Assured Guaranty Reports First Quarter 2004 Earnings.Business Editors HAMILTON Hamilton, city, Bermuda Hamilton, city (1990 est. pop. 3,100), capital of Bermuda, on Bermuda Island. It is a port at the head of Great Sound, a huge lagoon and deepwater harbor protected by coral reefs. , Bermuda--(BUSINESS WIRE)--May 11, 2004 Assured Guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant. Ltd. (NYSE NYSE See: New York Stock Exchange :AGO) announced net income of $46.9 million for the first quarter ended March 31, 2004, an increase of 48% compared with $31.8 million earned in the first quarter of 2003. Net income per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share was $0.63 in the quarter, up 50%, compared to $0.42 earned in the first quarter of 2003, based on 75 million shares outstanding upon completion of the IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. on April 28, 2004.
Analysis of Net Income
($ in millions) 1Q 2004 1Q 2003 % Change
Net income $ 46.9 $ 31.8 48%
After-tax realized gains
(losses) on investments - 1.3 NMF
After-tax unrealized gains
(losses) on derivatives 3.1 (0.3) NMF
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Operating income (1) $ 43.7 $ 30.7 42%
IPO-related income 11.1 - NMF
-------------------
Subtotal excluding
IPO-related income $ 32.6 $ 30.7 6%
NMF = not meaningful
Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , which we define as net income excluding after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. net realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. (losses) on investments and after-tax unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. (losses) on derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. financial instruments, was $43.7 million or $0.58 per diluted share in the first quarter of 2004, up 42% compared with $30.7 million or $0.41 per diluted share in the first quarter of 2003. Management, investors and analysts use operating income to evaluate our results of operations, as this measure highlights the underlying profitability of our business. A portion of operating income arose in connection with transactions associated with our IPO, which included our exiting certain lines of business, and expenses associated with a staff reduction in February February: see month. 2004. The net impact of these actions on first quarter 2004 results was an increase in operating income of $11.1 million, or $0.15 per share in the quarter.
Gross Premiums Written by Segment
($ in millions) 1Q 2004 1Q 2003 % Change
Financial guaranty direct $ 25.6 $ 14.0 83%
Financial guaranty reinsurance 52.4 29.8 76%
Mortgage guaranty 14.0 8.1 73%
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Sub-total $ 92.0 $ 51.9 77%
Other segment (93.6) 60.9 NMF
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Total gross premium written $ (1.5) $112.7 NMF
NMF = not meaningful
Gross premiums written When a non-life insurance company closes a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract are called gross premiums written. were a negative $1.5 million in the quarter. Gross premiums written in our other segment (which represents our exited lines of business) were reduced by $97.8 million in the quarter due to the accounting for the unwinding of equity layer credit protection products. Partially offsetting this premium reduction was the recognition of $10.4 million of gross premiums written in the financial guaranty direct segment due to the closing out of transaction types in which we no longer participate; excluding this amount, gross premiums written in the financial guaranty direct segment grew 9%.
Analysis of Present Value of Gross Financial Guaranty Premiums
Written ("PVP")
($ in millions) 1Q 2004 1Q 2003 % Change
Financial guaranty
direct segment $ 7.9 $ 20.7 (62%)
Financial guaranty
reinsurance segment (3) 74.6 38.6 93%
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PVP $ 82.5 $ 59.3 39%
The present value of gross financial guaranty premiums written ("PVP See portable video player. ")(2) in the quarter was $82.5 million, compared with $59.3 million in the first quarter of 2003. Management, equity analysts and investors use this non-GAAP measure to evaluate the value of new financial guaranty business production, as the GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). gross premiums written measure does not reflect the present value of installment Regular, partial portion of the same debt, paid at successive periods as agreed by a debtor and creditor. An installment loan is designed to be repaid in certain specified, ordinarily equal amounts over a designated period, such as a year or a number of months. premiums on new contracts underwritten in a reporting period. See "Selected Financial Highlights" for a reconciliation of PVP to gross premiums written. Dominic Dominic hound who travels widely. [Children’s Lit.: Dominic] See : Dogs Frederico Frederico may refer to: In literature:
Financial guaranty direct PVP totaled $7.9 million, down 62%, consistent with management's expectations. While the structured finance market normally experiences some seasonal slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. in the first quarter, Assured Guaranty's marketing efforts were relatively modest in the quarter given the Company's focus on the IPO and implementing the change in business strategy. Management expects PVP in this segment to increase over the remainder of the year; the fourth quarter is historically the strongest quarter for this business. Financial guaranty reinsurance PVP totaled $74.6 million, up 93%. This quarter's strong volumes reflect relatively higher primary insurance volumes from the fourth quarter of 2003, combined with changes in treaty terms that increased our reinsurance market share with some cedants in 2004 compared to the prior year's quarter. Management expects 2004 reinsurance volumes to be below the annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. level of the first quarter of 2004, reflecting our cedants' expectations that their 2004 financial guaranty PVP will be level or lower than 2003.
