8
|
)
|
|
31
|
|
|
(1
|
)
|
|
142
|
|
|
(7
|
)
|
|
301
|
|
|
—
|
|
|
301
|
|
|||||||||
|
Remaining weighted-average contract period (in years)
|
7.5
|
|
|
6.2
|
|
|
16.4
|
|
|
2.1
|
|
|
9.7
|
|
|
8.8
|
|
|
9.4
|
|
|
—
|
|
|
9.4
|
|
|||||||||
|
Outstanding exposure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Principal
|
$
|
3,262
|
|
|
$
|
(71
|
)
|
|
$
|
579
|
|
|
$
|
(6
|
)
|
|
$
|
5,868
|
|
|
$
|
(159
|
)
|
|
$
|
9,473
|
|
|
$
|
—
|
|
|
$
|
9,473
|
|
|
Interest
|
1,351
|
|
|
(28
|
)
|
|
484
|
|
|
(1
|
)
|
|
2,756
|
|
|
(70
|
)
|
|
4,492
|
|
|
—
|
|
|
4,492
|
|
|||||||||
|
Total (2)
|
$
|
4,613
|
|
|
$
|
(99
|
)
|
|
$
|
1,063
|
|
|
$
|
(7
|
)
|
|
$
|
8,624
|
|
|
$
|
(229
|
)
|
|
$
|
13,965
|
|
|
$
|
—
|
|
|
$
|
13,965
|
|
|
Expected cash outflows (inflows)
|
$
|
133
|
|
|
$
|
(5
|
)
|
|
$
|
151
|
|
|
$
|
(1
|
)
|
|
$
|
3,852
|
|
|
$
|
(120
|
)
|
|
$
|
4,010
|
|
|
$
|
(284
|
)
|
|
$
|
3,726
|
|
|
Potential recoveries (3)
|
(509
|
)
|
|
23
|
|
|
(61
|
)
|
|
—
|
|
|
(2,557
|
)
|
|
98
|
|
|
(3,006
|
)
|
|
198
|
|
|
(2,808
|
)
|
|||||||||
|
Subtotal
|
(376
|
)
|
|
18
|
|
|
90
|
|
|
(1
|
)
|
|
1,295
|
|
|
(22
|
)
|
|
1,004
|
|
|
(86
|
)
|
|
918
|
|
|||||||||
|
Discount
|
82
|
|
|
(5
|
)
|
|
(19
|
)
|
|
—
|
|
|
(85
|
)
|
|
(9
|
)
|
|
(36
|
)
|
|
21
|
|
|
(15
|
)
|
|||||||||
|
Present value of expected cash flows
|
$
|
(294
|
)
|
|
$
|
13
|
|
|
$
|
71
|
|
|
$
|
(1
|
)
|
|
$
|
1,210
|
|
|
$
|
(31
|
)
|
|
$
|
968
|
|
|
$
|
(65
|
)
|
|
$
|
903
|
|
|
Deferred premium revenue
|
$
|
191
|
|
|
$
|
(4
|
)
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
544
|
|
|
$
|
(2
|
)
|
|
$
|
754
|
|
|
$
|
(62
|
)
|
|
$
|
692
|
|
|
Reserves (salvage)
|
$
|
(330
|
)
|
|
$
|
15
|
|
|
$
|
51
|
|
|
$
|
(1
|
)
|
|
$
|
827
|
|
|
$
|
(30
|
)
|
|
$
|
532
|
|
|
$
|
(41
|
)
|
|
$
|
491
|
|
|
|
BIG Categories
|
||||||||||||||||||||||||||||||||||
|
|
BIG 1
|
|
BIG 2
|
|
BIG 3
|
|
Total
BIG, Net
|
|
Effect of
Consolidating
FG VIEs
|
|
Total
|
||||||||||||||||||||||||
|
|
Gross
|
|
Ceded
|
|
Gross
|
|
Ceded
|
|
Gross
|
|
Ceded
|
|
|||||||||||||||||||||||
|
|
(dollars in millions)
|
||||||||||||||||||||||||||||||||||
|
Number of risks (1)
|
128
|
|
|
(8
|
)
|
|
39
|
|
|
(1
|
)
|
|
145
|
|
|
(7
|
)
|
|
312
|
|
|
—
|
|
|
312
|
|
|||||||||
|
Remaining weighted-average contract period (in years)
|
7.9
|
|
|
6.5
|
|
|
13.2
|
|
|
2.1
|
|
|
10.1
|
|
|
9.1
|
|
|
9.8
|
|
|
—
|
|
|
9.8
|
|
|||||||||
|
Outstanding exposure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Principal
|
$
|
3,052
|
|
|
$
|
(71
|
)
|
|
$
|
938
|
|
|
$
|
(6
|
)
|
|
$
|
6,249
|
|
|
$
|
(159
|
)
|
|
$
|
10,003
|
|
|
$
|
—
|
|
|
$
|
10,003
|
|
|
Interest
|
1,319
|
|
|
(29
|
)
|
|
592
|
|
|
(1
|
)
|
|
3,140
|
|
|
(72
|
)
|
|
4,949
|
|
|
—
|
|
|
4,949
|
|
|||||||||
|
Total (2)
|
$
|
4,371
|
|
|
$
|
(100
|
)
|
|
$
|
1,530
|
|
|
$
|
(7
|
)
|
|
$
|
9,389
|
|
|
$
|
(231
|
)
|
|
$
|
14,952
|
|
|
$
|
—
|
|
|
$
|
14,952
|
|
|
Expected cash outflows (inflows)
|
$
|
98
|
|
|
$
|
(5
|
)
|
|
$
|
264
|
|
|
$
|
(1
|
)
|
|
$
|
4,029
|
|
|
$
|
(80
|
)
|
|
$
|
4,305
|
|
|
$
|
(290
|
)
|
|
$
|
4,015
|
|
|
Potential recoveries (3)
|
(465
|
)
|
|
23
|
|
|
(81
|
)
|
|
—
|
|
|
(2,542
|
)
|
|
55
|
|
|
(3,010
|
)
|
|
192
|
|
|
(2,818
|
)
|
|||||||||
|
Subtotal
|
(367
|
)
|
|
18
|
|
|
183
|
|
|
(1
|
)
|
|
1,487
|
|
|
(25
|
)
|
|
1,295
|
|
|
(98
|
)
|
|
1,197
|
|
|||||||||
|
Discount
|
83
|
|
|
(5
|
)
|
|
(53
|
)
|
|
—
|
|
|
(134
|
)
|
|
(2
|
)
|
|
(111
|
)
|
|
23
|
|
|
(88
|
)
|
|||||||||
|
Present value of expected cash flows
|
$
|
(284
|
)
|
|
$
|
13
|
|
|
$
|
130
|
|
|
$
|
(1
|
)
|
|
$
|
1,353
|
|
|
$
|
(27
|
)
|
|
$
|
1,184
|
|
|
$
|
(75
|
)
|
|
$
|
1,109
|
|
|
Deferred premium revenue
|
$
|
125
|
|
|
$
|
(4
|
)
|
|
$
|
151
|
|
|
$
|
—
|
|
|
$
|
518
|
|
|
$
|
(2
|
)
|
|
$
|
788
|
|
|
$
|
(64
|
)
|
|
$
|
724
|
|
|
Reserves (salvage)
|
$
|
(311
|
)
|
|
$
|
15
|
|
|
$
|
48
|
|
|
$
|
(1
|
)
|
|
$
|
993
|
|
|
$
|
(24
|
)
|
|
$
|
720
|
|
|
$
|
(47
|
)
|
|
$
|
673
|
|
|
(1)
|
A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments. The ceded number of risks represents the number of risks for which the Company ceded a portion of its exposure.
|
|
(2)
|
Includes BIG amounts related to FG VIEs.
|
|
(3)
|
Represents expected inflows for future payments by obligors pursuant to restructuring agreements, settlement or litigation judgments, excess spread on any underlying collateral and other estimated recoveries.
|
|
6.
|
Fair Value Measurement
|
|
•
|
Actual collateral specific credit spreads (if up-to-date and reliable market-based spreads are available).
|
|
•
|
Transactions priced or closed during a specific quarter within a specific asset class and specific rating. No transactions closed during the periods presented.
|
|
•
|
Credit spreads interpolated based upon market indices adjusted to reflect the non-standard terms of the Company's CDS contracts.
|
|
•
|
Credit spreads provided by the counterparty of the CDS.
|
|
•
|
Credit spreads extrapolated based upon transactions of similar asset classes, similar ratings, and similar time to maturity.
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||
|
Based on actual collateral specific spreads
|
20
|
%
|
|
20
|
%
|
|
Based on market indices
|
31
|
%
|
|
33
|
%
|
|
Provided by the CDS counterparty
|
49
|
%
|
|
47
|
%
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
•
|
The model takes into account the transaction structure and the key drivers of market value.
|
|
•
|
The model maximizes the use of market-driven inputs whenever they are available.
|
|
•
|
The model is a consistent approach to valuing positions.
|
|
•
|
There is no exit market or any actual exit transactions; therefore, the Company’s exit market is a hypothetical one based on the Company’s entry market.
|
|
•
|
There is a very limited market in which to validate the reasonableness of the fair values developed by the Company’s model.
|
|
•
|
The markets for the inputs to the model are highly illiquid, which impacts their reliability.
|
|
•
|
Due to the non-standard terms under which the Company enters into derivative contracts, the fair value of its credit derivatives may not reflect the same prices observed in an actively traded market of credit derivatives that do not contain terms and conditions similar to those observed in the financial guaranty market.
|
|
|
|
|
Fair Value Hierarchy
|
||||||||||||
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Investment portfolio, available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fixed-maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Obligations of state and political subdivisions
|
$
|
4,843
|
|
|
$
|
—
|
|
|
$
|
4,739
|
|
|
$
|
104
|
|
|
U.S. government and agencies
|
166
|
|
|
—
|
|
|
166
|
|
|
—
|
|
||||
|
Corporate securities
|
2,154
|
|
|
—
|
|
|
2,106
|
|
|
48
|
|
||||
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|||||||
|
RMBS
|
959
|
|
|
—
|
|
|
641
|
|
|
318
|
|
||||
|
Commercial mortgage-backed securities (CMBS)
|
539
|
|
|
—
|
|
|
539
|
|
|
—
|
|
||||
|
Asset-backed securities
|
1,076
|
|
|
—
|
|
|
118
|
|
|
958
|
|
||||
|
Non-U.S. government securities
|
252
|
|
|
—
|
|
|
252
|
|
|
—
|
|
||||
|
Total fixed-maturity securities
|
9,989
|
|
|
—
|
|
|
8,561
|
|
|
1,428
|
|
||||
|
Short-term investments
|
727
|
|
|
454
|
|
|
273
|
|
|
—
|
|
||||
|
Other invested assets (1)
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
||||
|
FG VIEs’ assets, at fair value
|
560
|
|
|
—
|
|
|
—
|
|
|
560
|
|
||||
|
Other assets
|
137
|
|
|
30
|
|
|
41
|
|
|
66
|
|
||||
|
Total assets carried at fair value
|
$
|
11,420
|
|
|
$
|
484
|
|
|
$
|
8,875
|
|
|
$
|
2,061
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|||||||
|
Credit derivative liabilities
|
$
|
229
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
229
|
|
|
FG VIEs’ liabilities with recourse, at fair value
|
505
|
|
|
—
|
|
|
—
|
|
|
505
|
|
||||
|
FG VIEs’ liabilities without recourse, at fair value
|
104
|
|
|
—
|
|
|
—
|
|
|
104
|
|
||||
|
Total liabilities carried at fair value
|
$
|
838
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
838
|
|
|
|
|
|
Fair Value Hierarchy
|
||||||||||||
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Investment portfolio, available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fixed-maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Obligations of state and political subdivisions
|
$
|
4,911
|
|
|
$
|
—
|
|
|
$
|
4,812
|
|
|
$
|
99
|
|
|
U.S. government and agencies
|
175
|
|
|
—
|
|
|
175
|
|
|
—
|
|
||||
|
Corporate securities
|
2,136
|
|
|
—
|
|
|
2,080
|
|
|
56
|
|
||||
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
RMBS
|
982
|
|
|
—
|
|
|
673
|
|
|
309
|
|
||||
|
CMBS
|
539
|
|
|
—
|
|
|
539
|
|
|
—
|
|
||||
|
Asset-backed securities
|
1,068
|
|
|
—
|
|
|
121
|
|
|
947
|
|
||||
|
Non-U.S. government securities
|
278
|
|
|
—
|
|
|
278
|
|
|
—
|
|
||||
|
Total fixed-maturity securities
|
10,089
|
|
|
—
|
|
|
8,678
|
|
|
1,411
|
|
||||
|
Short-term investments
|
729
|
|
|
429
|
|
|
300
|
|
|
—
|
|
||||
|
Other invested assets (1)
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
||||
|
FG VIEs’ assets, at fair value
|
569
|
|
|
—
|
|
|
—
|
|
|
569
|
|
||||
|
Other assets
|
139
|
|
|
25
|
|
|
38
|
|
|
76
|
|
||||
|
Total assets carried at fair value
|
$
|
11,533
|
|
|
$
|
454
|
|
|
$
|
9,016
|
|
|
$
|
2,063
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Credit derivative liabilities
|
$
|
209
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
209
|
|
|
FG VIEs’ liabilities with recourse, at fair value
|
517
|
|
|
—
|
|
|
—
|
|
|
517
|
|
||||
|
FG VIEs’ liabilities without recourse, at fair value
|
102
|
|
|
—
|
|
|
—
|
|
|
102
|
|
||||
|
Total liabilities carried at fair value
|
$
|
828
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
828
|
|
|
(1)
|
Includes Level 3 mortgage loans that are recorded at fair value on a non-recurring basis.
|
|
|
Fixed-Maturity Securities
|
|
|
|
|
|
|
|
FG VIEs’ Liabilities, at Fair Value
|
|
|||||||||||||||||||||||||||||||||||
|
|
Obligations
of State and Political Subdivisions |
|
Corporate Securities
|
|
RMBS
|
|
Asset-
Backed Securities |
|
FG VIEs’
Assets at Fair Value |
|
Other
(6)
|
|
Credit
Derivative Asset (Liability), net (4) |
|
With
Recourse |
|
Without
Recourse |
|
|||||||||||||||||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||||||||||||||||||||||||
|
Fair value as of
December 31, 2018 |
$
|
99
|
|
|
$
|
56
|
|
|
$
|
309
|
|
|
$
|
947
|
|
|
$
|
569
|
|
|
$
|
77
|
|
|
$
|
(207
|
)
|
|
$
|
(517
|
)
|
|
$
|
(102
|
)
|
|
|||||||||
|
Total pretax realized and unrealized gains/(losses) recorded in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
Net income (loss)
|
1
|
|
(1
|
)
|
(11
|
)
|
(1
|
)
|
6
|
|
(1
|
)
|
14
|
|
(1
|
)
|
17
|
|
(2
|
)
|
(9
|
)
|
(3
|
)
|
(22
|
)
|
(5
|
)
|
(11
|
)
|
(2
|
)
|
(4
|
)
|
(2
|
)
|
|||||||||
|
Other comprehensive income (loss)
|
5
|
|
|
3
|
|
|
5
|
|
|
(9
|
)
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|||||||||||||
|
Purchases
|
—
|
|
|
—
|
|
|
11
|
|
|
10
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|||||||||||||
|
Settlements
|
(1
|
)
|
|
—
|
|
|
(13
|
)
|
|
(4
|
)
|
|
(26
|
)
|
|
—
|
|
|
|
1
|
|
|
|
23
|
|
|
|
2
|
|
|
|
||||||||||||||
|
Fair value as of
March 31, 2019 |
$
|
104
|
|
|
$
|
48
|
|
|
$
|
318
|
|
|
$
|
958
|
|
|
$
|
560
|
|
|
$
|
68
|
|
|
$
|
(228
|
)
|
|
$
|
(505
|
)
|
|
$
|
(104
|
)
|
|
|||||||||
|
Change in unrealized gains/(losses) included in earnings related to financial instruments held as of March 31, 2019
|
|
|
|
|
|
|
|
|
$
|
20
|
|
(2
|
)
|
$
|
(9
|
)
|
(3
|
)
|
$
|
(21
|
)
|
(5
|
)
|
$
|
(11
|
)
|
(2
|
)
|
$
|
(3
|
)
|
(2
|
)
|
||||||||||||
|
Change in unrealized gains/(losses) included in OCI related to financial instruments held as of March 31, 2019
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
(8
|
)
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
|||||||||||||||
|
|
Fixed-Maturity Securities
|
|
|
|
|
|
|
|
FG VIEs’ Liabilities, at Fair Value
|
|
|||||||||||||||||||||||||||||||||||
|
|
Obligations
of State and Political Subdivisions |
|
Corporate Securities
|
|
RMBS
|
|
Asset-
Backed Securities |
|
FG VIEs’
Assets at Fair Value |
|
Other
(6)
|
|
Credit
Derivative Asset (Liability), net (4) |
|
With Recourse |
|
Without Recourse |
|
|||||||||||||||||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||||||||||||||||||||||||
|
Fair value as of
December 31, 2017 |
$
|
76
|
|
|
$
|
67
|
|
|
$
|
334
|
|
|
$
|
787
|
|
|
$
|
700
|
|
|
$
|
64
|
|
|
$
|
(269
|
)
|
|
$
|
(627
|
)
|
|
$
|
(130
|
)
|
|
|||||||||
|
Total pretax realized and unrealized gains/(losses) recorded in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
Net income (loss)
|
1
|
|
(1
|
)
|
(5
|
)
|
(1
|
)
|
7
|
|
(1
|
)
|
15
|
|
(1
|
)
|
1
|
|
(2
|
)
|
(1
|
)
|
(3
|
)
|
34
|
|
(5
|
)
|
—
|
|
(2
|
)
|
1
|
|
(2
|
)
|
|||||||||
|
Other comprehensive income (loss)
|
3
|
|
|
—
|
|
|
(7
|
)
|
|
3
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
||||||||||||||
|
Purchases
|
4
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
||||||||||||||
|
Settlements
|
(1
|
)
|
|
—
|
|
|
(20
|
)
|
|
(5
|
)
|
|
(33
|
)
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
30
|
|
|
|
3
|
|
|
|
||||||||||||||
|
FG VIE deconsolidations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
1
|
|
|
16
|
|
|
||||||||||||||||||
|
Fair value as of
March 31, 2018 |
$
|
83
|
|
|
$
|
62
|
|
|
$
|
314
|
|
|
$
|
809
|
|
|
$
|
651
|
|
|
$
|
62
|
|
|
$
|
(236
|
)
|
|
$
|
(598
|
)
|
|
$
|
(110
|
)
|
|
|||||||||
|
Change in unrealized gains/(losses) related to financial instruments held as of March 31, 2018
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
4
|
|
|
$
|
4
|
|
(2
|
)
|
$
|
(1
|
)
|
(3
|
)
|
$
|
28
|
|
(5
|
)
|
$
|
(3
|
)
|
(2
|
)
|
$
|
1
|
|
(2
|
)
|
||||
|
(1)
|
Included in net realized investment gains (losses) and net investment income.
|
|
(2)
|
Included in fair value gains (losses) on FG VIEs.
|
|
(3)
|
Recorded in net investment income and other income.
|
|
(4)
|
Represents the net position of credit derivatives. Credit derivative assets (recorded in other assets) and credit derivative liabilities (presented as a separate line item) are shown gross in the condensed consolidated balance sheet based on net exposure by counterparty.
|
|
(5)
|
Reported in net change in fair value of credit derivatives.
|
|
(6)
|
Includes CCS and other invested assets.
