Assured Guaranty Ltd.

Good morning and welcome to the Assured Guarantee Limited fourth quarter and year-end 2020 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 your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead.

Thank you, Operator, and thank you all for joining Assured Guarantee for our fourth quarter and year-end 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 due to new information or 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 are listening to a replay of this call, or if you're reading the transcripts 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 FCC filings, most current 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 in our current financial supplement and equity investor presentation, which are on our website at assuredguaranteed.com. Turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranteed Limited, and Rob Balanson, our Chief Financial Officer. After their remarks, we will open the call to your questions. As the webcast is not enabled for Q&A, Please dial into the call if you would 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. The extraordinary circumstances of 2020 tested Assured Guarantees business model, operations, and people once again, and we delivered remarkably strong results in the year marked by a public health crisis, an economic crisis, volatile financial markets, and tumultuous social and political environments. We had prepared well for the technological and organizational challenges of operating remotely and safely during the COVID-19 pandemic, and our employees showed the dedication and capability to achieve strong results. Most importantly, we saw the clear success of our efforts over many years to assemble an insured portfolio that would perform well in a severely distressed global economy. The year's challenges made our 2020 accomplishments all the more impressive. Our new business production totaled $389 million of direct PVP, exceeded by 75 million for the direct PVP we produced in every year, but one since 2010. The sole exception was the $553 million of direct PVP we produced in 2019, making the last two years' direct production our best in a decade. These strong results contributed to a reliable base of future earnings for years to come. In our core business, U.S. municipal bond insurance, we guaranteed more than $21 billion of foreign primary and secondary markets, generated $292 million of PVP, both 10-year records for direct production. We again set new per-share records for shareholders' equity and adjusted operating shareholders' equity, with totals at year-end of $85.66, $78.49, respectively. During the year, our adjusted book value per share exceeded $100 for the first time. At $114.87 year end of adjusted book value per share reflected the greatest single year increase since our IPO, $17.88, and the second highest growth rate of 18%. We retired a total of 16.2 million common shares, mainly through highly accretive share repurchases at an average price of $28.23. We spent 11% less in 2020 to repurchase 41% more shares than in 2019. We returned a total of $515 million to shareholders through repurchases and dividends. We also repurchased $23 million of outstanding debt. Our Paris-based subsidiary, Assured Guarantee S.A., was awarded ratings of AA by S&P and AA Plus by KBRA. and underwrote its first new transactions, allowing us to seamlessly continue our continental European operations in the wake of Brexit. We also transferred our portfolio of transactions insured by our UK subsidiary to the French company. And we successfully integrated our asset management business in its first full year of operations and rebranded it as Shored Investment Management. 2020 was a profitable year where we earned $256 million in adjusted operating income or $2.97 per share. But our most compelling news in 2020 was our performance in US public finance, where conditions were volatile. The benchmark 30-year AAA municipal market data interest rate began the year at 2.07%, jumped in March as high as 3.37%, bottomed down in August at a historic low of 1.27%. In early spring, investors were shocked by the potential scale of the pandemic's economic impact municipal bond funds experienced massive outflows. At that time, few analysts, if any, were predicting that 2020 would see $452 billion of municipal bonds issued, the greatest annual par volume on record. Swift action by the Federal Reserve helped to stabilize financial markets by maintaining short-term interest rates near zero and supporting the federal loan programs. These included a $500 billion municipal liquid facility which reassured the bond market by providing a backup source of liquidity for states and municipalities. Investors returned to the municipal market with a heightened focus on credit quality, trading value stability, and market liquidity, all concerns that drive demand for our bond insurance. Investment-grade credit spreads widened significantly before time, especially for BBB credits. As a result, bond insurance penetration rose to 7.6% of bar volume sold in the primary market, almost a full percentage point above the past decade's previous high. Assured Guarantee led this growth with a 58% share of insured new issue PAR sold. $21 billion of U.S. public finance PAR we insured in 2020 was 30% more than in 2019 and included taxable and tax-exempt transactions in both primary and secondary markets. First finding PVP was up 45% year over year. Many issuers took advantage of low interest rates to refund existing issues, in many cases using taxable bonds for advance refunding. Correspondingly, taxable issues widened the investor base to non-traditional investors, both domestically and internationally. Many of these investors could particularly benefit from our guarantee because of our greater familiarity with the municipal bond structures and credit factors. We insured $6.8 billion of par on taxable municipal new issues in 2020, up from $3 billion in 2019 $1.5 billion in 2018. We also guaranteed $2.5 billion of PAR on new issues that had underlying ratings in the AA category from S&P or Moody's, which was $1 billion more than in 2019. While investors had no reason to see default risk in such high-quality credits, many believed the risk of rating downgrades had increased in all rating categories. This gave investors an additional incentive to prefer uninsured bonds over uninsured bonds. are demonstrable cases where, after an obligor whose bonds we had insured saw its underlying ratings downgraded or its credit viewed as distressed, insured bonds held their market value better than the obligor's comparable uninsured bonds. Increase in institutional demand for our guarantee was evident in 39 new issues, up from 22 in 2019, where we provided insurance on $100 million or more or far. These included one of our largest public finance transactions in many years, $726 million of insured refunding bonds issued by Yankee Stadium LLC. Our production and healthcare finance made a strong contribution during 2020, as we guaranteed $2.7 billion of primary market PAR on 25 transactions. As the only provider of bond insurance in the healthcare sector, insured guarantee wrapped 9.7% of all healthcare revenue bond PAR issued in 2020. Additionally, we guaranteed $464 million of healthcare PAR across 39 different secondary market policies. Another highlight was our reentry after seven years into the private higher education bond market, where we insured a total of $690 million of PAR for Howard, Drexel, and Seton Hall Universities. For Howard Universities, we insured two issues totaling $320 