Assured Guaranty Ltd.

Good day and welcome to the Assured Guarantee Third Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Robert Tucker, Senior Managing Director, Investor Relations and Communications. Please go ahead.

Thank you, Operator, and thank you all for joining Assured Guarantee for our third quarter 2020 Financial Results Conference Call. Today's presentation is made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The presentation may contain forward-looking statements about our new business and credit outlooks market conditions, credit spreads, financial ratings, loss reserves, financial results, or other items that may affect our future results. These statements are subject to change to the new information for future events. Therefore, you should not place undue reliance on them, as we do not undertake any obligation to publicly update or revise them, except as required by law. If you're listening to a replay of this call, or if you're reading the transcript of the call, please note that our statements made today may have been updated since this call. Please refer to the investor information section of our website for our most recent presentations and SEC filings, postcard financial filings, and for the risk factors. This presentation also includes references to non-GAAP financial measures. We present the GAAP financial measures most directly comparable to the non-GAAP financial measures referenced in this presentation, along with a reconciliation between such GAAP and non-GAAP financial measures and our current financial supplement, an equity investor presentation, which are on our website at assuredguarantee.com. Turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guarantee Limited, and Rob Balanson, our Chief Financial Officer. After their remarks, we'll open the call to your questions. As the webcast is not enabled for Q&A, please dial into the call if you'd like to ask a question. I will now turn the call over to Dominic.