|
|
Financial Instrument Description (1)
|
|
Fair Value at
March 31, 2019 (in millions) |
|
Significant Unobservable Inputs
|
|
Range
|
|
Weighted Average as a Percentage of Current Par Outstanding
|
|||||
|
Assets (2):
|
|
|
|
|
|
|
|
|
|
||||
|
Fixed-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Obligations of state and political subdivisions
|
|
$
|
104
|
|
|
Yield
|
|
4.5
|
%
|
-
|
32.7%
|
|
10.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Corporate securities
|
|
48
|
|
|
Yield
|
|
29.1%
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
RMBS
|
|
318
|
|
|
CPR
|
|
2.7
|
%
|
-
|
15.8%
|
|
6.1%
|
|
|
|
|
CDR
|
|
1.5
|
%
|
-
|
6.9%
|
|
5.1%
|
||||
|
|
|
Loss severity
|
|
40.0
|
%
|
-
|
125.0%
|
|
85.4%
|
||||
|
|
|
Yield
|
|
4.7
|
%
|
-
|
7.2%
|
|
5.5%
|
||||
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|||
|
Life insurance transactions
|
|
620
|
|
|
Yield
|
|
6.0
|
%
|
-
|
6.6%
|
|
6.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Collateralized loan obligations (CLOs) /Trust preferred securities (TruPS)
|
|
286
|
|
|
Yield
|
|
3.2
|
%
|
-
|
4.8%
|
|
4.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Others
|
|
52
|
|
|
Yield
|
|
10.7%
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
FG VIEs’ assets, at fair value
|
|
560
|
|
|
CPR
|
|
0.9
|
%
|
-
|
18.3%
|
|
9.1%
|
|
|
|
|
CDR
|
|
1.3
|
%
|
-
|
24.0%
|
|
4.9%
|
||||
|
|
|
Loss severity
|
|
60.0
|
%
|
-
|
100.0%
|
|
79.7%
|
||||
|
|
|
Yield
|
|
4.4
|
%
|
-
|
9.5%
|
|
6.3%
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Other assets
|
|
65
|
|
|
Implied Yield
|
|
6.3
|
%
|
-
|
6.9%
|
|
6.6%
|
|
|
|
|
Term (years)
|
|
10 years
|
|
|
|||||||
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Credit derivative liabilities, net
|
|
(228
|
)
|
|
Year 1 loss estimates
|
|
0.0
|
%
|
-
|
73.0%
|
|
2.4%
|
|
|
|
|
Hedge cost (in basis points (bps))
|
|
3.3
|
|
-
|
55.5
|
|
16.0
|
||||
|
|
|
Bank profit (in bps)
|
|
8.3
|
|
-
|
443.9
|
|
66.5
|
||||
|
|
|
Internal floor (in bps)
|
|
8.8
|
|
-
|
30.0
|
|
10.2
|
||||
|
|
|
Internal credit rating
|
|
AAA
|
|
-
|
CCC
|
|
AA-
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
FG VIEs’ liabilities, at fair value
|
|
(609
|
)
|
|
CPR
|
|
0.9
|
%
|
-
|
18.3%
|
|
9.1%
|
|
|
|
|
CDR
|
|
1.3
|
%
|
-
|
24.0%
|
|
4.9%
|
||||
|
|
|
Loss severity
|
|
60.0
|
%
|
-
|
100.0%
|
|
79.7%
|
||||
|
|
|
Yield
|
|
4.2
|
%
|
-
|
9.5%
|
|
4.9%
|
||||
|
(1)
|
Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.
|
|
(2)
|
Excludes several investments recorded in other invested assets with fair value of $7 million.
|
|
Financial Instrument Description (1)
|
|
Fair Value at
December 31, 2018 (in millions) |
|
Significant Unobservable Inputs
|
|
Range
|
|
Weighted Average as a Percentage of Current Par Outstanding
|
|||||
|
Assets (2):
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Fixed-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Obligations of state and political subdivisions
|
|
$
|
99
|
|
|
Yield
|
|
4.5
|
%
|
-
|
32.7%
|
|
12.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Corporate securities
|
|
56
|
|
|
Yield
|
|
29.5%
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
RMBS
|
|
309
|
|
|
CPR
|
|
3.4
|
%
|
-
|
19.4%
|
|
6.2%
|
|
|
|
|
CDR
|
|
1.5
|
%
|
-
|
6.9%
|
|
5.2%
|
||||
|
|
|
Loss severity
|
|
40.0
|
%
|
-
|
125.0%
|
|
82.7%
|
||||
|
|
|
Yield
|
|
5.3
|
%
|
-
|
8.1%
|
|
6.3%
|
||||
|
Asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|||
|
Life insurance transactions
|
|
620
|
|
|
Yield
|
|
6.5
|
%
|
-
|
7.1%
|
|
6.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
CLOs/TruPS
|
|
274
|
|
|
Yield
|
|
3.8
|
%
|
-
|
4.7%
|
|
4.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Others
|
|
53
|
|
|
Yield
|
|
11.5%
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
FG VIEs’ assets, at fair value
|
|
569
|
|
|
CPR
|
|
0.9
|
%
|
-
|
18.1%
|
|
9.3%
|
|
|
|
|
CDR
|
|
1.3
|
%
|
-
|
23.7%
|
|
5.1%
|
||||
|
|
|
Loss severity
|
|
60.0
|
%
|
-
|
100.0%
|
|
79.8%
|
||||
|
|
|
Yield
|
|
5.0
|
%
|
-
|
10.2%
|
|
7.1%
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Other assets
|
|
74
|
|
|
Implied Yield
|
|
6.6
|
%
|
-
|
7.2%
|
|
6.9%
|
|
|
|
|
Term (years)
|
|
10 years
|
|
|
|||||||
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Credit derivative liabilities, net
|
|
(207
|
)
|
|
Year 1 loss estimates
|
|
0.0
|
%
|
-
|
66.0%
|
|
2.2%
|
|
|
|
|
Hedge cost (in basis points (bps))
|
|
5.5
|
|
-
|
82.5
|
|
23.3
|
||||
|
|
|
Bank profit (in bps)
|
|
7.2
|
|
-
|
509.9
|
|
77.3
|
||||
|
|
|
Internal floor (in bps)
|
|
8.8
|
|
-
|
30.0
|
|
19.0
|
||||
|
|
|
Internal credit rating
|
|
AAA
|
|
-
|
CCC
|
|
AA-
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
FG VIEs’ liabilities, at fair value
|
|
(619
|
)
|
|
CPR
|
|
0.9
|
%
|
-
|
18.1%
|
|
9.3%
|
|
|
|
|
CDR
|
|
1.3
|
%
|
-
|
23.7%
|
|
5.1%
|
||||
|
|
|
Loss severity
|
|
60.0
|
%
|
-
|
100.0%
|
|
79.8%
|
||||
|
|
|
Yield
|
|
5.0
|
%
|
-
|
10.2%
|
|
5.6%
|
||||
|
(1)
|
Discounted cash flow is used as the primary valuation technique for all financial instruments listed in this table.
|
|
(2)
|
Excludes several investments recorded in other invested assets with fair value of $7 million.
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||||||||||
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Other invested assets
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
Other assets (2)
|
119
|
|
|
119
|
|
|
130
|
|
|
130
|
|
||||
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Financial guaranty insurance contracts (1)
|
2,987
|
|
|
5,740
|
|
|
3,240
|
|
|
5,932
|
|
||||
|
Long-term debt
|
1,232
|
|
|
1,517
|
|
|
1,233
|
|
|
1,496
|
|
||||
|
Other liabilities (2)
|
48
|
|
|
48
|
|
|
12
|
|
|
12
|
|
||||
|
(1)
|
Carrying amount includes the assets and liabilities related to financial guaranty insurance contract premiums, losses, and salvage and subrogation and other recoverables net of reinsurance.
|
|
(2)
|
The Company's other assets and other liabilities consist predominantly of accrued interest, receivables for securities sold and payables for securities purchased, for which the carrying value approximates fair value.
|
|
7.
|
Contracts Accounted for as Credit Derivatives
|
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||||||
|
Asset Type
|
|
Net Par
Outstanding
|
|
Net Fair Value
|
|
Net Par
Outstanding
|
|
Net Fair Value
|
||||||||
|
|
|
(in millions)
|
||||||||||||||
|
Pooled infrastructure
|
|
$
|
1,403
|
|
|
$
|
(41
|
)
|
|
$
|
1,373
|
|
|
$
|
(34
|
)
|
|
Infrastructure finance
|
|
1,294
|
|
|
(87
|
)
|
|
1,300
|
|
|
(63
|
)
|
||||
|
Regulated utilities
|
|
1,115
|
|
|
(10
|
)
|
|
1,096
|
|
|
(11
|
)
|
||||
|
TruPS collateralized debt obligations (CDOs)
|
|
606
|
|
|
(22
|
)
|
|
642
|
|
|
(28
|
)
|
||||
|
U.S. RMBS
|
|
588
|
|
|
(30
|
)
|
|
641
|
|
|
(31
|
)
|
||||
|
Other (2)
|
|
1,114
|
|
|
(38
|
)
|
|
1,130
|
|
|
(40
|
)
|
||||
|
Total
|
|
$
|
6,120
|
|
|
$
|
(228
|
)
|
|
$
|
6,182
|
|
|
$
|
(207
|
)
|
|
(2)
|
This represents numerous transactions across various asset classes, such as health care revenue, municipal utilities and consumer receivables.
|
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||||
|
Ratings
|
|
Net Par
Outstanding
|
|
% of Total
|
|
Net Par
Outstanding
|
|
% of Total
|
||||||
|
|
|
(dollars in millions)
|
||||||||||||
|
AAA
|
|
$
|
1,795
|
|
|
29.3
|
%
|
|
$
|
1,813
|
|
|
29.4
|
%
|
|
AA
|
|
1,665
|
|
|
27.2
|
|
|
1,690
|
|
|
27.3
|
|
||
|
A
|
|
1,180
|
|
|
19.3
|
|
|
1,171
|
|
|
18.9
|
|
||
|
BBB
|
|
1,327
|
|
|
21.7
|
|
|
1,351
|
|
|
21.9
|
|
||
|
BIG (1)
|
|
153
|
|
|
2.5
|
|
|
157
|
|
|
2.5
|
|
||
|
Credit derivative net par outstanding
|
|
$
|
6,120
|
|
|
100.0
|
%
|
|
$
|
6,182
|
|
|
100.0
|
%
|
|
(1)
|
BIG relates to U.S. RMBS.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Realized gains on credit derivatives
|
$
|
3
|
|
|
$
|
2
|
|
|
Net credit derivative losses (paid and payable) recovered and recoverable and other settlements
|
(4
|
)
|
|
—
|
|
||
|
Realized gains (losses) and other settlements
|
(1
|
)
|
|
2
|
|
||
|
Net unrealized gains (losses)
|
(21
|
)
|
|
32
|
|
||
|
Net change in fair value of credit derivatives
|
$
|
(22
|
)
|
|
$
|
34
|
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
|
As of
March 31, 2018 |
|
As of
December 31, 2017 |
||||
|
Five-year CDS spread:
|
|
|
|
|
|
|
|
||||
|
AGC
|
74
|
|
|
110
|
|
|
121
|
|
|
163
|
|
|
AGM
|
72
|
|
|
116
|
|
|
109
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
||||
|
One-year CDS spread
|
|
|
|
|
|
|
|
||||
|
AGC
|
20
|
|
|
22
|
|
|
25
|
|
|
70
|
|
|
AGM
|
13
|
|
|
24
|
|
|
22
|
|
|
28
|
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
|
|
(in millions)
|
||||||
|
Fair value of credit derivatives before effect of AGC and AGM credit spreads
|
$
|
(370
|
)
|
|
$
|
(407
|
)
|
|
Plus: Effect of AGC and AGM credit spreads
|
142
|
|
|
200
|
|
||
|
Net fair value of credit derivatives
|
$
|
(228
|
)
|
|
$
|
(207
|
)
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
|
|
(in millions)
|
||||||
|
Gross par of CDS with collateral posting requirement
|
$
|
221
|
|
|
$
|
250
|
|
|
Maximum posting requirement
|
221
|
|
|
250
|
|
||
|
Collateral posted
|
1
|
|
|
1
|
|
||
|
8.
|
Variable Interest Entities
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
|
|
(in millions)
|
||||||
|
Excess of unpaid principal over fair value of:
|
|
|
|
||||
|
FG VIEs' assets
|
$
|
330
|
|
|
$
|
350
|
|
|
FG VIEs' liabilities with recourse
|
38
|
|
|
48
|
|
||
|
FG VIEs' liabilities without recourse
|
24
|
|
|
28
|
|
||
|
|
|
|
|
||||
|
Unpaid principal balance for the FG VIEs’ assets that were over 90 days or more past due
|
67
|
|
|
71
|
|
||
|
|
|
|
|
||||
|
Unpaid principal for FG VIEs’ liabilities with recourse (1)
|
542
|
|
|
565
|
|
||
|
(1)
|
FG VIEs’ liabilities with recourse will mature at various dates ranging from 2019 to 2038.
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||||||
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
With recourse:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. RMBS first lien
|
$
|
295
|
|
|
$
|
321
|
|
|
$
|
299
|
|
|
$
|
326
|
|
|
U.S. RMBS second lien
|
111
|
|
|
132
|
|
|
115
|
|
|
137
|
|
||||
|
Manufactured housing
|
50
|
|
|
52
|
|
|
53
|
|
|
54
|
|
||||
|
Total with recourse
|
456
|
|
|
505
|
|
|
467
|
|
|
517
|
|
||||
|
Without recourse
|
104
|
|
|
104
|
|
|
102
|
|
|
102
|
|
||||
|
Total
|
$
|
560
|
|
|
$
|
609
|
|
|
$
|
569
|
|
|
$
|
619
|
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Net earned premiums
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
Net investment income
|
(1
|
)
|
|
(1
|
)
|
||
|
Fair value gains (losses) on FG VIEs (1)
|
5
|
|
|
4
|
|
||
|
Loss and LAE
|
(1
|
)
|
|
6
|
|
||
|
Effect on income before tax
|
—
|
|
|
6
|
|
||
|
Less: tax provision (benefit)
|
—
|
|
|
1
|
|
||
|
Effect on net income (loss)
|
$
|
—
|
|
|
$
|
5
|
|
|
|
|
|
|
||||
|
Effect on OCI
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
||||
|
Effect on cash flows from operating activities
|
$
|
1
|
|
|
$
|
2
|
|
|
(1)
|
See condensed consolidated statements of comprehensive income and Note 15, Shareholders' Equity, for information on changes in fair value of the FG VIEs’ liabilities with recourse that are attributable to changes in the Company's own credit risk.
|
|
9.
|
Investments and Cash
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Income from fixed-maturity securities managed by third parties
|
$
|
72
|
|
|
$
|
75
|
|
|
Income from internally managed securities
|
28
|
|
|
27
|
|
||
|
Gross investment income
|
100
|
|
|
102
|
|
||
|
Investment expenses
|
(2
|
)
|
|
(2
|
)
|
||
|
Net investment income
|
$
|
98
|
|
|
$
|
100
|
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Gross realized gains on available-for-sale securities
|
$
|
6
|
|
|
$
|
9
|
|
|
Gross realized losses on available-for-sale securities
|
(2
|
)
|
|
(5
|
)
|
||
|
Net realized gains (losses) on other invested assets
|
—
|
|
|
(1
|
)
|
||
|
Other-than-temporary impairment (OTTI):
|
|
|
|
||||
|
Total OTTI
|
(13
|
)
|
|
(11
|
)
|
||
|
Less: portion of OTTI recognized in OCI
|
3
|
|
|
(3
|
)
|
||
|
Net OTTI recognized in net income (loss) (1)
|
(16
|
)
|
|
(8
|
)
|
||
|
Net realized investment gains (losses)
|
$
|
(12
|
)
|
|
$
|
(5
|
)
|
|
(1)
|
Net OTTI recognized in net income was primarily a result of a decline in expected cash flows on loss mitigation and other risk management securities.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Balance, beginning of period
|
$
|
185
|
|
|
$
|
162
|
|
|
Additions for credit losses on securities for which an OTTI was previously recognized
|
12
|
|
|
7
|
|
||
|
Balance, end of period
|
$
|
197
|
|
|
$
|
169
|
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
|
|
(in millions)
|
||||||
|
Fixed-maturity securities (1):
|
|
|
|
||||
|
Externally managed
|
$
|
8,661
|
|
|
$
|
8,909
|
|
|
Internally managed
|
1,328
|
|
|
1,180
|
|
||
|
Short-term investments
|
727
|
|
|
729
|
|
||
|
Other invested assets:
|
|
|
|
||||
|
Internally managed
|
|
|
|
||||
|
Alternative investments
|
45
|
|
|
39
|
|
||
|
Other
|
16
|
|
|
16
|
|
||
|
Total
|
$
|
10,777
|
|
|
$
|
10,873
|
|
|
(1)
|
10.9% and 10.8% of fixed-maturity securities are rated BIG as of March 31, 2019 and December 31, 2018, respectively.
|
|
Security Type
|
|
Percent
of
Total (1)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
|
AOCI
Gain
(Loss) on
Securities
with
OTTI
|
|
Weighted
Average
Credit
Rating
(3)
|
|||||||||||
|
|
|
(dollars in millions)
|
|||||||||||||||||||||||
|
Fixed-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Obligations of state and political subdivisions
|
|
45
|
%
|
|
$
|
4,761
|
|
|
$
|
168
|
|
|
$
|
(18
|
)
|
|
$
|
4,911
|
|
|
$
|
40
|
|
|
AA-
|
|
U.S. government and agencies
|
|
2
|
|
|
167
|
|
|
9
|
|
|
(1
|
)
|
|
175
|
|
|
—
|
|
|
AA+
|
|||||
|
Corporate securities
|
|
20
|
|
|
2,175
|
|
|
13
|
|
|
(52
|
)
|
|
2,136
|
|
|
(4
|
)
|
|
A
|
|||||
|
Mortgage-backed securities (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
RMBS
|
|
9
|
|
|
999
|
|
|
17
|
|
|
(34
|
)
|
|
982
|
|
|
(15
|
)
|
|
A-
|
|||||
|
CMBS
|
|
5
|
|
|
542
|
|
|
4
|
|
|
(7
|
)
|
|
539
|
|
|
—
|
|
|
AAA
|
|||||
|
Asset-backed securities
|
|
9
|
|
|
942
|
|
|
131
|
|
|
(5
|
)
|
|
1,068
|
|
|
97
|
|
|
BB
|
|||||
|
Non-U.S. government securities
|
|
3
|
|
|
298
|
|
|
2
|
|
|
(22
|
)
|
|
278
|
|
|
—
|
|
|
AA
|
|||||
|
Total fixed-maturity securities
|
|
93
|
|
|
9,884
|
|
|
344
|
|
|
(139
|
)
|
|
10,089
|
|
|
118
|
|
|
A+
|
|||||
|
Short-term investments
|
|
7
|
|
|
729
|
|
|
—
|
|
|
—
|
|
|
729
|
|
|
—
|
|
|
AAA
|
|||||
|
Total investment portfolio
|
|
100
|
%
|
|
$
|
10,613
|
|
|
$
|
344
|
|
|
$
|
(139
|
)
|
|
$
|
10,818
|
|
|
$
|
118
|
|
|
A+
|
|
(1)
|
Based on amortized cost.
|
|
(2)
|
Accumulated OCI (AOCI). See Note 15, Shareholders' Equity.
|
|
(3)
|
Ratings represent the lower of the Moody’s and S&P classifications, except for bonds purchased for loss mitigation or risk management strategies, which use internal ratings classifications. The Company’s portfolio primarily consists of high-quality, liquid instruments.
|
|
(4)
|
U.S. government-agency obligations were approximately 46% of mortgage backed securities as of March 31, 2019 and 48% as of December 31, 2018 based on fair value.