Net Premiums Earned by Segment
($ in millions) 1Q 2004 1Q 2003 % Change
Financial guaranty direct $ 40.7 $ 14.7 177%
Financial guaranty reinsurance 20.4 16.9 21%
Mortgage guaranty 8.4 9.6 (13%)
-------------------
Sub-total $ 69.5 $ 41.2 69%
Other segment 17.2 22.4 (23%)
-------------------
Total 86.7 63.6 36%
Municipal refunding premiums 2.9 3.3 (12%)
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Sub-total $ 83.8 $ 60.3 39%
Net premiums earned were $86.7 million in the first quarter of 2004, up 36% compared with $63.6 million in the first quarter of 2003. Financial guaranty direct net premiums earned included $24.2 million associated with the closing out of transaction types that we do not expect to underwrite To insure; to sell an issue of stocks and bonds or to guarantee the purchase of unsold stocks and bonds after a public issue. The word underwrite has two meanings. in the future. Financial guaranty reinsurance net premiums earned were $20.4 million, up 21% from $16.9 million in the first quarter of 2003. Included in this amount were $2.9 million of municipal bond refunding Reimbursing funds in restitution or repayment. The process of refinancing or borrowing money, ordinarily through the sale of bonds, to pay off an existing debt with the proceeds derived therefrom. premiums, compared with $3.3 million in the first quarter of 2003. Mortgage guaranty net premiums earned were $8.4 million, compared with $9.6 million in the first quarter of 2003, reflecting the run-off run-off n (in contest, election) → desempate m (= extra race); carrera de desempate run-off n (in contest, election) → of our quota share For This article is about quota shares (shares of the quota). For other usages of quota, see, see . A quota share is a specified number or percentage of the allotment as a whole (quota), that is prescribed to each individual entity (see Non-tariff barriers to trade). mortgage guaranty reinsurance business. Investment income in the quarter was $24.4 million, up modestly compared with $24.1 million in the first quarter of 2003. The average portfolio yield was 4.8%, compared with 5.3% in the prior year on an investment portfolio of $2.2 billion at March 31, 2004. The portfolio's average credit quality remained at AA+/Aa2. As a result of IPO-related transactions in the other segment, we expect a $163 million reduction in the investment portfolio in the second quarter.
Consolidated GAAP Combined Ratio
1Q 2004 1Q 2003 Change
Loss ratio 27.3% 36.5% (9.2) pp
Expense ratio 35.9% 41.6% (5.7) pp
--------------------------------
Combined ratio 63.2% 78.1% (14.9) pp
Loss and loss adjustment expenses in the quarter were $23.7 million, or 27% of net premiums earned ("loss ratio"), compared with $23.2 million or a 36% loss ratio in the first quarter of 2003. Both loss ratios are significantly affected by the other segment and the closing out of transactions in the financial guaranty direct segment in preparation for our IPO. Assured Guaranty's profit commission expense, acquisition costs and other operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. were $31.2 million in the quarter and 36% as a percent of net premiums earned ("expense ratio"), as compared to $26.4 million or a 42% expense ratio in the first quarter of 2003. The increase in expenses reflects the addition of IPO-related and holding company expenses as well as $1.5 million of severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when expenses in the quarter. The Company's March 31, 2004 book value per share was $20.13, up 5% from December December: see month. 31, 2003. Excluding the effects of FAS 115, book value per share was $18.81 per share or up 4%. Management, investors and analysts use the calculation of adjusted book value to evaluate the net present value of the Company's in-force premium and capital base. Adjusted book value(4) per share was $26.38, up 9% from December 31, 2003. Book value and adjusted book value per share do not include the financial impact of the issuance of the $200 million note to ACE Limited after the first quarter of 2004 and prior to the IPO. Including this note and closing IPO adjustments, book value per share and adjusted book value per share would have been $18.24 and $24.41, respectively. Robert Robert, Henry Martyn 1837-1923. American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. Mills, CFO See Chief Financial Officer. of Assured Guaranty, commented, "The first quarter's results reflect the numerous actions undertaken as part of our IPO. Excluding these items, our first quarter results represent a baseline The horizontal line to which the bottoms of lowercase characters (without descenders) are aligned. See typeface. baseline - released version for our earnings going forward, as we work toward achieving our target of an 11% ROE A fictitious surname used for an unknown or anonymous person or for a hypothetical person