Thank you, Robert, and welcome to everyone joining today's call. In our financial guarantee business, Assured Guarantee is having our best year for direct new business production in more than a decade, based on direct PVP results since 2009 for both the third quarter and first nine months of 2020. Additionally, on a per share basis, Assured Guarantee Capital management strategy, we have purchased more shares in nine months of this year than we did in all of 2019. And our board of directors has authorized additional share repurchases of $250 million. Also on October 1st, S&P Dow Jones indices announced that a short guarantee would become a component stock of the S&P small cap 600 index on October 7th. Both the price and trading volume of our shares increased on the news. presumably because index funds and ETFs that track the S&P 600, as well as actively managed funds benchmarked to the index, began accumulating positions in our shares. KPW estimated that passive funds that track the S&P 600 would need to purchase 8.7 million shares. I think it's safe to say that certain passive investors and active small-cap mutual funds and ETFs now form an additional base of AGO shareholders. There are more than 2,000 Turning to U.S. public finance production, we wrote $93 million of PVP in the third quarter, more than double our third quarter 2019 PVP, and an 11-year record. In terms of insured par sold, we continue to leave the industry guaranteeing 64% of the $11.9 billion of primary market insured par sold in the third quarter, which was the industry's highest quarterly insured par amount since mid-2009 and 82% higher than in last year's third quarter. Bond insurance penetration reached 8.3% from last year's third quarter penetration of 5.7%. With 7.7% penetration for the first three quarters, the municipal bond insurance industry is likely to see its best annual market penetration in the short-par volume in over a decade, and this is still in a very low interest rate environment. We benefited from credit spreads that are wired then at the beginning of the year, but this is still a market where AAA benchmark yields have been below 2% almost all year. The Wall Street Journal has called this increase in penetration a renaissance in the municipal bond insurance industry. Driven by the heightened demand for insurance, combined with a 35-year-over-year increase in quarterly issuance, Assured Guaranteed's third quarter originations totaled $7.5 billion of primary market parts sold, essentially double the amount during the third quarter of 2019. One of the new issues solved with our insurance in the third quarter was Assured Guarantee's largest U.S. public finance transaction since 2009, a $726 million of insured PAR for the Yankee Stadium project. This transaction closed in October, so its PVP and PAR exposure will be reflected in the fourth quarter results. It refunded $335 million of our previous exposure, so our net exposure to this credit increased by $391 million. This is one of 19 new issues that utilize $100 million or more of our insurance during the third quarter. For the first nine months, we provided insurance on $100 million or more of par on 32 individual new issues, more than in any full year over the past decade. Our significant capital resources and strong trading value on larger transactions are important competitive advantages. We believe two types of investors have driven our increase in larger transactions. The first are institutions investing in the traditional tax-exempt market, which are attracted by our strong balance sheet and broad proficiency in credit analysis. The others are non-traditional investors in the growing taxable municipal bond market, including international investors whose internal resources to evaluate and surveil U.S. municipal credits may be limited. Taxable issuance represented approximately 30 percent of the muni market's total new issue par volume during the first nine months of 2020, compared with 5 to 10 percent in recent years. And 35 percent of our par insured on new issues sold in the period was taxable. During those nine months, the par amount we insured on taxable new issues totaled $5.5 billion, compared with $1.5 billion in the first nine months of 2019. In case of credits with underlying S&P or Moody's ratings in the AA category, we insured a total of $806 million of PAR for the quarter and during the first nine months, more than $2 billion of PAR. This year to date, PAR volume is greater than our PAR volume of such AA credits in all of 2019. This reflects the strength of our value proposition and the market's view of our financial strength. Year-to-date through September, we provided insurance on $15.7 billion of municipal new-issue PAR sold, which is $1 billion more than in all of 2019. Combining primary and secondary market activity for the first nine months, we guaranteed $16.6 billion of municipal PAR, $6.2 billion more than in the same period last year, a 60% increase. In international infrastructure finance, we completed the best third quarter origination since 2009's acquisition of AGM, producing $24 million of PVP, 52% more than in last year's third quarter. Our guarantee is now a mainstream solution and widely accepted option for efficiently financing infrastructure development. The flow of transaction inquiries is much stronger than it was just a few years ago. In a little over a year's time, we guaranteed four solar power transactions in Spain, including the most recent one in August. These transactions are good examples of how our guarantee makes the financing of renewable energy projects more cost-efficient. Another significant third quarter transaction was a £90 million private placement to finance improvements to student accommodations at Kingston University in the United Kingdom. The high insured ratings and associated lower investment investor capital charges, as well as the long tenor of many infrastructure bonds we guarantee, makes them attractive for institutions seeking to optimize long-term asset liability matching. The impact of COVID-19 has temporarily slowed the new issue transaction flow, but is also creating conditions that we expect to provide significant international opportunities. We believe downgrades or the potential for them could make our guarantee more valuable for even a broader range of essential investment-grade infrastructure finances, such as airports, that are crucial for the region's economies. In the medium term, we expect a massive global policy initiative to invest in infrastructure and renewables. Additionally, we see opportunities where our guarantee has been underutilized. In Australia, for example, we are ramping up our business development and advertising efforts and working with a local origination consultant to help us expand our network of relationships on the ground. Our international and structural finance groups often collaborate when it comes to bilateral risk transfer transactions that allow large asset portfolios to be managed more efficiently, whether from the perspective of capital efficiency, capital management, or risk mitigation. Transactions of these types are a strategic focus of our structural finance underwriting group. These tend to be large transactions requiring significant due diligence, and their timing is irregular. We have a number of them in progress and expect to close in the fourth quarter or next year. In other aspects of structured finance, we continue to explore opportunities to add value to a variety of securitizations, including, for example, those for whole business revenues, tax credits, and consumer debt. Now, let me provide some insight into the ability of our insured portfolio to weather today's unique economic circumstances. We have continued to take a deep dive analytically into our highly diversified universe of insured exposures, especially in the sectors we view as the most potentially vulnerable to the consequences of the pandemic, such as mass transit, stadiums, and hospitality, among others. What we found is that the underwriting we did to select the credits we've insured is and the structural protections we've required in order to be able to guarantee those transactions have worked the way they were intended. We again modeled performance of transactions in vulnerable sectors under economic stress tests, assuming no federal assistance beyond what was already authorized before September, as well as significant reductions in future revenues. Having updated that analysis, we remain confident that we do not expect first-time claims arising from the pandemic that will lead to material ultimate losses. On some transactions that were already classified as below investment grade, prior to the pandemic, we did make marginal reserve adjustments. As of now, we have paid no claims that we believe are due to credit stress arising specifically from COVID-19. Last week, KBRA wrote that it views the pandemic as primarily a potential liquidity event for assured guarantee. It expressed that view in its ratings affirmation it released for our insurance companies last week which were AA plus for AGM, MAC, and our UK and French subsidiaries, and AA for AGC. We take an active role in managing risk at the transactional level. This year, we have worked with some of our insured issuers to take advantage of low interest rates to reduce or defer their debt service over the near term through refinancings. These transactions also typically benefit us by accelerating our premium earnings and generating new premium on refunding bonds that we insure. I won't say a lot about Puerto Rico today because the new Commonwealth administration will be starting soon and the composition of the oversight board is in flux. Some board members have resigned and new board members have joined and others may be reappointed or replaced. I'll just repeat that achieving a consensual restructuring without further delay is the best thing that could happen for the people of Puerto Rico. The recently announced release of $13 billion in federal assistance helped to improve the conditions for reaching such an agreement. The integration of Blue Mountain Capital, which we acquired last year, is progressing. In September, we rebranded it Assured Investment Management and rolled out the new branding on a newly launched investment management website. These changes reflect a close alignment of our investment management business with our overall corporate strategy. Assured Investment Management currently manages $1 billion of our insured company's investable assets. Throughout the company, we are actively developing synergies between our insurance division, credit underwriting and surveillance skills, and the investment management division's ability to structure and market investment products. We want our investment management business to grow as we continue to leverage our capital through this strategic business diversification. I believe that Assured Guarantee is in good position, both in the market and financially. I expect a strong finish for 2020. Our U.S. public finance, international infrastructure, and global structured finance businesses have strong pipelines of potential originations. Assured Guarantee is fortunate to be a company designed from the ground up to be resilient and succeed in difficult times, which we proved during the previous recession. as the effectiveness of our remote operations and the diligence and commitment of our employees have made it possible for us to perform well and operate safely in challenging times, allowing us to continue to work towards protecting investors in securities we insure during an uncertain economy, assisting issuers in funding public services and managing their fiscal challenges, and building a greater value for assured guarantee shareholders. I'll now turn the call over to Rob.