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
||||||||||||||||||
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value |
|
Unrealized
Loss |
|
Fair
Value |
|
Unrealized
Loss |
||||||||||||
|
|
(dollars in millions)
|
||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
152
|
|
|
$
|
(3
|
)
|
|
$
|
169
|
|
|
$
|
(3
|
)
|
|
U.S. government and agencies
|
20
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
44
|
|
|
—
|
|
||||||
|
Corporate securities
|
101
|
|
|
(1
|
)
|
|
381
|
|
|
(16
|
)
|
|
482
|
|
|
(17
|
)
|
||||||
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
RMBS
|
37
|
|
|
(1
|
)
|
|
371
|
|
|
(23
|
)
|
|
408
|
|
|
(24
|
)
|
||||||
|
CMBS
|
1
|
|
|
—
|
|
|
86
|
|
|
(3
|
)
|
|
87
|
|
|
(3
|
)
|
||||||
|
Asset-backed securities
|
308
|
|
|
(3
|
)
|
|
18
|
|
|
—
|
|
|
326
|
|
|
(3
|
)
|
||||||
|
Non-U.S. government securities
|
46
|
|
|
(1
|
)
|
|
86
|
|
|
(14
|
)
|
|
132
|
|
|
(15
|
)
|
||||||
|
Total
|
$
|
530
|
|
|
$
|
(6
|
)
|
|
$
|
1,118
|
|
|
$
|
(59
|
)
|
|
$
|
1,648
|
|
|
$
|
(65
|
)
|
|
Number of securities (1)
|
|
|
|
128
|
|
|
|
|
|
333
|
|
|
|
|
|
456
|
|
||||||
|
Number of securities with OTTI (1)
|
|
|
|
5
|
|
|
|
|
|
24
|
|
|
|
|
|
28
|
|
||||||
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
||||||||||||||||||
|
|
Fair
Value |
|
Unrealized
Loss |
|
Fair
Value |
|
Unrealized
Loss |
|
Fair
Value |
|
Unrealized
Loss |
||||||||||||
|
|
(dollars in millions)
|
||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
$
|
195
|
|
|
$
|
(4
|
)
|
|
$
|
658
|
|
|
$
|
(14
|
)
|
|
$
|
853
|
|
|
$
|
(18
|
)
|
|
U.S. government and agencies
|
11
|
|
|
—
|
|
|
24
|
|
|
(1
|
)
|
|
35
|
|
|
(1
|
)
|
||||||
|
Corporate securities
|
836
|
|
|
(19
|
)
|
|
522
|
|
|
(33
|
)
|
|
1,358
|
|
|
(52
|
)
|
||||||
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
RMBS
|
85
|
|
|
(2
|
)
|
|
447
|
|
|
(32
|
)
|
|
532
|
|
|
(34
|
)
|
||||||
|
CMBS
|
111
|
|
|
(1
|
)
|
|
164
|
|
|
(6
|
)
|
|
275
|
|
|
(7
|
)
|
||||||
|
Asset-backed securities
|
322
|
|
|
(4
|
)
|
|
38
|
|
|
(1
|
)
|
|
360
|
|
|
(5
|
)
|
||||||
|
Non-U.S. government securities
|
83
|
|
|
(4
|
)
|
|
99
|
|
|
(18
|
)
|
|
182
|
|
|
(22
|
)
|
||||||
|
Total
|
$
|
1,643
|
|
|
$
|
(34
|
)
|
|
$
|
1,952
|
|
|
$
|
(105
|
)
|
|
$
|
3,595
|
|
|
$
|
(139
|
)
|
|
Number of securities (1)
|
|
|
|
417
|
|
|
|
|
|
608
|
|
|
|
|
|
997
|
|
||||||
|
Number of securities with OTTI (1)
|
|
|
|
22
|
|
|
|
|
|
22
|
|
|
|
|
|
42
|
|
||||||
|
(1)
|
The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.
|
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
||||
|
|
(in millions)
|
||||||
|
Due within one year
|
$
|
217
|
|
|
$
|
213
|
|
|
Due after one year through five years
|
1,500
|
|
|
1,524
|
|
||
|
Due after five years through 10 years
|
2,249
|
|
|
2,316
|
|
||
|
Due after 10 years
|
4,132
|
|
|
4,438
|
|
||
|
Mortgage-backed securities:
|
|
|
|
|
|
||
|
RMBS
|
960
|
|
|
959
|
|
||
|
CMBS
|
532
|
|
|
539
|
|
||
|
Total
|
$
|
9,590
|
|
|
$
|
9,989
|
|
|
10.
|
Income Taxes
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Expected tax provision (benefit) at statutory rates in taxable jurisdictions
|
$
|
9
|
|
|
$
|
35
|
|
|
Tax-exempt interest
|
(5
|
)
|
|
(6
|
)
|
||
|
Change in liability for uncertain tax positions
|
—
|
|
|
(7
|
)
|
||
|
State taxes
|
1
|
|
|
2
|
|
||
|
Foreign taxes
|
1
|
|
|
(4
|
)
|
||
|
Taxes on reinsurance
|
1
|
|
|
—
|
|
||
|
Deferred compensation
|
(2
|
)
|
|
(1
|
)
|
||
|
Other
|
(1
|
)
|
|
1
|
|
||
|
Total provision (benefit) for income taxes
|
$
|
4
|
|
|
$
|
20
|
|
|
Effective tax rate
|
7.8
|
%
|
|
9.3
|
%
|
||
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
U.S.
|
$
|
35
|
|
|
$
|
175
|
|
|
Bermuda
|
16
|
|
|
49
|
|
||
|
U.K. and Other
|
7
|
|
|
(7
|
)
|
||
|
Total
|
$
|
58
|
|
|
$
|
217
|
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
U.S.
|
$
|
149
|
|
|
$
|
247
|
|
|
Bermuda
|
33
|
|
|
52
|
|
||
|
U.K. and Other
|
13
|
|
|
(6
|
)
|
||
|
Total
|
$
|
195
|
|
|
$
|
293
|
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
|
|
(in millions)
|
||||||
|
Deferred tax assets (liabilities)
|
$
|
33
|
|
|
$
|
68
|
|
|
Current tax assets (liabilities)
|
28
|
|
|
22
|
|
||
|
(1)
|
Included in other assets or other liabilities on the condensed consolidated balance sheets.
|
|
11.
|
Reinsurance
|
|
•
|
if the Company fails to meet certain financial and regulatory criteria;
|
|
•
|
if the Company fails to maintain a specified minimum financial strength rating, or
|
|
•
|
upon certain changes of control of the Company.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Premiums Written:
|
|
|
|
||||
|
Direct
|
$
|
39
|
|
|
$
|
73
|
|
|
Assumed
|
—
|
|
|
—
|
|
||
|
Ceded (1)
|
15
|
|
|
(11
|
)
|
||
|
Net
|
$
|
54
|
|
|
$
|
62
|
|
|
Premiums Earned:
|
|
|
|
||||
|
Direct
|
$
|
105
|
|
|
$
|
143
|
|
|
Assumed
|
15
|
|
|
5
|
|
||
|
Ceded
|
(2
|
)
|
|
(3
|
)
|
||
|
Net
|
$
|
118
|
|
|
$
|
145
|
|
|
Loss and LAE:
|
|
|
|
||||
|
Direct
|
$
|
54
|
|
|
$
|
(14
|
)
|
|
Assumed
|
1
|
|
|
(3
|
)
|
||
|
Ceded
|
(9
|
)
|
|
(1
|
)
|
||
|
Net
|
$
|
46
|
|
|
$
|
(18
|
)
|
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||||
|
|
(in millions)
|
||||||
|
Ceded premium, net of commissions
|
$
|
(7
|
)
|
|
$
|
(26
|
)
|
|
Ceded expected loss to be paid
|
19
|
|
|
14
|
|
||
|
Financial guaranty ceded par outstanding (2)
|
1,979
|
|
|
2,389
|
|
||
|
Non-financial guaranty ceded exposure (see Note 3)
|
245
|
|
|
239
|
|
||
|
(1)
|
The total collateral posted by all non-affiliated reinsurers required to post, or that had agreed to post, collateral as of March 31, 2019 and December 31, 2018 was approximately $75 million and $80 million, respectively. Such collateral is posted (i) in the case of certain reinsurers not authorized or "accredited" in the U.S., in order for the Company to receive credit for the liabilities ceded to such reinsurers, and (ii) in the case of certain reinsurers authorized in the U.S., on terms negotiated with the Company.
|
|
(2)
|
Of the total par ceded to unrated or BIG rated reinsurers, $235 million and $236 million is rated BIG as of March 31, 2019 and December 31, 2018, respectively.
|
|
|
First Quarter 2019
|
||
|
|
(in millions)
|
||
|
Lease cost (1)
|
$
|
2
|
|
|
|
|
||
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
2
|
|
|
Weighted average remaining lease term (years)-operating leases
|
12.5
|
|
|
|
Weighted average discount rate-operating leases
|
3.0
|
%
|
|
|
|
|
As of
March 31, 2019 |
||
|
Year
|
|
(in millions)
|
||
|
2019 (remaining nine months)
|
$
|
6
|
|
|
|
2020
|
9
|
|
||
|
2021
|
8
|
|
||
|
2022
|
8
|
|
||
|
2023
|
9
|
|
||
|
Thereafter
|
72
|
|
||
|
Total lease payments (1)
|
112
|
|
||
|
Less: imputed interest
|
19
|
|
||
|
Total operating lease liabilities
|
$
|
93
|
|
|
|
(1)
|
The Company did not enter into any new leases in First Quarter 2019. At December 31, 2018, future lease payments were $9 million, $9 million, $8 million, $8 million, and $9 million for 2019 through 2023, respectively, and $72 million in aggregate for all years thereafter.
|
|
13.
|
Long-Term Debt and Credit Facilities
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||||||
|
|
Principal
|
|
Carrying
Value |
|
Principal
|
|
Carrying
Value
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
AGUS:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
7% Senior Notes (1)
|
$
|
200
|
|
|
$
|
197
|
|
|
$
|
200
|
|
|
$
|
197
|
|
|
5% Senior Notes (1)
|
500
|
|
|
497
|
|
|
500
|
|
|
497
|
|
||||
|
Series A Enhanced Junior Subordinated Debentures (2)
|
150
|
|
|
150
|
|
|
150
|
|
|
150
|
|
||||
|
Total AGUS
|
850
|
|
|
844
|
|
|
850
|
|
|
844
|
|
||||
|
AGMH(3):
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
6 7/8% QUIBS (1)
|
100
|
|
|
70
|
|
|
100
|
|
|
70
|
|
||||
|
6.25% Notes (1)
|
230
|
|
|
144
|
|
|
230
|
|
|
143
|
|
||||
|
5.6% Notes (1)
|
100
|
|
|
57
|
|
|
100
|
|
|
57
|
|
||||
|
Junior Subordinated Debentures (2)
|
300
|
|
|
199
|
|
|
300
|
|
|
198
|
|
||||
|
Total AGMH
|
730
|
|
|
470
|
|
|
730
|
|
|
468
|
|
||||
|
AGM (3):
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Notes Payable
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
||||
|
Total AGM
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
||||
|
AGMH's debt purchased by AGUS
|
(131
|
)
|
|
(87
|
)
|
|
(128
|
)
|
|
(84
|
)
|
||||
|
Total
|
$
|
1,454
|
|
|
$
|
1,232
|
|
|
$
|
1,457
|
|
|
$
|
1,233
|
|
|
(1)
|
AGL fully and unconditionally guarantees these obligations.
|
|
(2)
|
Guaranteed by AGL on a junior subordinated basis.
|
|
(3)
|
Carrying amounts are different than principal amounts primarily due to fair value adjustments at the date of the AGMH acquisition, which are accreted or amortized into interest expense over the remaining terms of these obligations.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Principal amount repurchased
|
$
|
3
|
|
|
$
|
20
|
|
|
Loss on extinguishment of debt (1)
|
(1
|
)
|
|
(7
|
)
|
||
|
(1)
|
Included in other income in the condensed consolidated statements of operations. The loss represents the difference between the amount paid to purchase AGMH's debt and the carrying value of the debt, which includes the unamortized fair value adjustments that were recorded upon the acquisition of AGMH in 2009.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions, except per share amounts)
|
||||||
|
Basic Earnings Per Share (EPS):
|
|
|
|
||||
|
Net income (loss) attributable to AGL
|
$
|
54
|
|
|
$
|
197
|
|
|
Less: Distributed and undistributed income (loss) available to nonvested shareholders
|
—
|
|
|
1
|
|
||
|
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic
|
$
|
54
|
|
|
$
|
196
|
|
|
Basic shares
|
103.0
|
|
|
115.2
|
|
||
|
Basic EPS
|
$
|
0.52
|
|
|
$
|
1.71
|
|
|
|
|
|
|
||||
|
Diluted EPS:
|
|
|
|
||||
|
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, basic
|
$
|
54
|
|
|
$
|
196
|
|
|
Plus: Re-allocation of undistributed income (loss) available to nonvested shareholders of AGL and subsidiaries
|
—
|
|
|
—
|
|
||
|
Distributed and undistributed income (loss) available to common shareholders of AGL and subsidiaries, diluted
|
$
|
54
|
|
|
$
|
196
|
|
|
|
|
|
|
||||
|
Basic shares
|
103.0
|
|
|
115.2
|
|
||
|
Dilutive securities:
|
|
|
|
||||
|
Options and restricted stock awards
|
1.0
|
|
|
1.4
|
|
||
|
Diluted shares
|
104.0
|
|
|
116.6
|
|
||
|
Diluted EPS
|
$
|
0.52
|
|
|
$
|
1.68
|
|
|
Potentially dilutive securities excluded from computation of EPS because of antidilutive effect
|
—
|
|
|
0.2
|
|
||
|
15.
|
Shareholders' Equity
|
|
|
Net Unrealized
Gains (Losses) on Investments with no OTTI
|
|
Net Unrealized
Gains (Losses) on Investments with OTTI
|
|
Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR
|
|
Cumulative
Translation
Adjustment
|
|
Cash Flow
Hedge
|
|
Total
AOCI
|
||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||
|
Balance, December 31, 2018
|
$
|
59
|
|
|
$
|
94
|
|
|
$
|
(31
|
)
|
|
$
|
(37
|
)
|
|
$
|
8
|
|
|
$
|
93
|
|
|
Other comprehensive income (loss) before reclassifications
|
165
|
|
|
(7
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
156
|
|
||||||
|
Less: Amounts reclassified from AOCI to:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Net realized investment gains (losses)
|
3
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
||||||
|
Fair value gains (losses) on FG VIEs
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
||||||
|
Total before tax
|
3
|
|
|
(15
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
||||||
|
Tax (provision) benefit
|
(1
|
)
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
||||||
|
Total amount reclassified from AOCI, net of tax
|
2
|
|
|
(12
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
||||||
|
Net current period other comprehensive income (loss)
|
163
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
168
|
|
||||||
|
Balance, March 31, 2019
|
$
|
222
|
|
|
$
|
99
|
|
|
$
|
(31
|
)
|
|
$
|
(37
|
)
|
|
$
|
8
|
|
|
$
|
261
|
|
|
|
Net Unrealized
Gains (Losses) on
Investments with no OTTI
|
|
Net Unrealized
Gains (Losses) on
Investments with OTTI
|
|
Net Unrealized Gains (Losses) on FG VIEs’ Liabilities with Recourse due to ISCR
|
|
Cumulative
Translation
Adjustment
|
|
Cash Flow
Hedge
|
|
Total
AOCI
|
||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||
|
Balance, December 31, 2017
|
$
|
273
|
|
|
$
|
120
|
|
|
$
|
—
|
|
|
$
|
(29
|
)
|
|
$
|
8
|
|
|
$
|
372
|
|
|
Effect of adoption of ASU 2016-01 (1)
|
1
|
|
|
—
|
|
|
(33
|
)
|
|
—
|
|
|
—
|
|
|
(32
|
)
|
||||||
|
Other comprehensive income (loss) before reclassifications
|
(122
|
)
|
|
(11
|
)
|
|
(4
|
)
|
|
6
|
|
|
—
|
|
|
(131
|
)
|
||||||
|
Less: Amounts reclassified from AOCI to:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Net realized investment gains (losses)
|
6
|
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
||||||
|
Fair value gains (losses) on FG VIEs
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
||||||
|
Total before tax
|
6
|
|
|
(11
|
)
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
||||||
|
Tax (provision) benefit
|
—
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
3
|
|
||||||
|
Total amount reclassified from AOCI, net of tax
|
6
|
|
|
(9
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
||||||
|
Net current period other comprehensive income (loss)
|
(128
|
)
|
|
(2
|
)
|
|
(2
|
)
|
|
6
|
|
|
—
|
|
|
(126
|
)
|
||||||
|
Balance, March 31, 2018
|
$
|
146
|
|
|
$
|
118
|
|
|
$
|
(35
|
)
|
|
$
|
(23
|
)
|
|
$
|
8
|
|
|
$
|
214
|
|
|
(1)
|
On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, resulting in a cumulative-effect reclassification of a $32 million loss, net of tax, from retained earnings to AOCI.
|
|
Period
|
|
Number of Shares Repurchased
|
|
Total Payments
(in millions)
|
|
Average Price Paid Per Share
|
|||||
|
2018 (January 1 - March 31)
|
|
2,787,936
|
|
|
$
|
98
|
|
|
$
|
35.20
|
|
|
2018 (April 1 - June 30)
|
|
4,163,190
|
|
|
152
|
|
|
36.48
|
|
||
|
2018 (July 1 - September 30)
|
|
3,299,049
|
|
|
130
|
|
|
39.41
|
|
||
|
2018 (October 1 - December 31)
|
|
2,992,932
|
|
|
120
|
|
|
40.09
|
|
||
|
Total 2018
|
|
13,243,107
|
|
|
$
|
500
|
|
|
$
|
37.76
|
|
|
2019 (January 1 - March 31)
|
|
1,908,605
|
|
|
79
|
|
|
41.62
|
|
||
|
2019 (April 1 - May 9, 2019)
|
|
853,432
|
|
|
40
|
|
|
46.25
|
|
||
|
Total 2019
|
|
2,762,037
|
|
|
$
|
119
|
|
|
$
|
43.05
|
|
|
Cumulative repurchases since the beginning of 2013
|
|
97,317,994
|
|
|
$
|
2,835
|
|
|
$
|
29.13
|
|
|
16.
|
Subsidiary Information
|
|
|
Assured
Guaranty Ltd.
(Parent)
|
|
AGUS
(Issuer) (1)
|
|
AGMH
(Issuer)
|
|
Other
Entities
|
|
Consolidating
Adjustments
|
|
Assured
Guaranty Ltd.
(Consolidated)
|
||||||||||||
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total investment portfolio and cash
|
$
|
43
|
|
|
$
|
362
|
|
|
$
|
44
|
|
|
$
|
10,880
|
|
|
$
|
(429
|
)
|
|
$
|
10,900
|
|
|
Investment in subsidiaries
|
6,570
|
|
|
5,923
|
|
|
4,080
|
|
|
231
|
|
|
(16,804
|
)
|
|
—
|
|
||||||
|
Premiums receivable, net of commissions payable
|
—
|
|
|
—
|
|
|
—
|
|
|
1,059
|
|
|
(162
|
)
|
|
897
|
|
||||||
|
Deferred acquisition costs
|
—
|
|
|
—
|
|
|
—
|
|
|
141
|
|
|
(37
|
)
|
|
104
|
|
||||||
|
Intercompany loan receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
(50
|
)
|
|
—
|
|
||||||
|
FG VIEs’ assets, at fair value
|
—
|
|
|
—
|
|
|
—
|
|
|
560
|
|
|
—
|
|
|
560
|
|
||||||
|
Dividends receivable from affiliate
|
58
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(58
|
)
|
|
—
|
|
||||||
|
Other
|
20
|
|
|
91
|
|
|
27
|
|
|
2,587
|
|
|
(1,635
|
)
|
|
1,090
|
|
||||||
|
Total assets
|
$
|
6,691
|
|
|
$
|
6,376
|
|
|
$
|
4,151
|
|
|
$
|
15,508
|
|
|
$
|
(19,175
|
)
|
|
$
|
13,551
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Unearned premium reserves
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,358
|
|
|
$
|
(921
|
)
|
|
$
|
3,437
|
|
|
Loss and LAE reserve
|
—
|
|
|
—
|
|
|
—
|
|
|
1,312
|
|
|
(280
|
)
|
|
1,032
|
|
||||||
|
Long-term debt
|
—
|
|
|
844
|
|
|
470
|
|
|
5
|
|
|
(87
|
)
|
|
1,232
|
|
||||||
|
Intercompany loan payable
|
—
|
|
|
50
|
|
|
—
|
|
|
300
|
|
|
(350
|
)
|
|
—
|
|
||||||
|
Credit derivative liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
260
|
|
|
(31
|
)
|
|
229
|
|
||||||
|
FG VIEs’ liabilities, at fair value
|
—
|
|
|
—
|
|
|
—
|
|
|
609
|
|
|
—
|
|
|
609
|
|
||||||
|
Dividends payable to affiliate
|
—
|
|
|
58
|
|
|
—
|
|
|
—
|
|
|
(58
|
)
|
|
—
|
|
||||||
|
Other
|
22
|
|
|
83
|
|
|
73
|
|
|
750
|
|
|
(585
|
)
|
|
343
|
|
||||||
|
Total liabilities
|
22
|
|
|
1,035
|
|
|
543
|
|
|
7,594
|
|
|
(2,312
|
)
|
|
6,882
|
|
||||||
|
Total shareholders' equity attributable to Assured Guaranty Ltd.
|
6,669
|
|
|
5,341
|
|
|
3,608
|
|
|
7,683
|
|
|
(16,632
|
)
|
|
6,669
|
|
||||||
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
231
|
|
|
(231
|
)
|
|
—
|
|
||||||
|
Total shareholders' equity
|
6,669
|
|
|
5,341
|
|
|
3,608
|
|
|
7,914
|
|
|
(16,863
|
)
|
|
6,669
|
|
||||||
|
Total liabilities and shareholders' equity
|
$
|
6,691
|
|
|
$
|
6,376
|
|
|
$
|
4,151
|
|
|
$
|
15,508
|
|
|
$
|
(19,175
|
)
|
|
$
|
13,551
|
|
|
(1)
|
The fair value of the AGMH debt purchased by AGUS, and recorded in the AGUS investment portfolio, was $129 million. See Note 13, Long-Term Debt and Credit Facilities for more information.
|
|
|
Assured
Guaranty Ltd.
(Parent)
|
|
AGUS
(Issuer) (1)
|
|
AGMH
(Issuer)
|
|
Other
Entities
|
|
Consolidating
Adjustments
|
|
Assured
Guaranty Ltd.