in an illustration. A lawsuit is generally named for the persons who are parties to it. in 2004. While our direct financial guaranty production was low, it was consistent with our expectations given the numerous initiatives underway at the Company in preparation for our IPO and was more than offset by strong business production in our financial guaranty reinsurance segment." The Company will host a conference call for investors at 8:30 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT (9:30 a.m. ADT (Asynchronous Data Transfer) A transmission technique used in ISDN PBXs that dynamically allocates bandwidth. See also abstract data type. ADT - abstract data type ) on Tuesday Tuesday: see week. , May 11, 2004. The conference call will be available via live and archived webcast at http://www.assuredguaranty.com or by dialing 1-800-901-5217 (in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ) and 1-617-786-2962 (International), passcode 65812948. A replay of the call will be available from May 11, 2004 until May 25, 2004. To listen to the replay dial: 1-888-286-8010 (in the United States) or 1-617-801-6888 (International), passcode 16047630. Please refer to the Assured Guaranty Financial Supplement March 31, 2004, which is posted on the Company's investor information page on the Company's website, for more detailed information on individual segment performance, together with additional disclosure on our financial guaranty portfolio and investment portfolio. Assured Guaranty is a Bermuda-based holding company providing credit enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing products to the municipal finance, structured finance and mortgage markets. More information can be found at http://www.assuredguaranty.com. Cautionary Statement Regarding Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. : Any forward-looking statements made in this press release reflect the Company's current views with respect to future events and financial performance and are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. The Company's forward-looking statements also could be affected by rating agency action such as a ratings downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. , difficulties with the execution of the Company's new business strategy, a significant reduction in the amount of reinsurance ceded by one or more of our principal ceding cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. companies, developments in the world's financial and capital markets, more severe losses or more frequent losses associated with products affecting the adequacy of the Company's loss reserve, changes in regulation or tax laws, the Company's dependence on customers, decreased demand or increased competition, loss of key personnel, the effects of mergers, acquisitions and divestitures, changes in accounting policies or practices, and changes in general economic conditions, as well as management's response to these factors, and other risk factors identified in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Glossary A term used by Microsoft Word and adopted by other word processors for the list of shorthand, keyboard macros created by a particular user. See glossaries in this publication and The Computer Glossary. : (1) We believe the presentation of operating income enhances the understanding of our results of operations by highlighting the underlying profitability of our business. We exclude net realized gains (losses) on investments and net unrealized gains (losses) on derivative financial instruments because the amount of these gains (losses) is heavily influenced by, and fluctuates in part according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. , the market interest rates, credit spreads and other factors that management cannot control or predict. This measure should not be viewed as a substitute for net income determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP). (2) PVP, which is a non-GAAP measure, represents gross premiums related to financial guaranty contracts written in the current period, including the full amount of upfront installment premiums received and the present value of all installment premiums, discounted at 6% per year. (3) Due to reporting lags by our ceding companies, PVP for our financial guaranty reinsurance segment is reported on a one-quarter lag. (4) Adjusted book value, which is a non-GAAP measure, is derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. by beginning with shareholder's equity (book value) and adding or subtracting the after-tax value of: the financial guaranty net unearned premium reserve; deferred acquisition costs and the present value of estimated net future installment premiums (discounted at 6%). These adjustments will not be realized until future periods and may differ materially from the amounts used in determining adjusted book value.
Assured Guaranty Ltd.