million in PAR and insured PAR Our international public finance business produced 82 million of PVP during 2020, even though a number of opportunities were delayed due to the pandemic conditions. However, the pandemic also had the positive effect of widening credit spreads. We executed significant transactions, including three solar energy transactions in Spain, due to student accommodation financing for Kingston University in the United Kingdom. We have developed a strong pipeline for 2021. In our worldwide structured finance business, we executed a diverse group of transactions in the asset-backed securities, insurance capital management, and other structured finance sectors to generate $16 million of PVP during 2020. Even though pandemic conditions constrained our marketing activities, we were able to lay the groundwork for a variety of potential transactions in 2020. The efficacy of our underwriting and risk management was evident in the overall performance of our insured portfolio. whose credit quality changed little, even as necessary efforts to control the pandemic disrupted the economy. Our par exposure to credits we view as below investment grade declined by $531 million, a 6% decrease, and ended the year at less than 3.5% of net par outstanding. Our surveillance professionals reacted to the early news of the pandemic by promptly identifying the insured portfolio sectors most likely to weaken, evaluating the vulnerability of each of these sectors' obligations, reaching out directly to issuers in many cases. In general, what we found was reassuring. We have paid only relatively small first-time insurance claims we believe are due at least in part to credit stress arising specifically from COVID-19. We currently project full reimbursement of these claims. U.S. municipal bonds make up about three-quarters of our insured portfolio. As a class, they are well-structured to protect bondholders. with most of our transactions containing covenants that require issuers to increase tax rates, fees, or charges to ensure there are adequate funds to meet debt service requirements, and many also require the maintenance of a debt service reserve fund with up to a year's worth of debt service coverage. Municipalities generally improved their financial condition in the decades since the Great Recession, which further prepared them to handle the market disruption caused by the pandemic. Regarding Puerto Rico, we announced earlier this week that we have agreed to conditionally support a revised GEO and public building authorities plan support agreement with the oversight board and other creditors of Puerto Rico and the PBA. As we have said all along, we support a consensually negotiated and comprehensive approach to resolving Puerto Rico's current financial challenges. We have conditionally supported this agreement with the express understanding that the affected parties will work with us in good faith to make this agreement part of a more comprehensive solution one that respects our legal rights and ultimately achieves the goal of bringing the Title III process to a just and expeditious conclusion. We will continue to work diligently and constructively towards a resolution of any remaining issues with the GO and the PBA credits, as well as other Puerto Rico credits such as highway and transportation bonds, convention authority bonds, and others. This effort is taking place amid encouraging economic news. Significant federal assistance has been unlocked Commonwealth revenues continue to exceed the expectations underlying the Oversight Board's fiscal plans, resulting in aggregate Commonwealth balances tripling over the last three years to more than $20 billion at year-end 2020 and reaching as high as almost $25 billion mid-year. Our total net par exposure to Puerto Rico decreased in 2020 by $545 million, including $372 million of water and sewer bonds that were redeemed without any claims having been made on our policies. Turning to asset management, our corporate strategy for entering the business was to diversify our business profile by building a fee-based revenue source that complements our risk-based premium revenues, utilizing our core competency of credit evaluation. Assured investment management also gives us an in-house platform to generate and improve investment returns. Our asset management subsidiary, accomplished a number of strategic objectives during 2020. Assured IM issued two new CLOs, opened a European CLO warehouse during the year. It also created a specialized investment advisor that launched new healthcare opportunity funds and continued its planned strategy of unwinding certain legacy funds. Assured IM sold CLO equity positions in those funds to third parties. Even though Assured IM asset center management and the wind-down funds were reduced by $2.4 billion, its total AUM changed very little, declining by less than 3% to $17.3 billion. Assured Guarantee's insurance companies have allocated $1.1 billion of investments for Assured IM to manage, of which almost $600 million was funded as of year end. As of October 1, 2020, we were pleased to learn that Assured Guarantee would become a component of the Standard & Poor's Small Cap 600 Index. We believe there are thousands of passive and active small cap mutual funds and exchange traded funds that track or benchmark to this index are therefore likely to hold our shares for the long term. These investors' appetite for our shares was reflected in a 31% increase in our share price the week following the announcement. Our share price continued to grow, ending the year 44% higher than on October the 1st, almost doubling through February 25th of 2021. Inclusion in the index changed the composition of our shareholder base to be somewhat more heavily weighted toward index-focused asset managers, including our second and fourth largest shareholders, which together hold approximately 20% of our shares as you're right. Times like these are no substitutes for financial strength, experience, and judgment. These are qualities that have enabled a true guarantee to stand the test of time for more than three decades of market cycles and unexpected economic shocks. They are attributes that enable us to help borrowers in public finance, infrastructure, and structured finance markets, as well as financial institutions, pensions funds, insurance companies, retail investors to navigate the current economy. We are optimistic about 2021. On the whole, U.S. municipal revenues have fared much better than the market originally feared from the pandemic. They remain under stress, but we believe few investment-grade credits will default, least of all those that we have selected to insure. We are confident in the quality of our insured portfolio, our financial strength, and our financial liquidity. Many investors have a renewed appreciation of our value proposition. As infrastructure spending increases in our markets to address deferred needs and provide economic stimulus, we expect to continue to find opportunities to assist issuers in managing their financing costs. Longer term, we believe 2020 was a pivotal year that is likely to leave a lasting impression The great value our guarantee provides when something as unexpected and distressing as COVID-19 occurs. We continue to work to create value through a thriving financial guarantee business and a growing asset management arm. We will never lose sight of our role as stewards of capital, where we are committed to managing efficiently, protect policyholders, reward our shareholders, serve our clients. And I'll turn the call over to Rob.