(Consolidated)
|
||||||||||||
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total investment portfolio and cash
|
$
|
45
|
|
|
$
|
334
|
|
|
$
|
23
|
|
|
$
|
11,000
|
|
|
$
|
(425
|
)
|
|
$
|
10,977
|
|
|
Investment in subsidiaries
|
6,440
|
|
|
5,835
|
|
|
3,991
|
|
|
226
|
|
|
(16,492
|
)
|
|
—
|
|
||||||
|
Premiums receivable, net of commissions payable
|
—
|
|
|
—
|
|
|
—
|
|
|
1,071
|
|
|
(167
|
)
|
|
904
|
|
||||||
|
Deferred acquisition costs
|
—
|
|
|
—
|
|
|
—
|
|
|
143
|
|
|
(38
|
)
|
|
105
|
|
||||||
|
Deferred tax asset, net
|
—
|
|
|
—
|
|
|
—
|
|
|
162
|
|
|
(94
|
)
|
|
68
|
|
||||||
|
Intercompany loan receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
(50
|
)
|
|
—
|
|
||||||
|
FG VIEs’ assets, at fair value
|
—
|
|
|
—
|
|
|
—
|
|
|
569
|
|
|
—
|
|
|
569
|
|
||||||
|
Dividends receivable from affiliate
|
60
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(60
|
)
|
|
—
|
|
||||||
|
Other
|
29
|
|
|
66
|
|
|
24
|
|
|
2,437
|
|
|
(1,576
|
)
|
|
980
|
|
||||||
|
Total assets
|
$
|
6,574
|
|
|
$
|
6,235
|
|
|
$
|
4,038
|
|
|
$
|
15,658
|
|
|
$
|
(18,902
|
)
|
|
$
|
13,603
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Unearned premium reserves
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,452
|
|
|
$
|
(940
|
)
|
|
$
|
3,512
|
|
|
Loss and LAE reserve
|
—
|
|
|
—
|
|
|
—
|
|
|
1,467
|
|
|
(290
|
)
|
|
1,177
|
|
||||||
|
Long-term debt
|
—
|
|
|
844
|
|
|
468
|
|
|
5
|
|
|
(84
|
)
|
|
1,233
|
|
||||||
|
Intercompany loan payable
|
—
|
|
|
50
|
|
|
—
|
|
|
300
|
|
|
(350
|
)
|
|
—
|
|
||||||
|
Credit derivative liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
236
|
|
|
(27
|
)
|
|
209
|
|
||||||
|
Deferred tax liabilities, net
|
—
|
|
|
49
|
|
|
50
|
|
|
—
|
|
|
(99
|
)
|
|
—
|
|
||||||
|
FG VIEs’ liabilities, at fair value
|
—
|
|
|
—
|
|
|
—
|
|
|
619
|
|
|
—
|
|
|
619
|
|
||||||
|
Dividends payable to affiliate
|
—
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|
(60
|
)
|
|
—
|
|
||||||
|
Other
|
19
|
|
|
3
|
|
|
17
|
|
|
763
|
|
|
(504
|
)
|
|
298
|
|
||||||
|
Total liabilities
|
19
|
|
|
1,006
|
|
|
535
|
|
|
7,842
|
|
|
(2,354
|
)
|
|
7,048
|
|
||||||
|
Total shareholders' equity attributable to Assured Guaranty Ltd.
|
6,555
|
|
|
5,229
|
|
|
3,503
|
|
|
7,590
|
|
|
(16,322
|
)
|
|
6,555
|
|
||||||
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
226
|
|
|
(226
|
)
|
|
—
|
|
||||||
|
Total shareholders' equity
|
6,555
|
|
|
5,229
|
|
|
3,503
|
|
|
7,816
|
|
|
(16,548
|
)
|
|
6,555
|
|
||||||
|
Total liabilities and shareholders' equity
|
$
|
6,574
|
|
|
$
|
6,235
|
|
|
$
|
4,038
|
|
|
$
|
15,658
|
|
|
$
|
(18,902
|
)
|
|
$
|
13,603
|
|
|
(1)
|
The fair value of the AGMH debt purchased by AGUS, and recorded in the AGUS investment portfolio, was $125 million. See Note 13, Long-Term Debt and Credit Facilities for more information.
|
|
|
Assured
Guaranty Ltd.
(Parent)
|
|
AGUS
(Issuer)
|
|
AGMH
(Issuer)
|
|
Other
Entities
|
|
Consolidating
Adjustments
|
|
Assured
Guaranty Ltd.
(Consolidated)
|
||||||||||||
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Net earned premiums
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
121
|
|
|
$
|
(3
|
)
|
|
$
|
118
|
|
|
Net investment income
|
—
|
|
|
2
|
|
|
—
|
|
|
101
|
|
|
(5
|
)
|
|
98
|
|
||||||
|
Net realized investment gains (losses)
|
—
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
||||||
|
Net change in fair value of credit derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
—
|
|
|
(22
|
)
|
||||||
|
Other
|
2
|
|
|
—
|
|
|
—
|
|
|
66
|
|
|
(55
|
)
|
|
13
|
|
||||||
|
Total revenues
|
2
|
|
|
2
|
|
|
—
|
|
|
254
|
|
|
(63
|
)
|
|
195
|
|
||||||
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Loss and LAE
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
(1
|
)
|
|
46
|
|
||||||
|
Amortization of deferred acquisition costs
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
(1
|
)
|
|
6
|
|
||||||
|
Interest expense
|
—
|
|
|
12
|
|
|
13
|
|
|
4
|
|
|
(6
|
)
|
|
23
|
|
||||||
|
Other operating expenses
|
10
|
|
|
1
|
|
|
—
|
|
|
107
|
|
|
(54
|
)
|
|
64
|
|
||||||
|
Total expenses
|
10
|
|
|
13
|
|
|
13
|
|
|
165
|
|
|
(62
|
)
|
|
139
|
|
||||||
|
Equity in net earnings of investees
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
2
|
|
||||||
|
Income (loss) before income taxes and equity in net earnings of subsidiaries
|
(8
|
)
|
|
(10
|
)
|
|
(13
|
)
|
|
90
|
|
|
(1
|
)
|
|
58
|
|
||||||
|
Total (provision) benefit for income taxes
|
—
|
|
|
2
|
|
|
3
|
|
|
(9
|
)
|
|
—
|
|
|
(4
|
)
|
||||||
|
Equity in net earnings of subsidiaries
|
62
|
|
|
50
|
|
|
68
|
|
|
4
|
|
|
(184
|
)
|
|
—
|
|
||||||
|
Net income (loss)
|
$
|
54
|
|
|
$
|
42
|
|
|
$
|
58
|
|
|
$
|
85
|
|
|
$
|
(185
|
)
|
|
$
|
54
|
|
|
Less: noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
(4
|
)
|
|
—
|
|
||||||
|
Net income (loss) attributable to Assured Guaranty Ltd.
|
$
|
54
|
|
|
$
|
42
|
|
|
$
|
58
|
|
|
$
|
81
|
|
|
$
|
(181
|
)
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Comprehensive income (loss)
|
$
|
222
|
|
|
$
|
170
|
|
|
$
|
152
|
|
|
$
|
254
|
|
|
$
|
(576
|
)
|
|
$
|
222
|
|
|
|
Assured
Guaranty Ltd.
(Parent)
|
|
AGUS
(Issuer)
|
|
AGMH
(Issuer)
|
|
Other
Entities
|
|
Consolidating
Adjustments
|
|
Assured
Guaranty Ltd.
(Consolidated)
|
||||||||||||
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Net earned premiums
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
149
|
|
|
$
|
(4
|
)
|
|
$
|
145
|
|
|
Net investment income
|
—
|
|
|
2
|
|
|
—
|
|
|
101
|
|
|
(3
|
)
|
|
100
|
|
||||||
|
Net realized investment gains (losses)
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
||||||
|
Net change in fair value of credit derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
—
|
|
|
34
|
|
||||||
|
Other
|
3
|
|
|
—
|
|
|
—
|
|
|
74
|
|
|
(58
|
)
|
|
19
|
|
||||||
|
Total revenues
|
3
|
|
|
2
|
|
|
—
|
|
|
353
|
|
|
(65
|
)
|
|
293
|
|
||||||
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Loss and LAE
|
—
|
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
(2
|
)
|
|
(18
|
)
|
||||||
|
Amortization of deferred acquisition costs
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
(1
|
)
|
|
5
|
|
||||||
|
Interest expense
|
—
|
|
|
12
|
|
|
13
|
|
|
3
|
|
|
(4
|
)
|
|
24
|
|
||||||
|
Other operating expenses
|
10
|
|
|
3
|
|
|
—
|
|
|
105
|
|
|
(53
|
)
|
|
65
|
|
||||||
|
Total expenses
|
10
|
|
|
15
|
|
|
13
|
|
|
98
|
|
|
(60
|
)
|
|
76
|
|
||||||
|
Equity in net earnings of investees
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
|
Income (loss) before income taxes and equity in net earnings of subsidiaries
|
(7
|
)
|
|
(13
|
)
|
|
(13
|
)
|
|
255
|
|
|
(5
|
)
|
|
217
|
|
||||||
|
Total (provision) benefit for income taxes
|
—
|
|
|
3
|
|
|
3
|
|
|
(25
|
)
|
|
(1
|
)
|
|
(20
|
)
|
||||||
|
Equity in net earnings of subsidiaries
|
204
|
|
|
161
|
|
|
102
|
|
|
7
|
|
|
(474
|
)
|
|
—
|
|
||||||
|
Net income (loss)
|
$
|
197
|
|
|
$
|
151
|
|
|
$
|
92
|
|
|
$
|
237
|
|
|
$
|
(480
|
)
|
|
$
|
197
|
|
|
Less: noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
(7
|
)
|
|
—
|
|
||||||
|
Net income (loss) attributable to Assured Guaranty Ltd.
|
$
|
197
|
|
|
$
|
151
|
|
|
$
|
92
|
|
|
$
|
230
|
|
|
$
|
(473
|
)
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Comprehensive income (loss)
|
$
|
71
|
|
|
$
|
67
|
|
|
$
|
46
|
|
|
$
|
111
|
|
|
$
|
(224
|
)
|
|
$
|
71
|
|
|
|
Assured
Guaranty Ltd.
(Parent)
|
|
AGUS
(Issuer)
|
|
AGMH
(Issuer)
|
|
Other
Entities
|
|
Consolidating
Adjustments
|
|
Assured
Guaranty Ltd.
(Consolidated)
|
||||||||||||
|
Net cash flows provided by (used in) operating activities
|
$
|
112
|
|
|
$
|
87
|
|
|
$
|
68
|
|
|
$
|
(334
|
)
|
|
$
|
(265
|
)
|
|
$
|
(332
|
)
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Fixed-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Purchases
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(196
|
)
|
|
3
|
|
|
(196
|
)
|
||||||
|
Sales
|
—
|
|
|
—
|
|
|
—
|
|
|
471
|
|
|
—
|
|
|
471
|
|
||||||
|
Maturities
|
—
|
|
|
—
|
|
|
1
|
|
|
176
|
|
|
—
|
|
|
177
|
|
||||||
|
Short-term investments with maturities of over three months:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Purchases
|
—
|
|
|
—
|
|
|
—
|
|
|
(107
|
)
|
|
—
|
|
|
(107
|
)
|
||||||
|
Sales
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||||
|
Maturities
|
—
|
|
|
8
|
|
|
—
|
|
|
59
|
|
|
—
|
|
|
67
|
|
||||||
|
Net sales (purchases) of short-term investments with maturities of less than three months
|
2
|
|
|
(33
|
)
|
|
(20
|
)
|
|
76
|
|
|
—
|
|
|
25
|
|
||||||
|
Net proceeds from FG VIEs’ assets
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
||||||
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
27
|
|
||||||
|
Net cash flows provided by (used in) investing activities
|
2
|
|
|
(28
|
)
|
|
(19
|
)
|
|
534
|
|
|
3
|
|
|
492
|
|
||||||
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Dividends paid
|
(20
|
)
|
|
(60
|
)
|
|
(47
|
)
|
|
(158
|
)
|
|
265
|
|
|
(20
|
)
|
||||||
|
Repurchases of common stock
|
(80
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
||||||
|
Repurchases of common stock to pay withholding taxes
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
||||||
|
Net paydowns of FG VIEs’ liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
(25
|
)
|
||||||
|
Paydown of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
||||||
|
Proceeds from options exercises
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||||
|
Net cash flows provided by (used in) financing activities
|
(114
|
)
|
|
(60
|
)
|
|
(47
|
)
|
|
(183
|
)
|
|
262
|
|
|
(142
|
)
|
||||||
|
Effect of exchange rate changes
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||||
|
Increase (decrease) in cash and restricted cash
|
—
|
|
|
(1
|
)
|
|
2
|
|
|
18
|
|
|
—
|
|
|
19
|
|
||||||
|
Cash and restricted cash at beginning of period
|
—
|
|
|
1
|
|
|
—
|
|
|
103
|
|
|
—
|
|
|
104
|
|
||||||
|
Cash and restricted cash at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
121
|
|
|
$
|
—
|
|
|
$
|
123
|
|
|
|
Assured
Guaranty Ltd.
(Parent)
|
|
AGUS
(Issuer)
|
|
AGMH
(Issuer)
|
|
Other
Entities
|
|
Consolidating
Adjustments
|
|
Assured
Guaranty Ltd.
(Consolidated)
|
||||||||||||
|
Net cash flows provided by (used in) operating activities
|
$
|
128
|
|
|
$
|
83
|
|
|
$
|
63
|
|
|
$
|
46
|
|
|
$
|
(293
|
)
|
|
$
|
27
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Fixed-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Purchases
|
—
|
|
|
(18
|
)
|
|
(12
|
)
|
|
(400
|
)
|
|
19
|
|
|
(411
|
)
|
||||||
|
Sales
|
—
|
|
|
11
|
|
|
2
|
|
|
396
|
|
|
—
|
|
|
409
|
|
||||||
|
Maturities
|
—
|
|
|
—
|
|
|
—
|
|
|
225
|
|
|
—
|
|
|
225
|
|
||||||
|
Short-term investments with maturities of over three months:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Purchases
|
—
|
|
|
—
|
|
|
—
|
|
|
(47
|
)
|
|
—
|
|
|
(47
|
)
|
||||||
|
Sales
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
|
Maturities
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
45
|
|
||||||
|
Net sales (purchases) of short-term investments with maturities of less than three months
|
1
|
|
|
(217
|
)
|
|
(4
|
)
|
|
106
|
|
|
—
|
|
|
(114
|
)
|
||||||
|
Net proceeds from FG VIEs’ assets
|
—
|
|
|
—
|
|
|
—
|
|
|
33
|
|
|
—
|
|
|
33
|
|
||||||
|
Proceeds from stock redemption and return of capital from subsidiaries
|
—
|
|
|
200
|
|
|
—
|
|
|
—
|
|
|
(200
|
)
|
|
—
|
|
||||||
|
Other
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(14
|
)
|
||||||
|
Net cash flows provided by (used in) investing activities
|
1
|
|
|
(37
|
)
|
|
(14
|
)
|
|
357
|
|
|
(181
|
)
|
|
126
|
|
||||||
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Dividends paid
|
(18
|
)
|
|
(78
|
)
|
|
(50
|
)
|
|
(165
|
)
|
|
293
|
|
|
(18
|
)
|
||||||
|
Repurchases of common stock
|
(100
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(100
|
)
|
||||||
|
Repurchases of common stock to pay withholding taxes
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
(200
|
)
|
|
200
|
|
|
(12
|
)
|
||||||
|
Net paydowns of FG VIEs’ liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
(33
|
)
|
|
—
|
|
|
(33
|
)
|
||||||
|
Paydown of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
(19
|
)
|
||||||
|
Proceeds from options exercises
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||||
|
Net cash flows provided by (used in) financing activities
|
(129
|
)
|
|
(78
|
)
|
|
(50
|
)
|
|
(398
|
)
|
|
474
|
|
|
(181
|
)
|
||||||
|
Effect of exchange rate changes
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||||
|
Increase (decrease) in cash and restricted cash
|
—
|
|
|
(32
|
)
|
|
(1
|
)
|
|
6
|
|
|
—
|
|
|
(27
|
)
|
||||||
|
Cash and restricted cash at beginning of period
|
—
|
|
|
33
|
|
|
2
|
|
|
109
|
|
|
—
|
|
|
144
|
|
||||||
|
Cash and restricted cash at end of period
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
115
|
|
|
$
|
—
|
|
|
$
|
117
|
|
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
•
|
reduction in the amount of available insurance opportunities and/or in the demand for Assured Guaranty's insurance;
|
|
•
|
rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for downgrade, or a change in rating criteria, at any time, of AGL or any of its subsidiaries, and/or of any securities AGL or any of its subsidiaries have issued, and/or of transactions that AGL’s subsidiaries have insured;
|
|
•
|
developments in the world’s financial and capital markets that adversely affect obligors’ payment rates or Assured Guaranty’s loss experience;
|
|
•
|
the possibility that budget or pension shortfalls or other factors will result in credit losses or impairments on obligations of state, territorial and local governments and their related authorities and public corporations that Assured Guaranty insures or reinsures;
|
|
•
|
the failure of Assured Guaranty to realize loss recoveries that are assumed in its expected loss estimates;
|
|
•
|
increased competition, including from new entrants into the financial guaranty industry;
|
|
•
|
rating agency action on obligors, including sovereign debtors, resulting in a reduction in the value of securities in Assured Guaranty's investment portfolio and in collateral posted by and to Assured Guaranty;
|
|
•
|
the inability of Assured Guaranty to access external sources of capital on acceptable terms;
|
|
•
|
changes in the world’s credit markets, segments thereof, interest rates or general economic conditions;
|
|
•
|
the impact of market volatility on the mark-to-market of Assured Guaranty’s assets and liabilities subject to mark-to-market, including certain of its investments, most of its contracts written in credit default swap (CDS) form, and variable interest entities;
|
|
•
|
changes in applicable accounting policies or practices;
|
|
•
|
changes in applicable laws or regulations, including insurance, bankruptcy and tax laws, or other governmental actions;
|
|
•
|
the impact of changes in the world’s economy and credit and currency markets and in applicable laws or regulations relating to the decision of the United Kingdom (U.K.) to exit the European Union (EU);
|
|
•
|
the possibility that acquisitions or alternative investments made by Assured Guaranty do not result in the benefits anticipated or subject Assured Guaranty to unanticipated consequences;
|
|
•
|
difficulties with the execution of Assured Guaranty’s business strategy;
|
|
•
|
loss of key personnel;
|
|
•
|
the effects of mergers, acquisitions and divestitures;
|
|
•
|
natural or man-made catastrophes;
|
|
•
|
other risk factors identified in AGL’s filings with the U.S. Securities and Exchange Commission (the SEC);
|
|
•
|
other risks and uncertainties that have not been identified at this time; and
|
|
•
|
management’s response to these factors.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Net income (loss)
|
$
|
54
|
|
|
$
|
197
|
|
|
Non-GAAP operating income (1)
|
86
|
|
|
155
|
|
||
|
Gain (loss) related to the effect of consolidating financial guaranty variable interest entities (FG VIE consolidation) included in non-GAAP operating income
|
—
|
|
|
5
|
|
||
|
|
|
|
|
||||
|
Net income (loss) per diluted share
|
$
|
0.52
|
|
|
$
|
1.68
|
|
|
Non-GAAP operating income per share (1)
|
0.82
|
|
|
1.33
|
|
||
|
Gain (loss) related to FG VIE consolidation included in non-GAAP operating income per share
|
—
|
|
|
0.04
|
|
||
|
|
|
|
|
||||
|
Diluted shares
|
104.0
|
|
|
116.6
|
|
||
|
|
|
|
|
||||
|
Gross written premiums (GWP)
|
$
|
39
|
|
|
$
|
73
|
|
|
Present value of new business production (PVP) (1)
|
42
|
|
|
61
|
|
||
|
Gross par written
|
2,707
|
|
|
2,202
|
|
||
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||||||
|
|
Amount
|
|
Per Share
|
|
Amount
|
|
Per Share
|
||||||||
|
|
(in millions, except per share amounts)
|
||||||||||||||
|
Shareholders' equity
|
$
|
6,669
|
|
|
$
|
65.21
|
|
|
$
|
6,555
|
|
|
$
|
63.23
|
|
|
Non-GAAP operating shareholders' equity (1)
|
6,341
|
|
|
62.00
|
|
|
6,342
|
|
|
61.17
|
|
||||
|
Non-GAAP adjusted book value (1)
|
8,893
|
|
|
86.95
|
|
|
8,922
|
|
|
86.06
|
|
||||
|
Gain (loss) related to FG VIE consolidation included in non-GAAP operating shareholders' equity
|
3
|
|
|
0.03
|
|
|
3
|
|
|
0.03
|
|
||||
|
Gain (loss) related to FG VIE consolidation included in non-GAAP adjusted book value
|
(20
|
)
|
|
(0.20
|
)
|
|
(15
|
)
|
|
(0.15
|
)
|
||||
|
Common shares outstanding (2)
|
102.3
|
|
|
|
|
103.7
|
|
|
|
||||||
|
(1)
|
See “—Non-GAAP Financial Measures” for a definition of the financial measures that were not determined in accordance with accounting principles generally accepted in the United States of America (GAAP) and a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure, if available.
|
|
(2)
|
See "Key Business Strategies – Capital Management" below for information on common share repurchases.
|
|
•
|
New business production
|
|
•
|
Capital management
|
|
•
|
Alternative strategies
|
|
•
|
Loss mitigation
|
|
•
|
encourages retail investors, who typically have fewer resources than the Company for analyzing municipal bonds, to purchase such bonds;
|
|
•
|
enables institutional investors to operate more efficiently; and
|
|
•
|
allows smaller, less well-known issuers to gain market access on a more cost-effective basis.