Consolidated Income Statements
Quarter Ended
March 31,
------------------
2004 2003
------------------
(dollars in
thousands)
Revenues
Gross written premiums $(1,543) $112,735
Net written premiums (6,871) 104,073
Net earned premiums $86,667 $63,588
Net investment income 24,385 24,101
Other income 532 557
------------------
Total revenues $111,584 $88,246
Expenses
Loss and loss adjustment expenses 23,668 23,188
Profit commission expenses 5,486 2,969
Acquisition costs 13,108 11,843
Other operating expenses 12,623 11,635
Goodwill expense 1,645 -
Interest expense 1,434 1,434
------------------
Total expenses $57,964 $51,069
Income before provision for income taxes 53,620 37,177
Total provision for income taxes 9,902 6,434
Net income excluding after-tax realized gains on
investments and after-tax unrealized gains
(losses) on derivative financial instruments $43,718 $30,743
After-tax realized gains on investments 31 1,297
After-tax unrealized gains (losses)
on derivative financial instruments 3,143 (289)
Net income $46,892 $31,751
==================
Assured Guaranty Ltd.
Consolidated Balance Sheets
As of
-----------------------
March 31, December 31,
2004 2003
-----------------------
(dollars in thousands)
Assets
Fixed maturity securities available
for sale, at fair value $2,065,948 $2,052,217
Short-term investments, at cost, which
approximates market 154,355 137,517
-----------------------
Total investments 2,220,303 2,189,734
Cash 36,254 32,365
Accrued investment income 24,302 23,758
Deferred acquisition costs 186,267 178,673
Premium receivable 35,133 63,997
Prepaid reinsurance premiums 17,012 10,974
Reinsurance recoverable on ceded losses 106,131 122,124
Due from affiliate - 115,000
Value of reinsurance business assumed 11,915 14,226
Goodwill 85,417 87,062
Other assets 26,490 19,954
-----------------------
Total assets $2,749,224 $2,857,867
=======================
Liabilities
Unearned premium reserve $537,930 $625,429
Reserve for losses and loss
adjustment expenses 431,297 522,593
Profit commissions payable 56,805 71,237
Deferred federal income taxes payable 73,865 55,637
Unrealized losses on derivative financial
instruments 1,209 8,558
Funds held by Company under reinsurance
contracts 9,289 9,635
Long-term debt 75,000 75,000
Other liabilities 53,757 52,154
-----------------------
Total liabilities $1,239,152 $1,420,243
Shareholder's equity
Common stock 16,403 16,403
Additional paid-in capital 961,853 955,490
Accumulated other comprehensive income 99,405 81,185
Unearned stock grant compensation (4,506) (5,479)
Retained earnings 436,917 390,025
-----------------------
Total shareholder's equity $1,510,072 $1,437,624
Total liabilities and shareholder's equity $2,749,224 $2,857,867
=======================
Assured Guaranty Ltd.
Selected Financial Highlights
Quarter Ended
March 31,
----------------------
2004 2003
----------------------
(dollars in thousands
except per share
amounts)
Premium analysis:
Present value of gross premiums written ("PVP") $82,500 $59,300
Present value of installment premiums written
in period (47,900) (36,400)
----------------------
Upfront gross premiums written 34,600 22,900
Installment gross premiums written 43,408 20,857
----------------------
Financial guaranty gross premiums written $78,008 $43,757
Mortgage 14,007 8,114
Other (93,558) 60,864
----------------------
Total gross premiums written $(1,543) $112,735
======================
Book value $1,510,072 $1,437,624
Net UPR less DAC - after-tax 216,129 177,680
Net present value of installment premiums in-
force - after-tax 252,200 205,700
----------------------
Adjusted book value $1,978,401 $1,821,004
======================
Average basic shares outstanding (1) 75,000,000 75,000,000
Average fully diluted shares outstanding (1) 75,000,000 75,000,000
Per fully-diluted share:
Net income $0.63 $0.42
less: After-tax realized gains on investments 0.00 0.02
less: After-tax unrealized gains (losses) on
derivatives 0.04 (0.00)
----------------------
Operating income $0.58 $0.41
Book value $20.13 $19.17
Net UPR less DAC - after-tax 2.88 2.37
Net present value of installment premiums in-
force - after-tax 3.36 2.74
----------------------
Adjusted book value $26.38 $24.28
======================
(1) Represents shares issued upon the IPO closing
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