|
|
|
First Quarter 2019
|
|
First Quarter 2018
|
|
Year Ended December 31, 2018
|
||||||
|
|
(dollars in billions, except number of issues and percent)
|
||||||||||
|
Par:
|
|
|
|
|
|
||||||
|
New municipal bonds issued
|
$
|
75.6
|
|
|
$
|
61.8
|
|
|
$
|
320.3
|
|
|
Total insured
|
$
|
3.6
|
|
|
$
|
3.6
|
|
|
$
|
18.9
|
|
|
Insured by Assured Guaranty
|
$
|
2.0
|
|
|
$
|
2.2
|
|
|
$
|
10.5
|
|
|
Number of issues:
|
|
|
|
|
|
||||||
|
New municipal bonds issued
|
1,811
|
|
|
1,674
|
|
|
8,555
|
|
|||
|
Total insured
|
290
|
|
|
258
|
|
|
1,246
|
|
|||
|
Insured by Assured Guaranty
|
163
|
|
|
119
|
|
|
596
|
|
|||
|
Bond insurance market penetration based on:
|
|
|
|
|
|
||||||
|
Par
|
4.8
|
%
|
|
5.9
|
%
|
|
5.9
|
%
|
|||
|
Number of issues
|
16.0
|
%
|
|
15.4
|
%
|
|
14.6
|
%
|
|||
|
Single A par sold
|
21.8
|
%
|
|
21.3
|
%
|
|
17.8
|
%
|
|||
|
Single A transactions sold
|
53.4
|
%
|
|
53.1
|
%
|
|
52.8
|
%
|
|||
|
$25 million and under par sold
|
17.7
|
%
|
|
17.9
|
%
|
|
17.2
|
%
|
|||
|
$25 million and under transactions sold
|
19.8
|
%
|
|
18.1
|
%
|
|
17.1
|
%
|
|||
|
(1)
|
Source: The amounts in the table are those reported by Thomson Reuters. In addition, the Company considers $500 million of taxable ProMedica Toledo Hospital bonds insured by Assured Guaranty in 2018 to be public finance business.
|
|
(1)
|
PVP and Gross Par Written in the table above are based on "close date," when the transaction settles. See “– Non-GAAP Financial Measures – PVP or Present Value of New Business Production.”
|
|
|
Amount
|
|
Number of Shares
|
|
Average price
per share
|
|||||
|
|
(in millions, except per share data)
|
|||||||||
|
2013 - 2018
|
$
|
2,716
|
|
|
94.56
|
|
|
$
|
28.73
|
|
|
2019 (First Quarter)
|
79
|
|
|
1.91
|
|
|
41.62
|
|
||
|
2019 (April 1 - May 9, 2019)
|
40
|
|
|
0.85
|
|
|
46.25
|
|
||
|
Cumulative repurchases since the beginning of 2013
|
$
|
2,835
|
|
|
97.32
|
|
|
$
|
29.13
|
|
|
|
First Quarter 2019
|
|
As of
March 31, 2019 |
||||
|
|
(per share)
|
||||||
|
Net income
|
$
|
0.16
|
|
|
|
||
|
Non-GAAP operating income
|
0.30
|
|
|
|
|||
|
Shareholders' equity
|
|
|
$
|
17.38
|
|
||
|
Non-GAAP operating shareholders' equity
|
|
|
15.84
|
|
|||
|
Non-GAAP adjusted book value
|
|
|
27.83
|
|
|||
|
(1)
|
Cumulative repurchases since the beginning of 2013.
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Revenues:
|
|
|
|
||||
|
Net earned premiums
|
$
|
118
|
|
|
$
|
145
|
|
|
Net investment income
|
98
|
|
|
100
|
|
||
|
Net realized investment gains (losses)
|
(12
|
)
|
|
(5
|
)
|
||
|
Net change in fair value of credit derivatives
|
(22
|
)
|
|
34
|
|
||
|
Fair value gains (losses) on FG VIEs
|
5
|
|
|
4
|
|
||
|
Other income (loss)
|
8
|
|
|
15
|
|
||
|
Total revenues
|
195
|
|
|
293
|
|
||
|
Expenses:
|
|
|
|
||||
|
Loss and LAE
|
46
|
|
|
(18
|
)
|
||
|
Amortization of deferred acquisition costs
|
6
|
|
|
5
|
|
||
|
Interest expense
|
23
|
|
|
24
|
|
||
|
Other operating expenses
|
64
|
|
|
65
|
|
||
|
Total expenses
|
139
|
|
|
76
|
|
||
|
Income (loss) before provision for income taxes and equity in net earnings of investees
|
56
|
|
|
217
|
|
||
|
Equity in net earnings of investees
|
2
|
|
|
—
|
|
||
|
Income (loss) before income taxes
|
58
|
|
|
217
|
|
||
|
Provision (benefit) for income taxes
|
4
|
|
|
20
|
|
||
|
Net income (loss)
|
$
|
54
|
|
|
$
|
197
|
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Financial guaranty insurance:
|
|
|
|
||||
|
Public finance
|
|
|
|
||||
|
Scheduled net earned premiums
|
$
|
71
|
|
|
$
|
72
|
|
|
Accelerations:
|
|
|
|
||||
|
Refundings
|
27
|
|
|
46
|
|
||
|
Terminations
|
—
|
|
|
6
|
|
||
|
Total accelerations
|
27
|
|
|
52
|
|
||
|
Total public finance
|
98
|
|
|
124
|
|
||
|
Structured finance (1)
|
|
|
|
||||
|
Scheduled net earned premiums
|
20
|
|
|
20
|
|
||
|
Terminations
|
(1
|
)
|
|
—
|
|
||
|
Total structured finance
|
19
|
|
|
20
|
|
||
|
Non-financial guaranty
|
1
|
|
|
1
|
|
||
|
Total net earned premiums
|
$
|
118
|
|
|
$
|
145
|
|
|
(1)
|
Excludes $3 million for both First Quarter 2019 and 2018, related to consolidated FG VIEs.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Income from fixed-maturity securities managed by third parties
|
$
|
72
|
|
|
$
|
75
|
|
|
Income from internally managed securities
|
28
|
|
|
27
|
|
||
|
Gross investment income
|
100
|
|
|
102
|
|
||
|
Investment expenses
|
(2
|
)
|
|
(2
|
)
|
||
|
Net investment income
|
$
|
98
|
|
|
$
|
100
|
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Gross realized gains on available-for-sale securities
|
$
|
6
|
|
|
$
|
9
|
|
|
Gross realized losses on available-for-sale securities
|
(2
|
)
|
|
(5
|
)
|
||
|
Net realized gains (losses) on other invested assets
|
—
|
|
|
(1
|
)
|
||
|
OTTI
|
(16
|
)
|
|
(8
|
)
|
||
|
Net realized investment gains (losses)
|
$
|
(12
|
)
|
|
$
|
(5
|
)
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Change in unrealized gains (losses) on credit derivatives:
|
|
|
53
|
|
|||
|
Before considering implication of the Company’s credit spreads
|
$
|
22
|
|
|
$
|
53
|
|
|
Resulting from change in the Company’s credit spreads
|
(43
|
)
|
|
(21
|
)
|
||
|
After considering implication of the Company’s credit spreads
|
$
|
(21
|
)
|
|
$
|
32
|
|
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||||||
|
Credit Spreads (1)
|
|
Estimated Net
Fair Value
(Pre-Tax)
|
|
Estimated Change
in Gain/(Loss)
(Pre-Tax)
|
|
Estimated Net
Fair Value
(Pre-Tax)
|
|
Estimated Change
in Gain/(Loss)
(Pre-Tax)
|
||||||||
|
|
|
(in millions)
|
||||||||||||||
|
Increase of 25 basis points (bps)
|
|
$
|
(328
|
)
|
|
$
|
(100
|
)
|
|
$
|
(348
|
)
|
|
$
|
(141
|
)
|
|
Base Scenario
|
|
(228
|
)
|
|
—
|
|
|
(207
|
)
|
|
—
|
|
||||
|
Decrease of 25 bps
|
|
(156
|
)
|
|
72
|
|
|
(143
|
)
|
|
64
|
|
||||
|
All transactions priced at floor
|
|
(106
|
)
|
|
122
|
|
|
(101
|
)
|
|
106
|
|
||||
|
(1)
|
Includes the effects of spreads on both the underlying asset classes and the Company’s own credit spread.
|
|
•
|
Changes in fair value gains (losses) on FG VIEs’ assets and liabilities are recorded in the condensed consolidated statements of operations except the change in fair value of FG VIEs’ liabilities with recourse attributable to instrument-specific credit risk which is recorded in other comprehensive income (OCI).
|
|
•
|
Upon consolidation of a FG VIE, premiums and losses related to AGC's and AGM's insurance of FG VIEs’ liabilities with recourse and any investment balances related to the Company’s purchase of AGC and AGM insured FG VIEs’ debt, are considered intercompany transactions and are therefore eliminated.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Foreign exchange gain (loss) on remeasurement (1)
|
$
|
11
|
|
|
$
|
22
|
|
|
Loss on extinguishment of debt (2)
|
(1
|
)
|
|
(7
|
)
|
||
|
Fair value gains (losses) on CCS
|
(9
|
)
|
|
(1
|
)
|
||
|
Other
|
7
|
|
|
1
|
|
||
|
Total other income (loss)
|
$
|
8
|
|
|
$
|
15
|
|
|
(1)
|
Foreign exchange gains primarily relate to remeasurement of premiums receivable and are mainly due to changes in the exchange rate of the British pound sterling relative to the U.S. dollar.
|
|
(2)
|
The loss on extinguishment of debt is related to AGUS' purchase of a portion of the principal amount of AGMH's outstanding Junior Subordinated Debentures. The loss represents the difference between the amount paid to purchase AGMH's debt and the carrying value of the debt, which includes the unamortized fair value adjustments that were recorded upon the acquisition of AGMH in 2009. AGUS purchased $3 million in principal in First Quarter 2019 and $20 million in First Quarter 2018. See Item 1, Financial Statements, Note 13, Long-Term Debt and Credit Facilities, for additional information.
|
|
•
|
Note 5 for expected loss to be paid,
|
|
•
|
Note 6 for contracts accounted for as insurance,
|
|
•
|
Note 7 for fair value methodologies for credit derivatives and FG VIEs’ assets and liabilities,
|
|
•
|
Note 8 for contracts accounted for as credit derivatives, and
|
|
•
|
Note 9 for FG VIEs.
|
|
|
Net Expected Loss to be Paid (Recovered)
|
|
Net Economic Loss Development (Benefit)
|
||||||||||||
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
|
First Quarter 2019
|
|
First Quarter 2018
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
Insurance
|
$
|
904
|
|
|
$
|
1,110
|
|
|
$
|
10
|
|
|
$
|
(33
|
)
|
|
FG VIEs
|
65
|
|
|
75
|
|
|
(10
|
)
|
|
2
|
|
||||
|
Credit derivatives
|
(6
|
)
|
|
(2
|
)
|
|
(2
|
)
|
|
7
|
|
||||
|
Total
|
$
|
963
|
|
|
$
|
1,183
|
|
|
$
|
(2
|
)
|
|
$
|
(24
|
)
|
|
|
Net Expected Loss to be Paid (Recovered)
|
|
Net Economic Loss Development (Benefit)
|
||||||||||||
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
|
First Quarter 2019
|
|
First Quarter 2018
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
Public finance
|
$
|
697
|
|
|
$
|
864
|
|
|
$
|
61
|
|
|
$
|
(42
|
)
|
|
Structured finance
|
|
|
|
|
|
|
|
||||||||
|
U.S. RMBS
|
237
|
|
|
293
|
|
|
(65
|
)
|
|
16
|
|
||||
|
Other structured finance
|
29
|
|
|
26
|
|
|
2
|
|
|
2
|
|
||||
|
Structured finance
|
266
|
|
|
319
|
|
|
(63
|
)
|
|
18
|
|
||||
|
Total
|
$
|
963
|
|
|
$
|
1,183
|
|
|
$
|
(2
|
)
|
|
$
|
(24
|
)
|
|
|
Risk-Free Rates used in Expected Loss for U.S. Dollar Denominated Obligations
|
||||||
|
|
Range
|
|
Weighted Average
|
||||
|
As of March 31, 2019
|
0.00
|
%
|
-
|
2.87%
|
|
2.46
|
%
|
|
As of December 31, 2018
|
0.00
|
|
-
|
3.06
|
|
2.74
|
|
|
As of March 31, 2018
|
0.00
|
|
-
|
3.11
|
|
2.82
|
|
|
As of December 31, 2017
|
0.00
|
|
-
|
2.78
|
|
2.38
|
|
|
|
Effect of Changes in the Risk-Free Rates on Economic Loss Development (Benefit)
|
||
|
|
(in millions)
|
||
|
First Quarter 2019
|
$
|
(4
|
)
|
|
First Quarter 2018
|
(6
|
)
|
|
|
|
Loss (Benefit)
|
||||||
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Public finance
|
$
|
70
|
|
|
$
|
(29
|
)
|
|
Structured finance
|
|
|
|
||||
|
U.S. RMBS (1)
|
(27
|
)
|
|
16
|
|
||
|
Other structured finance
|
3
|
|
|
(5
|
)
|
||
|
Structured finance
|
(24
|
)
|
|
11
|
|
||
|
Total loss and LAE (2)
|
$
|
46
|
|
|
$
|
(18
|
)
|
|
(1)
|
Excludes a benefit of $1 million and a loss of $6 million for First Quarter 2019 and 2018, respectively, related to consolidated FG VIEs.
|
|
(2)
|
Excludes credit derivative benefit of $1 million and credit derivative loss of $1 million for First Quarter 2019 and First Quarter 2018.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Employee compensation and benefits
|
$
|
45
|
|
|
$
|
44
|
|
|
Deferred costs
|
(4
|
)
|
|
(4
|
)
|
||
|
Total employee compensation and benefits net of deferred costs
|
41
|
|
|
40
|
|
||
|
Professional fees
|
5
|
|
|
5
|
|
||
|
Premises and equipment
|
5
|
|
|
5
|
|
||
|
Other
|
13
|
|
|
15
|
|
||
|
Other operating expenses
|
64
|
|
|
65
|
|
||
|
Amortization of DAC
|
6
|
|
|
5
|
|
||
|
Total other operating expenses and amortization of DAC
|
$
|
70
|
|
|
$
|
70
|
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(dollars in millions)
|
||||||
|
Total provision (benefit) for income taxes
|
$
|
4
|
|
|
$
|
20
|
|
|
Effective tax rate
|
7.8
|
%
|
|
9.3
|
%
|
||
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Net income (loss)
|
$
|
54
|
|
|
$
|
197
|
|
|
Less pre-tax adjustments:
|
|
|
|
||||
|
Realized gains (losses) on investments
|
(12
|
)
|
|
(5
|
)
|
||
|
Non-credit impairment unrealized fair value gains (losses) on credit derivatives
|
(28
|
)
|
|
30
|
|
||
|
Fair value gains (losses) on CCS (1)
|
(9
|
)
|
|
(1
|
)
|
||
|
Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and LAE reserves (1)
|
9
|
|
|
22
|
|
||
|
Total pre-tax adjustments
|
(40
|
)
|
|
46
|
|
||
|
Less tax effect on pre-tax adjustments
|
8
|
|
|
(4
|
)
|
||
|
Non-GAAP operating income
|
$
|
86
|
|
|
$
|
155
|
|
|
|
|
|
|
||||
|
Gain (loss) related to FG VIE consolidation (net of tax provision (benefit) of $- and $1 included in non-GAAP operating income
|
$
|
—
|
|
|
$
|
5
|
|
|
(1)
|
Included in other income (loss) in the condensed consolidated statements of operations.
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||||||
|
|
After-Tax
|
|
Per Share
|
|
After-Tax
|
|
Per Share
|
||||||||
|
|
(dollars in millions, except per share amounts)
|
||||||||||||||
|
Shareholders’ equity
|
$
|
6,669
|
|
|
$
|
65.21
|
|
|
$
|
6,555
|
|
|
$
|
63.23
|
|
|
Less pre-tax adjustments:
|
|
|
|
|
|
|
|
||||||||
|
Non-credit impairment unrealized fair value gains (losses) on credit derivatives
|
(73
|
)
|
|
(0.71
|
)
|
|
(45
|
)
|
|
(0.44
|
)
|
||||
|
Fair value gains (losses) on CCS
|
65
|
|
|
0.63
|
|
|
74
|
|
|
0.72
|
|
||||
|
Unrealized gain (loss) on investment portfolio excluding foreign exchange effect
|
419
|
|
|
4.09
|
|
|
247
|
|
|
2.39
|
|
||||
|
Less taxes
|
(83
|
)
|
|
(0.80
|
)
|
|
(63
|
)
|
|
(0.61
|
)
|
||||
|
Non-GAAP operating shareholders’ equity
|
6,341
|
|
|
62.00
|
|
|
6,342
|
|
|
61.17
|
|
||||
|
Pre-tax adjustments:
|
|
|
|
|
|
|
|
|
|
||||||
|
Less: Deferred acquisition costs
|
104
|
|
|
1.01
|
|
|
105
|
|
|
1.01
|
|
||||
|
Plus: Net present value of estimated net future revenue
|
199
|
|
|
1.95
|
|
|
204
|
|
|
1.96
|
|
||||
|
Plus: Net unearned premium reserve on financial guaranty contracts in excess of expected loss to be expensed
|
2,972
|
|
|
29.05
|
|
|
3,005
|
|
|
28.98
|
|
||||
|
Plus taxes
|
(515
|
)
|
|
(5.04
|
)
|
|
(524
|
)
|
|
(5.04
|
)
|
||||
|
Non-GAAP adjusted book value
|
$
|
8,893
|
|
|
$
|
86.95
|
|
|
$
|
8,922
|
|
|
$
|
86.06
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Gain (loss) related to FG VIE consolidation included in non-GAAP operating shareholders' equity (net of tax provision of $1 and $1)
|
$
|
3
|
|
|
$
|
0.03
|
|
|
3
|
|
|
0.03
|
|
||
|
|
|
|
|
|
|
|
|
||||||||
|
Gain (loss) related to FG VIE consolidation included in non-GAAP adjusted book value (net of tax benefit of $5 and $4)
|
$
|
(20
|
)
|
|
$
|
(0.20
|
)
|
|
(15
|
)
|
|
(0.15
|
)
|
||
|
|
First Quarter 2019
|
|
First Quarter 2018
|
||||||||||||||||||||||||||||||||||||
|
|
Public Finance
|
|
Structured Finance
|
|
|
|
Public Finance
|
|
Structured Finance
|
|
|
||||||||||||||||||||||||||||
|
|
U.S.
|
|
Non - U.S.
|
|
U.S.
|
|
Non - U.S.
|
|
Total
|
|
U.S.
|
|
Non - U.S.
|
|
U.S.
|
|
Non - U.S.
|
|
Total
|
||||||||||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||||||||||||||||||
|
GWP
|
$
|
30
|
|
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
39
|
|
|
$
|
33
|
|
|
$
|
39
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
73
|
|
|
Less: Installment GWP and other GAAP adjustments (1)
|
(2
|
)
|
|
2
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
(2
|
)
|
|
23
|
|
|
1
|
|
|
—
|
|
|
22
|
|
||||||||||
|
Upfront GWP
|
32
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
34
|
|
|
35
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
51
|
|
||||||||||
|
Plus: Installment premium PVP
|
—
|
|
|
4
|
|
|
4
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
||||||||||
|
PVP
|
$
|
32
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
42
|
|
|
$
|
35
|
|
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61
|
|
|
(1)
|
Includes present value of new business on installment policies discounted at the prescribed GAAP discount rates, GWP adjustments on existing installment policies due to changes in assumptions, any cancellations of assumed reinsurance contracts, and other GAAP adjustments.
|
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||
|
Sector
|
|
Net Par
Outstanding
|
|
Avg.
Rating
|
|
Net Par
Outstanding
|
|
Avg.
Rating
|
||||
|
|
|
(dollars in millions)
|
||||||||||
|
Public finance:
|
|
|
|
|
|
|
|
|
|
|||
|
U.S.:
|
|
|
|
|
|
|
|
|
|
|||
|
General obligation
|
|
$
|
77,262
|
|
|
A-
|
|
$
|
78,800
|
|
|
A-
|
|
Tax backed
|
|
39,006
|
|
|
A-
|
|
40,616
|
|
|
A-
|
||
|
Municipal utilities
|
|
27,431
|
|
|
A-
|
|
28,462
|
|
|
A-
|
||
|
Transportation
|
|
14,881
|
|
|
A-
|
|
15,197
|
|
|
A-
|
||
|
Higher education
|
|
6,568
|
|
|
A-
|
|
6,643
|
|
|
A-
|
||
|
Healthcare
|
|
6,396
|
|
|
A-
|
|
6,750
|
|
|
A-
|
||
|
Infrastructure finance
|
|
5,439
|
|
|
A-
|
|
5,489
|
|
|
A-
|
||
|
Housing revenue
|
|
1,468
|
|
|
BBB+
|
|
1,435
|
|
|
BBB+
|
||
|
Investor-owned utilities
|
|
815
|
|
|
A-
|
|
1,001
|
|
|
A-
|
||
|
Other public finance—U.S.
|
|
2,142
|
|
|
A-
|
|
2,169
|
|
|
A-
|
||
|
Total public finance—U.S.
|
|
181,408
|
|
|
A-
|
|
186,562
|
|
|
A-
|
||
|
Non-U.S.:
|
|
|
|
|
|
|
|
|
|
|||
|
Regulated utilities
|
|
18,554
|
|
|
BBB+
|
|
18,325
|
|
|
BBB+
|
||
|
Infrastructure finance
|
|
17,554
|
|
|
BBB
|
|
17,216
|
|
|
BBB
|
||
|
Pooled infrastructure
|
|
1,403
|
|
|
AAA
|
|
1,373
|
|
|
AAA
|
||
|
Other public finance
|
|
7,104
|
|
|
A
|
|
7,189
|
|
|
A
|
||
|
Total public finance—non-U.S.
|
|
44,615
|
|
|
BBB+
|
|
44,103
|
|
|
BBB+
|
||
|
Total public finance
|
|
226,023
|
|
|
A-
|
|
230,665
|
|
|
A-
|
||
|
Structured finance:
|
|
|
|
|
|
|
|
|
|
|||
|
U.S.:
|
|
|
|
|
|
|
|
|
|
|||
|
RMBS
|
|
4,064
|
|
|
BBB-
|
|
4,270
|
|
|
BBB-
|
||
|
Life insurance transactions
|
|
2,001
|
|
|
AA-
|
|
1,435
|
|
|
A+
|
||
|
Pooled corporate obligations
|
|
1,397
|
|
|
AA-
|
|
1,215
|
|
|
AA-
|
||
|
Consumer receivables
|
|
1,211
|
|
|
A-
|
|
1,255
|
|
|
A-
|
||
|
Financial products
|
|
1,006
|
|
|
AA-
|
|
1,094
|
|
|
AA-
|
||
|
Other structured finance—U.S.
|
|
658
|
|
|
A-
|
|
675
|
|
|
A-
|
||
|
Total structured finance—U.S.
|
|
10,337
|
|
|
A-
|
|
9,944
|
|
|
A-
|
||
|
Non-U.S.:
|
|
|
|
|
|
|
|
|
|
|||
|
RMBS
|
|
493
|
|
|
A-
|
|
576
|
|
|
A-
|
||
|
Pooled corporate obligations
|
|
57
|
|
|
BB+
|
|
126
|
|
|
A
|
||
|
Other structured finance
|
|
415
|
|
|
A+
|
|
491
|
|
|
A
|
||
|
Total structured finance—non-U.S.
|
|
965
|
|
|
A
|
|
1,193
|
|
|
A
|
||
|
Total structured finance
|
|
11,302
|
|
|
A-
|
|
11,137
|
|
|
A-
|
||
|
Total net par outstanding
|
|
$
|
237,325
|
|
|
A-
|
|
$
|
241,802
|
|
|
A-
|
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||||
|
Rating
Category
|
|
Net Par Outstanding
|
|
%
|
|
Net Par Outstanding
|
|
%
|
||||||
|
|
|
(dollars in millions)
|
||||||||||||
|
AAA
|
|
$
|
4,610
|
|
|
1.9
|
%
|
|
$
|
4,618
|
|
|
1.9
|
%
|
|
AA
|
|
27,630
|
|
|
11.6
|
|
|
27,021
|
|
|
11.2
|
|
||
|
A
|
|
116,035
|
|
|
48.9
|
|
|
119,415
|
|
|
49.4
|
|
||
|
BBB
|
|
79,424
|
|
|
33.5
|
|
|
80,588
|
|
|
33.3
|
|
||
|
BIG
|
|
9,626
|
|
|
4.1
|
|
|
10,160
|
|
|
4.2
|
|
||
|
Total net par outstanding
|
|
$
|
237,325
|
|
|
100.0
|
%
|
|
$
|
241,802
|
|
|
100.0
|
%
|
|
•
|
Constitutionally Guaranteed. The Company includes in this category public debt benefiting from Article VI of the Constitution of the Commonwealth, which expressly provides that interest and principal payments on the public debt are to be paid before other disbursements are made.
|
|
•
|
Public Corporations – Certain Revenues Potentially Subject to Clawback. The Company includes in this category the debt of public corporations for which applicable law permits the Commonwealth to claw back, subject to certain conditions and for the payment of public debt, at least a portion of the revenues supporting the bonds the Company insures. As a constitutional condition to clawback, available Commonwealth revenues for any fiscal year must be insufficient to pay Commonwealth debt service before the payment of any appropriations for that year. The Company believes that this condition has not been satisfied to date, and accordingly that the Commonwealth has not to date been entitled to claw back revenues supporting debt insured by the Company.
|
|
•
|
Other Public Corporations. The Company includes in this category the debt of public corporations that are supported by revenues it does not believe are subject to clawback.
|
|
|
|
Net Par Outstanding
|
|
|
||||||||||||||||||||
|
|
|
AGM
|
|
AGC
|
|
AG Re
|
|
Eliminations (1)
|
|
Total
Net Par Outstanding
|
|
Gross
Par Outstanding
|
||||||||||||
|
|
|
(in millions)
|
||||||||||||||||||||||
|
Commonwealth Constitutionally Guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Commonwealth of Puerto Rico - General Obligation Bonds (2) (3)
|
|
$
|
647
|
|
|
$
|
301
|
|
|
$
|
393
|
|
|
$
|
(1
|
)
|
|
$
|
1,340
|
|
|
$
|
1,383
|
|
|
Puerto Rico Public Buildings Authority (PBA)
|
|
9
|
|
|
142
|
|
|
—
|
|
|
(9
|
)
|
|
142
|
|
|
148
|
|
||||||
|
Public Corporations - Certain Revenues Potentially Subject to Clawback
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Puerto Rico Highways and Transportation Authority (PRHTA) (Transportation revenue) (3)
|
|
233
|
|
|
495
|
|
|
195
|
|
|
(79
|
)
|
|
844
|
|
|
874
|
|
||||||
|
PRHTA (Highway revenue) (3)
|
|
351
|
|
|
84
|
|
|
40
|
|
|
—
|
|
|
475
|
|
|
536
|
|
||||||
|
Puerto Rico Convention Center District Authority (PRCCDA)
|
|
—
|
|
|
152
|
|
|
—
|
|
|
—
|
|
|
152
|
|
|
152
|
|
||||||
|
Puerto Rico Infrastructure Financing Authority (PRIFA)
|
|
—
|
|
|
15
|
|
|
1
|
|
|
—
|
|
|
16
|
|
|
16
|
|
||||||
|
Other Public Corporations
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Puerto Rico Electric Power Authority (PREPA) (3)
|
|
544
|
|
|
72
|
|
|
232
|
|
|
|
|
|
848
|
|
|
866
|
|
||||||
|
PRASA
|
|
—
|
|
|
284
|
|
|
89
|
|
|
—
|
|
|
373
|
|
|
373
|
|
||||||
|
MFA
|
|
189
|
|
|
40
|
|
|
74
|
|
|
—
|
|
|
303
|
|
|
349
|
|
||||||
|
U of PR
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
||||||
|
Total exposure to Puerto Rico
|
|
$
|
1,973
|
|
|
$
|
1,586
|
|
|
$
|
1,024
|
|
|
$
|
(89
|
)
|
|
$
|
4,494
|
|
|
$
|
4,698
|
|
|
(1)
|
Net par outstanding eliminations relate to second-to-pay policies under which an Assured Guaranty insurance subsidiary guarantees an obligation already insured by another Assured Guaranty insurance subsidiary.
|
|
(2)
|
Includes exposure to capital appreciation bonds with a current aggregate net par outstanding of $2.4 million and a fully accreted net par at maturity of $2.5 million.
|
|
(3)
|
As of the date of this filing, the seven-member financial oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) has certified a filing under Title III of PROMESA for these exposures.
|
|
|
Scheduled Net Par Amortization
|
||||||||||||||||||||||||||||||||||||||
|
|
2019 (2Q)
|
2019 (3Q)
|
2019 (4Q)
|
2020
|
2021
|
2022
|
2023
|
2024 - 2028
|
2029 - 2033
|
2034 - 2038
|
2039 - 2043
|
2044 - 2047
|
Total
|
||||||||||||||||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||||||||||||||||||
|
Commonwealth Constitutionally Guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
Commonwealth of Puerto Rico - General Obligation Bonds
|
$
|
—
|
|
$
|
87
|
|
$
|
—
|
|
$
|
141
|
|
$
|
15
|
|
$
|
37
|
|
$
|
14
|
|
$
|
298
|
|
$
|
341
|
|
$
|
407
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,340
|
|
|
PBA
|
—
|
|
3
|
|
—
|
|
5
|
|
13
|
|
—
|
|
7
|
|
58
|
|
36
|
|
20
|
|
—
|
|
—
|
|
142
|
|
|||||||||||||
|
Public Corporations - Certain Revenues Potentially Subject to Clawback
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
PRHTA (Transportation revenue)
|
—
|
|
32
|
|
—
|
|
25
|
|
18
|
|
28
|
|
33
|
|
120
|
|
127
|
|
296
|
|
165
|
|
—
|
|
844
|
|
|||||||||||||
|
PRHTA (Highway revenue)
|
—
|
|
21
|
|
—
|
|
22
|
|
35
|
|
6
|
|
32
|
|
77
|
|
145
|
|
137
|
|
—
|
|
—
|
|
475
|
|
|||||||||||||
|
PRCCDA
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
19
|
|
50
|
|
83
|
|
—
|
|
—
|
|
152
|
|
|||||||||||||
|
PRIFA
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2
|
|
—
|
|
—
|
|
3
|
|
11
|
|
—
|
|
16
|
|
|||||||||||||
|
Other Public Corporations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
PREPA
|
—
|
|
26
|
|
—
|
|
48
|
|
28
|
|
28
|
|
95
|
|
440
|
|
174
|
|
9
|
|
—
|
|
—
|
|
848
|
|
|||||||||||||
|
PRASA
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
110
|
|
—
|
|
2
|
|
—
|
|
261
|
|
373
|
|
|||||||||||||
|
MFA
|
—
|
|
55
|
|
—
|
|
45
|
|
40
|
|
40
|
|
22
|
|
91
|
|
10
|
|
—
|
|
—
|
|
—
|
|
303
|
|
|||||||||||||
|
U of PR
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
—
|
|
—
|
|
—
|
|
1
|
|
|||||||||||||
|
Total
|
$
|
—
|
|
$
|
224
|
|
$
|
—
|
|
$
|
286
|
|
$
|
149
|
|
$
|
139
|
|
$
|
205
|
|
$
|
1,213
|
|
$
|
884
|
|
$
|
957
|
|
$
|
176
|
|
$
|
261
|
|
$
|
4,494
|
|
|
|
Scheduled Net Debt Service Amortization
|
||||||||||||||||||||||||||||||||||||||
|
|
2019 (2Q)
|
2019 (3Q)
|
2019 (4Q)
|
2020
|
2021
|
2022
|
2023
|
2024 - 2028
|
2029 - 2033
|
2034 - 2038
|
2039 - 2043
|
2044 - 2047
|
Total
|
||||||||||||||||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||||||||||||||||||
|
Commonwealth Constitutionally Guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
Commonwealth of Puerto Rico - General Obligation Bonds
|
$
|
—
|
|
$
|
122
|
|
$
|
—
|
|
$
|
206
|
|
$
|
74
|
|
$
|
94
|
|
$
|
70
|
|
$
|
539
|
|
$
|
512
|
|
$
|
457
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,074
|
|
|
PBA
|
—
|
|
7
|
|
—
|
|
12
|
|
20
|
|
6
|
|
13
|
|
84
|
|
50
|
|
23
|
|
—
|
|
—
|
|
215
|
|
|||||||||||||
|
Public Corporations - Certain Revenues Potentially Subject to Clawback
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
PRHTA (Transportation revenue)
|
—
|
|
54
|
|
—
|
|
67
|
|
59
|
|
68
|
|
72
|
|
294
|
|
262
|
|
375
|
|
180
|
|
—
|
|
1,431
|
|
|||||||||||||
|
PRHTA (Highway revenue)
|
—
|
|
34
|
|
—
|
|
46
|
|
58
|
|
27
|
|
52
|
|
159
|
|
208
|
|
152
|
|
—
|
|
—
|
|
736
|
|
|||||||||||||
|
PRCCDA
|
—
|
|
3
|
|
—
|
|
7
|
|
7
|
|
7
|
|
7
|
|
53
|
|
79
|
|
91
|
|
—
|
|
—
|
|
254
|
|
|||||||||||||
|
PRIFA
|
—
|
|
—
|
|
—
|
|
1
|
|
1
|
|
1
|
|
3
|
|
4
|
|
3
|
|
7
|
|
12
|
|
—
|
|
32
|
|
|||||||||||||
|
Other Public Corporations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
PREPA
|
3
|
|
43
|
|
3
|
|
87
|
|
63
|
|
62
|
|
128
|
|
541
|
|
198
|
|
9
|
|
—
|
|
—
|
|
1,137
|
|
|||||||||||||
|
PRASA
|
—
|
|
10
|
|
—
|
|
19
|
|
19
|
|
19
|
|
19
|
|
198
|
|
68
|
|
70
|
|
67
|
|
300
|
|
789
|
|
|||||||||||||
|
MFA
|
—
|
|
62
|
|
—
|
|
58
|
|
50
|
|
48
|
|
28
|
|
106
|
|
11
|
|
—
|
|
—
|
|
—
|
|
363
|
|
|||||||||||||
|
U of PR
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
—
|
|
—
|
|
—
|
|
1
|
|
|||||||||||||
|
Total
|
$
|
3
|
|
$
|
335
|
|
$
|
3
|
|
$
|
503
|
|
$
|
351
|
|
$
|
332
|
|
$
|
392
|
|
$
|
1,978
|
|
$
|
1,392
|
|
$
|
1,184
|
|
$
|
259
|
|
$
|
300
|
|
$
|
7,032
|
|
|
Year
insured:
|
|
Prime
First Lien
|
|
Alt-A
First Lien
|
|
Option
ARMs
|
|
Subprime
First Lien
|
|
Second
Lien
|
|
Total Net Par
Outstanding
|
||||||||||||
|
|
|
(in millions)
|
||||||||||||||||||||||
|
2004 and prior
|
|
$
|
26
|
|
|
$
|
22
|
|
|
$
|
2
|
|
|
$
|
678
|
|
|
$
|
62
|
|
|
$
|
790
|
|
|
2005
|
|
59
|
|
|
236
|
|
|
28
|
|
|
231
|
|
|
161
|
|
|
715
|
|
||||||
|
2006
|
|
44
|
|
|
48
|
|
|
13
|
|
|
333
|
|
|
255
|
|
|
693
|
|
||||||
|
2007
|
|
—
|
|
|
370
|
|
|
38
|
|
|
1,031
|
|
|
381
|
|
|
1,820
|
|
||||||
|
2008
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46
|
|
|
—
|
|
|
46
|
|
||||||
|
Total exposures
|
|
$
|
129
|
|
|
$
|
676
|
|
|
$
|
81
|
|
|
$
|
2,319
|
|
|
$
|
859
|
|
|
$
|
4,064
|
|
|
|
Gross Exposure
|
|
Net Exposure
|
||||||||||||
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
Life insurance transactions (1)
|
$
|
912
|
|
|
$
|
880
|
|
|
$
|
788
|
|
|
$
|
763
|
|
|
Aircraft residual value insurance policies
|
360
|
|
|
340
|
|
|
239
|
|
|
218
|
|
||||
|
(1)
|
The life insurance transactions net exposure is expected to increase to approximately $1.0 billion prior to September 30, 2036.
|
|
|
AGL
|
|
AGUS
|
|
AGMH
|
|
Other Subsidiaries
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
First Quarter 2019
|
|
|
|
|
|
|
|
||||||||
|
Intercompany sources
|
$
|
100
|
|
|
$
|
89
|
|
|
$
|
74
|
|
|
$
|
—
|
|
|
Intercompany (uses)
|
—
|
|
|
(60
|
)
|
|
(47
|
)
|
|
(156
|
)
|
||||
|
External sources (uses):
|
|
|
|
|
|
|
|
||||||||
|
Dividends paid to AGL shareholders
|
(20
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
|
Repurchases of common shares (1)
|
(80
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
|
Interest paid (2)
|
—
|
|
|
(2
|
)
|
|
(7
|
)
|
|
—
|
|
||||
|
Purchase of AGMH's debt by AGUS
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
|
First Quarter 2018
|
|
|
|
|
|
|
|
||||||||
|
Intercompany sources
|
$
|
118
|
|
|
$
|
302
|
|
|
$
|
73
|
|
|
$
|
—
|
|
|
Intercompany (uses)
|
—
|
|
|
(78
|
)
|
|
(50
|
)
|
|
(365
|
)
|
||||
|
External sources (uses):
|
|
|
|
|
|
|
|
||||||||
|
Dividends paid to AGL shareholders
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
|
Repurchases of common shares (1)
|
(100
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
|
Interest paid (2)
|
—
|
|
|
(14
|
)
|
|
(7
|
)
|
|
—
|
|
||||
|
Purchase of AGMH's debt by AGUS
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
||||
|
(1)
|
See Item 1, Financial Statements, Note 15, Shareholders' Equity, for additional information about share repurchases and authorizations.
|
|
(2)
|
See Long-Term Obligations below for interest paid by subsidiary.
|
|
•
|
The maximum amount available during 2019 for AGM to distribute as dividends without regulatory approval is estimated to be approximately $176 million, of which $4 million is estimated to be available for distribution in the second quarter of 2019.
|
|
•
|
The maximum amount available during 2019 for AGC to distribute as ordinary dividends is approximately $123 million, of which approximately $24 million is available for distribution in the second quarter of 2019.
|
|
•
|
The maximum amount available during 2019 for MAC to distribute as dividends to MAC Holdings, which is owned by AGM and AGC, without regulatory approval, is estimated to be approximately $32 million, of which approximately $15 million is available for distribution in the second quarter of 2019. In March 2019, MAC received approval from the New York State Department of Financial Services to dividend to MAC Holdings $100 million in 2019, an amount that exceeds the amount available to dividend without such approval in 2019 under
|
|
•
|
Based on the applicable law and regulations, in 2019 AG Re has the capacity to (i) make capital distributions in an aggregate amount up to $128 million without the prior approval of the Bermuda Monetary Authority (the Authority) and (ii) declare and pay dividends in an aggregate amount up to approximately $312 million as of March 31, 2019. Such dividend capacity is further limited by the actual amount of AG Re’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements. As of March 31, 2019, AG Re had unencumbered assets of approximately $409 million.
|
|
•
|
Based on the applicable law and regulations, in 2019 AGRO has the capacity to (i) make capital distributions in an aggregate amount up to $21 million without the prior approval of the Authority and (ii) declare and pay dividends in an aggregate amount up to approximately $96 million as of March 31, 2019. Such dividend capacity is further limited by the actual amount of AGRO’s unencumbered assets, which amount changes from time to time due in part to collateral posting requirements. As of March 31, 2019, AGRO had unencumbered assets of approximately $364 million.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Dividends paid by AGC to AGUS
|
$
|
42
|
|
|
$
|
52
|
|
|
Dividends paid by AGM to AGMH
|
74
|
|
|
73
|
|
||
|
Dividends paid by AG Re to AGL
|
40
|
|
|
40
|
|
||
|
Dividends paid by MAC to MAC Holdings (1)
|
5
|
|
|
—
|
|
||
|
Repurchase of common stock by AGC from AGUS
|
—
|
|
|
200
|
|
||
|
(1)
|
MAC Holdings distributed the entire amounts to AGM and AGC, in proportion to their ownership percentages.
|
|
•
|
operating expenses,
|
|
•
|
claims on the insured portfolio,
|
|
•
|
dividends or other distributions to AGL, AGUS and/or AGMH, as applicable,
|
|
•
|
posting of collateral in connection with reinsurance and credit derivative transactions,
|
|
•
|
reinsurance premiums,
|
|
•
|
principal of and, where applicable, interest on surplus notes, and
|
|
•
|
capital investments in their own subsidiaries, where appropriate.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
|
|
|
||||
|
Public finance
|
$
|
(228
|
)
|
|
$
|
(111
|
)
|
|
Structured finance:
|
|
|
|
||||
|
U.S. RMBS
|
9
|
|
|
130
|
|
||
|
Other structured finance
|
1
|
|
|
—
|
|
||
|
Structured finance
|
10
|
|
|
130
|
|
||
|
Claims (paid) recovered, net of reinsurance (1)
|
$
|
(218
|
)
|
|
$
|
19
|
|
|
(1)
|
Includes $1 million recovered and $1 million paid for consolidated FG VIEs for First Quarter 2019 and 2018, respectively. The amounts in First Quarter 2019 are net of the closed lien senior bonds of COFINA validated by the PROMESA Title III Court, and cash that were received pursuant to the COFINA Plan of Adjustment. See Item 1, Financial Statements, Note 3, Outstanding Exposure, for additional information.
|
|
|
First Quarter
|
||||||
|
|
2019
|
|
2018
|
||||
|
|
(in millions)
|
||||||
|
Net cash flows provided by (used in) operating activities before effects of FG VIE consolidation
|
$
|
(333
|
)
|
|
$
|
25
|
|
|
Effect of FG VIE consolidation
|
1
|
|
|
2
|
|
||
|
Net cash flows provided by (used in) operating activities
|
(332
|
)
|
|
27
|
|
||
|
Net cash flows provided by (used in) investing activities before effects of FG VIE consolidation
|
468
|
|
|
95
|
|
||
|
Effect of FG VIE consolidation
|
24
|
|
|
31
|
|
||
|
Net cash flows provided by (used in) investing activities
|
492
|
|
|
126
|
|
||
|
Dividends paid
|
(20
|
)
|
|
(18
|
)
|
||
|
Repurchases of common stock
|
(80
|
)
|
|
(100
|
)
|
||
|
Repurchase of debt
|
(3
|
)
|
|
(19
|
)
|
||
|
Effect of FG VIE consolidation
|
(25
|
)
|
|
(33
|
)
|
||
|
Other
|
(14
|
)
|
|
(11
|
)
|
||
|
Net cash flows provided by (used in) financing activities (1)
|
(142
|
)
|
|
(181
|
)
|
||
|
Effect of exchange rate changes
|
1
|
|
|
1
|
|
||
|
Cash and restricted cash at beginning of period
|
104
|
|
|
144
|
|
||
|
Total cash and restricted cash at the end of the period
|
$
|
123
|
|
|
$
|
117
|
|
|
(1)
|
Claims paid on consolidated FG VIEs are presented in the condensed consolidated cash flow statements as a component of paydowns on FG VIEs' liabilities in financing activities as opposed to operating activities.
|
|
|
Principal Amount
|
|
Interest Paid
|
||||||||||||
|
|
As of March 31,
|
|
As of December 31,
|
|
First Quarter
|
||||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
AGUS
|
$
|
850
|
|
|
$
|
850
|
|
|
$
|
2
|
|
|
$
|
14
|
|
|
AGMH
|
730
|
|
|
730
|
|
|
7
|
|
|
7
|
|
||||
|
AGM
|
5
|
|
|
5
|
|
|
—
|
|
|
—
|
|
||||
|
AGMH's debt purchased by AGUS (1)
|
(131
|
)
|
|
(128
|
)
|
|
—
|
|
|
—
|
|
||||
|
Total
|
$
|
1,454
|
|
|
$
|
1,457
|
|
|
$
|
9
|
|
|
$
|
21
|
|
|
(1)
|
Represents principal amount of Junior Subordinated Debentures issued by AGMH that has been purchased by AGUS. See Item 1, Financial Statements, Note 13, Long-Term Debt and Credit Facilities, for additional information.
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||||||
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
||||||||
|
|
(in millions)
|
||||||||||||||
|
Fixed-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Obligations of state and political subdivisions
|
$
|
4,597
|
|
|
$
|
4,843
|
|
|
$
|
4,761
|
|
|
$
|
4,911
|
|
|
U.S. government and agencies
|
157
|
|
|
166
|
|
|
167
|
|
|
175
|
|
||||
|
Corporate securities
|
2,125
|
|
|
2,154
|
|
|
2,175
|
|
|
2,136
|
|
||||
|
Mortgage-backed securities (1):
|
|
|
|
|
|
|
|
|
|||||||
|
RMBS
|
960
|
|
|
959
|
|
|
999
|
|
|
982
|
|
||||
|
Commercial mortgage-backed securities (CMBS)
|
532
|
|
|
539
|
|
|
542
|
|
|
539
|
|
||||
|
Asset-backed securities
|
957
|
|
|
1,076
|
|
|
942
|
|
|
1,068
|
|
||||
|
Non-U.S. government securities
|
262
|
|
|
252
|
|
|
298
|
|
|
278
|
|
||||
|
Total fixed-maturity securities
|
9,590
|
|
|
9,989
|
|
|
9,884
|
|
|
10,089
|
|
||||
|
Short-term investments
|
727
|
|
|
727
|
|
|
729
|
|
|
729
|
|
||||
|
Total fixed-maturity and short-term investments
|
$
|
10,317
|
|
|
$
|
10,716
|
|
|
$
|
10,613
|
|
|
$
|
10,818
|
|
|
(1)
|
U.S. government-agency obligations were approximately 46% of mortgage backed securities as of March 31, 2019 and 48% as of December 31, 2018, based on fair value.
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
||||||||||||||||||
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
||||||||||||
|
|
(dollars in millions)
|
||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
152
|
|
|
$
|
(3
|
)
|
|
$
|
169
|
|
|
$
|
(3
|
)
|
|
U.S. government and agencies
|
20
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
44
|
|
|
—
|
|
||||||
|
Corporate securities
|
101
|
|
|
(1
|
)
|
|
381
|
|
|
(16
|
)
|
|
482
|
|
|
(17
|
)
|
||||||
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
RMBS
|
37
|
|
|
(1
|
)
|
|
371
|
|
|
(23
|
)
|
|
408
|
|
|
(24
|
)
|
||||||
|
CMBS
|
1
|
|
|
—
|
|
|
86
|
|
|
(3
|
)
|
|
87
|
|
|
(3
|
)
|
||||||
|
Asset-backed securities
|
308
|
|
|
(3
|
)
|
|
18
|
|
|
—
|
|
|
326
|
|
|
(3
|
)
|
||||||
|
Non-U.S. government securities
|
46
|
|
|
(1
|
)
|
|
86
|
|
|
(14
|
)
|
|
132
|
|
|
(15
|
)
|
||||||
|
Total
|
$
|
530
|
|
|
$
|
(6
|
)
|
|
$
|
1,118
|
|
|
$
|
(59
|
)
|
|
$
|
1,648
|
|
|
$
|
(65
|
)
|
|
Number of securities (1)
|
|
|
|
128
|
|
|
|
|
|
333
|
|
|
|
|
|
456
|
|
||||||
|
Number of securities with OTTI (1)
|
|
|
|
5
|
|
|
|
|
|
24
|
|
|
|
|
|
28
|
|
||||||
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
||||||||||||||||||
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
||||||||||||
|
|
(dollars in millions)
|
||||||||||||||||||||||
|
Obligations of state and political subdivisions
|
$
|
195
|
|
|
$
|
(4
|
)
|
|
$
|
658
|
|
|
$
|
(14
|
)
|
|
$
|
853
|
|
|
$
|
(18
|
)
|
|
U.S. government and agencies
|
11
|
|
|
—
|
|
|
24
|
|
|
(1
|
)
|
|
35
|
|
|
(1
|
)
|
||||||
|
Corporate securities
|
836
|
|
|
(19
|
)
|
|
522
|
|
|
(33
|
)
|
|
1,358
|
|
|
(52
|
)
|
||||||
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
RMBS
|
85
|
|
|
(2
|
)
|
|
447
|
|
|
(32
|
)
|
|
532
|
|
|
(34
|
)
|
||||||
|
CMBS
|
111
|
|
|
(1
|
)
|
|
164
|
|
|
(6
|
)
|
|
275
|
|
|
(7
|
)
|
||||||
|
Asset-backed securities
|
322
|
|
|
(4
|
)
|
|
38
|
|
|
(1
|
)
|
|
360
|
|
|
(5
|
)
|
||||||
|
Non-U.S. government securities
|
83
|
|
|
(4
|
)
|
|
99
|
|
|
(18
|
)
|
|
182
|
|
|
(22
|
)
|
||||||
|
Total
|
$
|
1,643
|
|
|
$
|
(34
|
)
|
|
$
|
1,952
|
|
|
$
|
(105
|
)
|
|
$
|
3,595
|
|
|
$
|
(139
|
)
|
|
Number of securities (1)
|
|
|
|
417
|
|
|
|
|
|
608
|
|
|
|
|
|
997
|
|
||||||
|
Number of securities with OTTI (1)
|
|
|
|
22
|
|
|
|
|
|
22
|
|
|
|
|
|
42
|
|
||||||
|
(1)
|
The number of securities does not add across because lots consisting of the same securities have been purchased at different times and appear in both categories above (i.e., less than 12 months and 12 months or more). If a security appears in both categories, it is counted only once in the total column.
|
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
||||
|
|
(in millions)
|
||||||
|
Due within one year
|
$
|
217
|
|
|
$
|
213
|
|
|
Due after one year through five years
|
1,500
|
|
|
1,524
|
|
||
|
Due after five years through 10 years
|
2,249
|
|
|
2,316
|
|
||
|
Due after 10 years
|
4,132
|
|
|
4,438
|
|
||
|
Mortgage-backed securities:
|
|
|
|
|
|
||
|
RMBS
|
960
|
|
|
959
|
|
||
|
CMBS
|
532
|
|
|
539
|
|
||
|
Total
|
$
|
9,590
|
|
|
$
|
9,989
|
|
|
Rating
|
|
As of
March 31, 2019 |
|
As of
December 31, 2018 |
||
|
AAA
|
|
15.5
|
%
|
|
15.7
|
%
|
|
AA
|
|
45.9
|
|
|
48.2
|
|
|
A
|
|
20.4
|
|
|
19.8
|
|
|
BBB
|
|
5.3
|
|
|
5.0
|
|
|
BIG (1)
|
|
10.9
|
|
|
10.8
|
|
|
Not rated (2)
|
|
2.0
|
|
|
0.5
|
|
|
Total
|
|
100.0
|
%
|
|
100.0
|
%
|
|
(1)
|
Includes primarily loss mitigation and other risk management assets. See Item I, Financial Statements, Note 9, Investments and Cash, for additional information.
|
|
(2)
|
March 31, 2019 balance includes COFINA bonds with a fair value of $145 million.
|
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
|
PART II.
|
OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
|
ITEM 1A.
|
RISK FACTORS
|
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
Period
|
|
Total
Number of
Shares
Purchased
|
|
Average
Price Paid
Per Share
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Program (1)
|
|
Maximum Number
(or Approximate Dollar Value) of Shares that May Yet Be
Purchased
Under the Program (2)
|
||||||
|
January 1 - January 31
|
|
643,315
|
|
|
$
|
39.29
|
|
|
636,405
|
|
|
$
|
72,873,202
|
|
|
February 1 - February 28
|
|
926,662
|
|
|
$
|
41.12
|
|
|
564,096
|
|
|
$
|
349,821,124
|
|
|
March 1 - March 31
|
|
708,104
|
|
|
$
|
44.32
|
|
|
708,104
|
|
|
$
|
318,437,567
|
|
|
Total
|
|
2,278,081
|
|
|
$
|
41.60
|
|
|
1,908,605
|
|
|
|
|
|
|
(1)
|
After giving effect to repurchases since the beginning of 2013 through May 9, 2019, the Company has repurchased a total of 97.3 million common shares for approximately $2,835 million, excluding commissions, at an average price of $29.13 per share. The Board of Directors authorized, on February 27, 2019, an additional $300 million of share repurchases. As of May 9, 2019, after combining the remaining authorization and the new authorization, the Company was authorized to purchase $279 million of its common shares, on a settlement basis.
|
|
(2)
|
Excludes commissions.
|
|
ITEM 6.
|
EXHIBITS.
|
|
Exhibit
Number
|
|
Description of Document
|
|
|
10.1
|
|
|
|
|
10.2
|
|
|
|
|
10.3
|
|
|
|
|
10.4
|
|
|
|
|
31.1
|
|
|
|
|
31.2
|
|
|
|
|
32.1
|
|
|
|
|
32.2
|
|
|
|
|
101.1
|
|
|
The following financial information from Assured Guaranty Ltd.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 formatted in inline XBRL: (i) Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018; (ii) Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2019 and 2018; (iii) Condensed Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2019 and 2018; (iv) Condensed Consolidated Statements of Shareholders’ Equity for the Three Months ended March 31, 2019 and 2018; (v) Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2019 and 2018; and (vi) Notes to Condensed Consolidated Financial Statements.
|
|
|
ASSURED GUARANTY LTD.
(Registrant)
|
|
|
|
|
|
|
Dated May 10, 2019
|
By:
|
/s/ ROBERT A. BAILENSON
|
|
|
|
|
|
|
|
Robert A. Bailenson
Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)
|
|
(a)
|
The "Participant" is ________________________________
|
|
(b)
|
The "Grant Date" is [________], 2019.
|
|
(c)
|
The number of “Covered Units” granted under this Agreement is _____ Covered Units.
|
|
(d)
|
The “Delivery Date” with respect to the Covered Units shall be the fourth anniversary of the Grant Date.
|
|
(e)
|
The “Performance Determination Date” is the earlier to occur of (i) December 31, 2021 and (ii) the date of a Change in Control.
|
|
(f)
|
The “Performance Period” is January 1, 2019 through December 31, 2021; provided, however, if a Change in Control occurs on or after the Grant Date but prior to December 31, 2021, the Performance Period shall be the period beginning on January 1, 2019 and ending on the date of the Change in Control.
|
|
Performance Level
|
Assured’s Relative Total Shareholder Return
|
% of Units Vesting (the “Performance Percentage”)
|
|
Outstanding
|
95th Percentile or higher
|
250%
|
|
Target
|
55th Percentile
|
100%
|
|
Threshold
|
25th Percentile
|
50%
|
|
< Threshold
|
Less than 25th Percentile
|
0%
|
|
(a)
|
Death or Disability. If the Participant’s Date of Termination occurs due to the Participant’s death or Disability prior to the last day of the Restricted Period, the Restricted Period shall immediately lapse upon such Date of Termination.
|
|
(b)
|
Retirement. If the Participant’s Date of Termination occurs due to a Retirement prior to the last day of the Restricted Period, then, only for purposes of this Section 5 (and not for purposes of determining the Pro-Rata Fraction), the Participant shall be treated as if his Date of Termination had not occurred prior to the last day of the Restricted Period, subject to the Participant not engaging in any Competitive Activity or any Post-Retirement Activity prior to the last day of the Restricted Period and subject to the Participant signing and not revoking a general release and waiver of all claims against the Company as required by Section 7.1 of the Severance Plan. If such release is not effective within the sixty-day period required by Section 7.1 of the Severance Plan or in the event that the Participant engages in a Competitive Activity or a Post-Retirement Activity prior to the last day of the Restricted Period, the Participant shall immediately forfeit all of the Covered Units.
|
|
(c)
|
Qualifying Termination Before a Change in Control. If the Participant’s Date of Termination occurs due to a Qualifying Termination prior to the last day of the Restricted Period and prior to the date of a Change in Control, then, only for purposes of this Section 5 (and not for purposes of determining the Pro-Rata Fraction), the Participant shall be treated as if his Date of Termination had not occurred prior to the last day of the Restricted Period, subject to the Participant not engaging in any Competitive Activity prior to the last day of the Restricted Period and subject to the Participant signing and not revoking a general release and waiver of all claims against the Company as required by Section 7.1 of the Severance Plan. If such release is not effective within the sixty-day period required by Section 7.1 of the Severance Plan or in the event that the Participant engages in a Competitive Activity prior to the last day of the Restricted Period, the Participant shall immediately forfeit all of the Covered Units.
|
|
(d)
|
Qualifying Termination On or After a Change in Control. If the Participant’s Date of Termination occurs due to a Qualifying Termination prior to the last day of the Restricted Period but on or after the date of a Change in Control that is not a Vesting Change in Control, then, only for purposes of this Section 5 (and not for purposes of determining the Pro-Rata Fraction), the Participant shall be treated as if his Date of Termination had not occurred prior to the last day of the Restricted Period subject to the Participant signing and not revoking a general release and waiver of all claims against the Company as required by Section 7.1 of the Severance Plan. If such release is not effective within the sixty-day period required by Section 7.1 of the Severance Plan, the Participant shall immediately forfeit all of the Covered Units.
|
|
(a)
|
The Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict the Performance-Based Restricted Stock Unit Award at any time if the Participant engages in any "Competitive Activity" or, in the case of a Participant whose Date of Termination has occurred due to Retirement, if the Participant engages in any Post-Retirement Activity.
|
|
(b)
|
Immediately prior to the Delivery Date (or, if earlier, a 457A Delivery Date) and prior to the transfer of the shares of Stock to the Participant, the Participant shall certify, to the extent required by the Committee, in a manner acceptable to the Committee, that the Participant is not engaging and has not engaged in any Competitive Activity and, in the case of a Participant whose Date of Termination has occurred due to Retirement, that the Participant is not engaging and has not engaged in any Post-Retirement Activity. In the event a Participant has engaged in any Competitive Activity or, if applicable, any Post-Retirement Activity, prior to, or during the twelve months after, the later to occur of the Delivery Date or the last day of the Restricted Period with respect to any Covered Units (the “Restrictive Covenant Period”), the right to delivery of shares of Stock with respect to such Covered Units (including the delivery or vesting of any Restricted Shares) may be rescinded by the Committee within two years of the end of the Restricted Covenant Period. In the event of any such rescission, the Participant shall pay to the Company the amount of any gain realized as a result of the prior delivery of shares of Stock applicable to the rescinded Covered Units, in such manner and on such terms and conditions as may be required by the Company, and the Company shall be entitled to set-off against the amount of any such gain any amount owed to the Participant by the Company and/or Subsidiary.
|
|
(a)
|
Notwithstanding anything in this Agreement to the contrary, the Participant’s rights with respect to the Performance-Based Restricted Stock Unit Award shall be subject to the Assured Guaranty Ltd. Executive Officer Recoupment Policy as amended and restated on November 3, 2015 and as further amended from time to time.
|
|
(b)
|
Notwithstanding anything in this Agreement to the contrary, but subject to subparagraph (a) of this Section 14 above, this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and this Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan.
|
|
(a)
|
Accumulated Shares. The term “Accumulated Shares” means, for a given trading day, the sum of (i) one share and (ii) the cumulative number of shares of the company’s common stock purchasable with dividends declared
|
|
(b)
|
Change in Control. The term "Change in Control" shall be defined as set forth in the Plan.
|
|
(c)
|
Closing Average Share Value. The term “Closing Average Share Value” means the average Share Value of the forty day trading period immediately preceding the Performance Determination Date.
|
|
(d)
|
Competitive Activity. The term “Competitive Activity” shall mean (i) the Participant’s engaging in an activity, directly or indirectly, whether as an employee, consultant, partner, principal, agent, distributor, representative, stockholder (except as a less than one percent stockholder of a publicly traded company or a less than five percent stockholder of a privately held company) or otherwise, within the United States, Bermuda, or the Cayman Islands, if such activities involve insurance or reinsurance of United States based entities or risks that are competitive with the financial guaranty insurance business then being conducted by the Company or any affiliate and which, during the period covered by the Participant's employment, were conducted by the Company or any affiliate; or (ii) the Participant’s engaging in any activity, directly or indirectly, whether on behalf of himself or herself or any other person or entity (x) to solicit any client and/or customer of the Company or any affiliate or (y) to hire any employee or former employee of the Company or any present or former affiliate of the Company or encourage any employee of the Company or affiliate to leave the employ of the Company or affiliate; or (iii) the Participant’s violation of Section 7.3 of the Severance Plan (relating to confidentiality).
|
|
(e)
|
Date of Termination. A Participant's "Date of Termination" means, with respect to an employee, the date on which the Participant's employment with the Company and Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant's transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant's cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Subsidiary, nor by reason of a Participant's termination of employment with the Company or a Subsidiary if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant's employer.
|
|
(f)
|
Director. The term "Director" means a member of the Board of Directors of Assured Guaranty Ltd., who may or may not be an employee of the Company or a Subsidiary.
|
|
(g)
|
Disability. The Participant shall be considered to have a "Disability" during the period in which the Participant is unable, by reason of a medically determinable physical or mental impairment, to engage in any substantial gainful activity, which condition, in the opinion of a physician selected by the Committee, is expected to have a duration of not less than 120 days.
|
|
(h)
|
Opening Average Share Value. The term “Opening Average Share Value” means the average Share Value of the forty day trading period immediately preceding the first day of the Performance Period.
|
|
(i)
|
Peer Companies. The term “Peer Companies” means all companies listed in the Russell Mid-Cap Financial Services Index as of the first day of the Performance Period as adjusted below. Each Peer Company’s “common stock” shall mean that series of common stock that is publicly traded on a registered U.S. exchange or, in the case of a non-U.S. company, an equivalent non-U.S. exchange. For purposes of calculating TSR, the value on any given trading day of any Peer Company shares traded on a foreign exchange will be converted to U.S. dollars. The Peer Companies may be changed as follows:
|
|
(j)
|
Post-Retirement Activity. The term “Post-Retirement Activity” shall mean the Participant’s provision of significant commercial or business services to any one or more persons or entities, regardless of whether such entity is owned or controlled by the Participant; provided that the Participant’s devotion of reasonable time to the supervision of his personal investments, and activities involving professional, charitable, community, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other organizations, and similar types of activities shall not be considered Post-Retirement Activity, to the extent that the Committee, in its discretion, determines that such activities are consistent with the Participant’s Retirement. At the request of the Participant, the Committee shall determine whether a proposed activity of the Participant will be considered a Post-Retirement Activity for purposes of this Agreement. Such request shall be accompanied by a description of the proposed activities, and the Participant shall provide such additional information as the Committee may determine is necessary to make the determination. Such a determination shall be made promptly, but in no event more than 30 days after the written request, together with any additional information requested of the Participant, is delivered to the Committee.
|
|
(k)
|
Pro-Rata Fraction. The term “Pro-Rata Fraction” shall mean a fraction, the numerator of which shall be equal to the number of days between the Grant Date and the Participant’s Date of Termination and the denominator of which shall be 1095.
|
|
(l)
|
Qualifying Termination. The term “Qualifying Termination” is defined in Section 1 of the Severance Plan.
|
|
(m)
|
Relative Total Shareholder Return. The term “Relative Total Shareholder Return” means the Company’s Total Shareholder Return relative to the Total Shareholder Return of the Peer Companies expressed as a percentile rank. Relative Total Shareholder Return will be determined by the percentile ranking of each Peer Company (including the Company) from the highest TSR to lowest TSR. The Peer Company ranked highest will be assigned the one hundred percentile (100%) rank and the Peer Company ranked lowest will be assigned a zero percentile (0.0%) rank. Each Peer Company ranked in between would be assigned a percentile equal to (1 minus ((r-1)/(n-1))), where “r” is the ranking of the Company in the list of Peer Companies and “n” is the total number of Peer Companies. [For example, if there were twenty (20) Peer Companies and the Company had
|
|
(n)
|
Retirement. The term “Retirement” means the occurrence of a Participant’s Date of Termination due to the voluntary termination of employment with the consent of the Committee (as described below) by a Participant who meets the following requirements as of such Date of Termination: (i) the Participant is age 60 or older and (ii) the total of the Participant’s age and years of service equals or exceeds 70. For purposes of defining “Retirement,” years of service shall be determined in accordance with rules which may be established by the Committee, and shall take into account service with the Company and the Subsidiaries. If, on or before the date of the initial public offering of stock of the Company, the Participant was employed by the Company or its Subsidiaries, years of service shall also include service with ACE Limited and its subsidiaries occurring prior to such the initial public offering. For purposes of this Agreement, the Participant’s Date of Termination shall not be considered to be a Retirement unless, prior to such Date of Termination, the Committee approved treating such Participant’s Date of Termination as a Retirement for purposes of this Agreement. The determination of whether to treat the Participant’s Date of Termination as a Retirement shall be made in the sole discretion of the Committee and such determination shall be final and binding on all persons.
|
|
(o)
|
Severance Plan. The term “Severance Plan” shall mean the Assured Guaranty Ltd. Executive Severance Plan.
|
|
(p)
|
Share Value. The term “Share Value” means, with respect to a given trading day, the closing price of a company’s common stock multiplied by the Accumulated Shares for such trading day.
|
|
(q)
|
Total Shareholder Return. The term “Total Shareholder Return” means, for the Company and each of the Peer Companies, the company’s total shareholder return, expressed as a percentage, which will be calculated by dividing (i) the Closing Average Share Value by (ii) the Opening Average Share Value and subtracting one from the quotient.
|
|
(r)
|
Vesting Change in Control. The term “Vesting Change in Control” shall mean the date of a Change in Control where this Performance-Based Restricted Stock Unit Award is terminated pursuant to Section 7(b) of this Agreement.
|
|
(a)
|
The "Participant" is ________________________________
|
|
(b)
|
The "Grant Date" is [______], 2019.
|
|
(c)
|
The number of “Covered Units” granted under this Agreement is _____ Covered Units.
|
|
(d)
|
The “Delivery Date” with respect to the Covered Units shall be the third anniversary of the Grant Date.
|
|
(e)
|
The “Performance Determination Date” is the earlier to occur of (i) December 31, 2021 and (ii) the date of a Change in Control.
|
|
(f)
|
The “Performance Period” is January 1, 2019 through December 31, 2021; provided, however, if a Change in Control occurs on or after the Grant Date but prior to December 31, 2021, the Performance Period shall be the period beginning on January 1, 2019 and ending on the date of the Change in Control.
|
|
Performance Level
|
Growth in Core Adjusted Book Value During Performance Period
|
% of Units Vesting (the “Performance Percentage”)
|
|
Outstanding
|
18% or higher
|
200%
|
|
Target
|
15%
|
100%
|
|
Threshold
|
12%
|
50%
|
|
< Threshold
|
Less than 12%
|
0%
|
|
(a)
|
Death or Disability. If the Participant’s Date of Termination occurs due to the Participant’s death or Disability prior to the last day of the Restricted Period, the Restricted Period shall immediately lapse upon such Date of Termination.
|
|
(b)
|
Retirement. If the Participant’s Date of Termination occurs due to a Retirement prior to the last day of the Restricted Period, then, only for purposes of this Section 5 (and not for purposes of determining the Pro-Rata Fraction), the Participant shall be treated as if his Date of Termination had not occurred prior to the last day of the Restricted Period, subject to the Participant not engaging in any Competitive Activity or any Post-Retirement Activity prior to the last day of the Restricted Period and subject to the Participant signing and not revoking a general release and waiver of all claims against the Company as required by Section 7.1 of the Severance Plan. If such release is not effective within the sixty-day period required by Section 7.1 of the Severance Plan or in the event that the Participant engages in a Competitive Activity or a Post-Retirement Activity prior to the last day of the Restricted Period, the Participant shall immediately forfeit all of the Covered Units.
|
|
(c)
|
Qualifying Termination Before a Change in Control. If the Participant’s Date of Termination occurs due to a Qualifying Termination prior to the last day of the Restricted Period and prior to the date of a Change in Control, then, only for purposes of this Section 5 (and not for purposes of determining the Pro-Rata Fraction), the Participant shall be treated as if his Date of Termination had not occurred prior to the last day of the Restricted Period, subject to the Participant not engaging in any Competitive Activity prior to the last day of the Restricted Period and subject to the Participant signing and not revoking a general release and waiver of all claims against the Company as required by Section 7.1 of the Severance Plan. If such release is not effective within the sixty-day period required by Section 7.1 of the Severance Plan or in the event that the Participant engages in a Competitive Activity prior to the last day of the Restricted Period, the Participant shall immediately forfeit all of the Covered Units.
|
|
(d)
|
Qualifying Termination On or After a Change in Control. If the Participant’s Date of Termination occurs due to a Qualifying Termination prior to the last day of the Restricted Period but on or after the date of a Change in Control that is not a Vesting Change in Control, then, only for purposes of this Section 5 (and not for purposes of determining the Pro-Rata Fraction), the Participant shall be treated as if his Date of Termination had not occurred prior to the last day of the Restricted Period subject to the Participant signing and not revoking a general release and waiver of all claims against the Company as required by Section 7.1 of the Severance Plan. If such release is not effective within the sixty-day period required by Section 7.1 of the Severance Plan, the Participant shall immediately forfeit all of the Covered Units.
|
|
(a)
|
The Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict the Performance-Based Restricted Stock Unit Award at any time if the Participant engages in any "Competitive Activity" or, in the case of a Participant whose Date of Termination has occurred due to Retirement, if the Participant engages in any Post-Retirement Activity.
|
|
(b)
|
Immediately prior to the Delivery Date (or, if earlier, a 457A Delivery Date) and prior to the transfer of the shares of Stock to the Participant, the Participant shall certify, to the extent required by the Committee, in a manner acceptable to the Committee, that the Participant is not engaging and has not engaged in any Competitive Activity and, in the case of a Participant whose Date of Termination has occurred due to Retirement, that the Participant is not engaging and has not engaged in any Post-Retirement Activity. In the event a Participant has engaged in any Competitive Activity or, if applicable, any Post-Retirement Activity, prior to, or during the twelve months after, the later to occur of the Delivery Date or the last day of the Restricted Period with respect to any Covered Units (the “Restrictive Covenant Period”), the right to delivery of shares of Stock with respect to such Covered Units (including the delivery or vesting of any Restricted Shares) may be rescinded by the Committee within two years of the end of the Restricted Covenant Period. In the event of any such rescission, the Participant shall pay to the Company the amount of any gain realized as a result of the prior delivery of shares of Stock applicable to the rescinded Covered Units, in such manner and on such terms and conditions as may be required by the Company, and the Company shall be entitled to set-off against the amount of any such gain any amount owed to the Participant by the Company and/or Subsidiary.
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(a)
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Notwithstanding anything in this Agreement to the contrary, the Participant’s rights with respect to the Performance-Based Restricted Stock Unit Award shall be subject to the Assured Guaranty Ltd. Executive Officer Recoupment Policy as amended and restated on November 3, 2015 and as further amended from time to time.
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(b)
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Notwithstanding anything in this Agreement to the contrary, but subject to subparagraph (a) of this Section 14 above, this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and this Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan.
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(a)
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Change in Control. The term "Change in Control" shall be defined as set forth in the Plan.
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(b)
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Competitive Activity. The term “Competitive Activity” shall mean (i) the Participant’s engaging in an activity, directly or indirectly, whether as an employee, consultant, partner, principal, agent, distributor, representative, stockholder (except as a less than one percent stockholder of a publicly traded company or a less than five percent stockholder of a privately held company) or otherwise, within the United States, Bermuda, or the Cayman Islands, if such activities involve insurance or reinsurance of United States based entities or risks that are competitive with the financial guaranty insurance business then being conducted by the Company or any affiliate and which, during the period covered by the Participant's employment, were conducted by the Company or any affiliate; or (ii) the Participant’s engaging in any activity, directly or indirectly, whether on behalf of himself or herself or any other person or entity (x) to solicit any client and/or customer of the Company or any affiliate or (y) to hire any employee or former employee of the Company or any present or former affiliate of the Company or encourage any employee of the Company or affiliate to leave the employ of the Company or affiliate; or (iii) the Participant’s violation of Section 7.3 of the Severance Plan (relating to confidentiality).
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(c)
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Core Adjusted Book Value. The “Core Adjusted Book Value” of the Company as of any date shall equal shareholders’ equity attributable to Assured Guaranty Ltd., as reported under accounting principles generally accepted in the United States of America (GAAP), adjusted for the following:
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(d)
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Date of Termination. A Participant's "Date of Termination" means, with respect to an employee, the date on which the Participant's employment with the Company and Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant's transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant's cessation of
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(e)
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Director. The term "Director" means a member of the Board of Directors of Assured Guaranty Ltd., who may or may not be an employee of the Company or a Subsidiary.
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(f)
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Disability. The Participant shall be considered to have a "Disability" during the period in which the Participant is unable, by reason of a medically determinable physical or mental impairment, to engage in any substantial gainful activity, which condition, in the opinion of a physician selected by the Committee, is expected to have a duration of not less than 120 days.
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(g)
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Post-Retirement Activity. The term “Post-Retirement Activity” shall mean the Participant’s provision of significant commercial or business services to any one or more persons or entities, regardless of whether such entity is owned or controlled by the Participant; provided that the Participant’s devotion of reasonable time to the supervision of his personal investments, and activities involving professional, charitable, community, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other organizations, and similar types of activities shall not be considered Post-Retirement Activity, to the extent that the Committee, in its discretion, determines that such activities are consistent with the Participant’s Retirement. At the request of the Participant, the Committee shall determine whether a proposed activity of the Participant will be considered a Post-Retirement Activity for purposes of this Agreement. Such request shall be accompanied by a description of the proposed activities, and the Participant shall provide such additional information as the Committee may determine is necessary to make the determination. Such a determination shall be made promptly, but in no event more than 30 days after the written request, together with any additional information requested of the Participant, is delivered to the Committee.
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(h)
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Pro-Rata Fraction. The term “Pro-Rata Fraction” shall mean a fraction, the numerator of which shall be equal to the number of days between the Grant Date and the Participant’s Date of Termination and the denominator of which shall be 1095.
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(i)
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Qualifying Termination. The term “Qualifying Termination” is defined in Section 1 of the Severance Plan.
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(j)
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Retirement. The term “Retirement” means the occurrence of a Participant’s Date of Termination due to the voluntary termination of employment with the consent of the Committee (as described below) by a Participant who meets the following requirements as of such Date of Termination: (i) the Participant is age 60 or older and (ii) the total of the Participant’s age and years of service equals or exceeds 70. For purposes of defining “Retirement,” years of service shall be determined in accordance with rules which may be established by the Committee, and shall take into account service with the Company and the Subsidiaries. If, on or before the date of the initial public offering of stock of the Company, the Participant was employed by the Company or its Subsidiaries, years of service shall also include service with ACE Limited and its subsidiaries occurring prior to such the initial public offering. For purposes of this Agreement, the Participant’s Date of Termination shall not be considered to be a Retirement unless, prior to such Date of Termination, the Committee approved treating such Participant’s Date of Termination as a Retirement for purposes of this Agreement. The determination of whether to treat the Participant’s Date of Termination as a Retirement shall be made in the sole discretion of the Committee and such determination shall be final and binding on all persons.
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(k)
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Severance Plan. The term “Severance Plan” shall mean the Assured Guaranty Ltd. Executive Severance Plan.
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(l)
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Vesting Change in Control. The term “Vesting Change in Control” shall mean the date of a Change in Control where this Performance-Based Restricted Stock Unit Award is terminated pursuant to Section 7(b) of this Agreement.
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•
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Each non-executive director is entitled to receive (a) an annual fee in the amount of $30,000 for each board committee (other than the Executive Committee) for which that director serves as chair, and (b) an annual fee in the amount of $15,000 for each board committee (other than the Executive Committee) on which that director serves as a member but not as chair
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•
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The Chairman of the Board is entitled to receive an additional annual retainer of $225,000; the Chairman of the Board elected to waive receiving any fees for serving as a member or chair of a board committee
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(a)
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An employee who has been employed less than 500 hours and less than six months.
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(b)
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An employee whose customary employment is 20 hours or less per week.
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(c)
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An employee whose customary employment is for not more than five months in any calendar year.
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(d)
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An employee who owns, or who would own upon the exercise of any rights extended under the Plan and the exercise of any other option held by the employee (whether qualified or non-qualified), shares possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any parent or subsidiary corporation.
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(a)
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The “Purchase Price” per share shall be equal to 85% of the lesser of (i) the fair market value of Stock on the first day of the Subscription Period; or (ii) the fair market value of Stock on the Exercise Date (or such higher price as may be determined by the Committee from time to time). In no event shall the Purchase Price be less than the par value of the Stock.
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(b)
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A Participant shall be deemed to have elected to purchase the shares of Stock which he became entitled to purchase on the Exercise Date unless he shall notify the Company prior to the Exercise Date, or such other time as the Committee may establish, that the Participant he elects not to make such purchase.
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(c)
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Any accumulated payroll deductions that are not used to purchase full shares of Stock under the Plan shall be paid to the Participant without interest.
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(d)
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No employee shall have the right to purchase more than $25,000 in value of Stock under the Plan (and any other employee stock purchase plan described in Code section 423 and maintained by the Company or any Related Company) in any calendar year, such value being based on the fair market value of Stock as of the date on which the option to purchase the Stock is granted, as determined in accordance with subsection 2.2 of the Plan.
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(a)
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The shares of Stock which may be purchased under the Plan shall be currently authorized but unissued shares, or shares purchased in the open market by a direct or indirect wholly owned subsidiary of the Company (as determined by the President, Chief Financial Officer or General Counsel of the Company).
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(b)
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Subject to the provisions of subsection 3.3 and the following provisions of this paragraph (b), the number of shares of Stock which may be purchased under the Plan shall not exceed 600,000 shares of Stock; provided that, contingent on approval by the Company’s shareholders at the Company’s 2019 annual meeting of the increase in the number of shares reserved for purchase as set forth below, the number of shares of Stock that may be purchased under the Plan shall not exceed 850,000 shares of Stock (which number includes all shares available for delivery under this paragraph (b) since the establishment of the Plan in 2004, determined in accordance with the terms of the Plan).
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(c)
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A Participant will have no interest in shares of Stock covered by his Subscription Agreement until the shares are delivered to him.
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(a)
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If the Company shall effect any subdivision or consolidation of shares of Stock or other capital readjustment, payment of stock dividend, stock split, combination of shares or recapitalization or other increase or reduction of the number of shares of Stock outstanding without receiving compensation therefor in money, services or property, then, subject to the requirements of Code section 423, the Committee shall adjust the number of shares of Stock available under the Plan.
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(b)
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If the Company is reorganized, merged or consolidated or is party to a plan of exchange with another corporation, pursuant to which reorganization, merger, consolidation or plan of exchange the shareholders of the Company receive any shares of stock or other securities or property, or the Company shall distribute securities of another corporation to its shareholders, then, subject to the requirements of Code section 423, there shall be substituted for the shares subject to outstanding rights to purchase Stock under the Plan an appropriate number of shares of each class of stock or amount of other securities or property which were distributed to the shareholders of the Company in respect of such shares.
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(a)
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Notwithstanding any other provision of the Plan, the Company shall have no liability to issue any shares of Stock under the Plan unless such delivery or distribution would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity.
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(b)
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In the case of a Participant who is subject to Section 16(a) and 16(b) of the Securities Exchange Act of 1934, the Committee may, at any time, add such conditions and limitations with respect to such Participant as the Committee, in its sole discretion, deems necessary or desirable to comply with Section 16(a) or 16(b) and the rules and regulations thereunder or to obtain any exemption therefrom.
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(c)
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To the extent that the Plan provides for issuance of certificates to reflect the transfer of shares of Stock, the transfer of such shares may, at the direction of the Committee, be effected on a non-certificated basis, to the extent not prohibited by the provisions of Rule 16b-3, applicable local law, the applicable rules of any stock exchange, or any other applicable rules.
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(a)
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Neither a Participant nor any other person shall, by reason of the Plan, acquire any right in or title to any assets, funds or property of the Employers whatsoever, including, without limitation, any specific funds, assets, or other property which the Employers, in their sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the amounts, if any, payable under the Plan, unsecured by any assets of the Employers. Nothing contained in the Plan shall constitute a guarantee by any of the Employers that the assets of the Employers shall be sufficient to pay any benefits to any person.
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(b)
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The Plan does not constitute a contract of employment, and participation in the Plan will not give any employee the right to be retained in the employ of an Employer or any Related Company, nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. Except as otherwise provided in the Plan, no right to purchase shares under the Plan shall confer upon the holder thereof any right as a shareholder of the Company prior to the date on which he fulfills all service requirements and other conditions for receipt of such rights.
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(a)
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Subject to the provisions of the Plan, the Committee will have the authority and discretion to establish the terms, conditions, restrictions, and other provisions applicable to the right to purchase shares of Stock under the Plan.
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(b)
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The Committee will have the authority and discretion to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements made pursuant to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan.
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(c)
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Any interpretation of the Plan by the Committee and any decision made by it under the Plan is final and binding on all persons.
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(a)
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Board. The term “Board” shall mean the Board of Directors of the Company.
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(b)
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Code. The term “Code” means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code.
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(c)
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Compensation. The term “Compensation” means total compensation paid by the Employers for the applicable period specified in Section 2.2, exclusive of any bonus payment, payment in cash or kind under any stock option plan, deferred compensation plan, or other employee benefit plan or program of the Employers.
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(d)
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Dollars. As used in the Plan, the term “dollars” or numbers preceded by the symbol “$” shall mean amounts in United States Dollars.
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(e)
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Effective Date. The “Effective Date” shall be the date on which the Plan is adopted by the Board.
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(f)
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Employer. The Company and each Related Company which, with the consent of the Company, adopts the Plan for the benefit of its eligible employees are referred to collectively as the “Employers” and individually as an “Employer”.
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(g)
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Fair Market Value. The “Fair Market Value” of a share of Stock of the Company as of any date shall be the closing market composite price for such Stock as reported for the New York Stock Exchange - Composite Transactions on that date or, if Stock is not traded on that date, on the next preceding date on which Stock was traded.
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(h)
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Participant. The term “Participant” means any employee of the Company who is eligible and elects to participate pursuant to the provisions of Section 2.
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(i)
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Related Companies. The term “Related Company” means any company during any period in which it is a “subsidiary corporation” (as that term is defined in Code section 424(f)) with respect to the Company.
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1.
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I have reviewed this quarterly report on Form 10-Q of Assured Guaranty Ltd.
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
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By:
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/s/ DOMINIC J. FREDERICO
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Dominic J. Frederico
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President and Chief Executive Officer
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1.
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I have reviewed this quarterly report on Form 10-Q of Assured Guaranty Ltd.
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
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By:
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/s/ ROBERT A. BAILENSON
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Robert A. Bailenson
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Chief Financial Officer
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(1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ DOMINIC J. FREDERICO
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Name: Dominic J. Frederico
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Title: President and Chief Executive Officer
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Date: May 10, 2019
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(1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ ROBERT A. BAILENSON
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Name: Robert A. Bailenson
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Title: Chief Financial Officer
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Date: May 10, 2019
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