Assured Guaranty Ltd.

Good morning and welcome to the Assured Guarantee Limited second quarter 2022 earnings conference call. My name is Danielle and I'll be the operator for today's call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, press star then two. Please note that this event is being recorded. I would now like to turn the conference over to our host, 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 second quarter 2022 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'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, 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 assuredguarantee.com. Turning to the presentation, our speakers today are Dominic Federico, 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 would like to ask a question. I will now turn the call over to Dominic.

Thank you, Robert, and welcome to our end during today's call. At the halfway mark of 2022, Assured Guarantees adjusted operating shareholders' equity per share and adjusted book value per share were at the highest levels in our history, $90.18 and $134.91, respectfully. The second quarter and the first half of 2022 were marked by extreme market volatility, rapidly increasing inflation and Fed action to raise interest rates. Rob will cover how the shifting interest rate environment affected our financial results, but I am pleased to say that our core insurance business continued to perform well in this year's volatile markets. New business production has been strong and consistent with recent years' excellent results. First half 2022 PVP totaled $145 million, and its sources were diversified across U.S. public finance, international infrastructure, and global structured finance. In terms of direct PVP, we again produced more than $100 million of first half direct PVP, taking it five times out of the last six years that we've exceeded that milestone. In U.S. public finance during the same period, this year's $106 million of first half direct PVP was second only to last year's first-half production and would have easily been the best first half of any year with the inclusion of one of our large transactions that sold in the second quarter but closed in the third quarter. In the first half of 2022, municipal bond yields trended higher and credit spreads also widened, though to a lesser extent. The June 30th benchmark yield of 3.18% for 30-year AAA GO bonds reflected a 65 basis point increase in the second quarter alone, and was more than double the yield at the start of the year. However, yield and spreads were unusually volatile. New money issues rose modestly in par volume and dominated the market, but rising interest rates also pushed some potential refunding, including taxable advance refunding, out of the money, causing overall market volume to decline. We continue to see high demand for our bond insurance compared with pre-pandemic levels. First half 2022, insured penetration of 8.8% was higher than the 8.4% in the first half of 2021 and significantly higher than the 5.9% in 2019's first half. We believe that two important factors have helped to amplify the use of bond insurance. Wider investor awareness that insurance offers safety, and the many potential consequences of a volatile economic condition, and a larger number of issuers recognizing the cost effectiveness of bond insurance. For the first half of 2022, a short share of the insured primary municipal bond market exceeded 56%. We guaranteed 380 new issues with a total of $10 billion in insured par sold. We set 12-year records for first half secondary market par written at almost $1.8 billion, and combined primary and secondary market insured PAR sold at $11.8 billion. Our direct gross PAR written on US municipal transactions closed during the first half was also the highest in 12 years. Contributing to this were 17 primary market transactions where we guaranteed $100 million or more of PAR each. We believe deals of this size reflect significant institutional demand for our insurance due to the financial strength of our guarantee and the relative price stability and increased market liquidity our insurance can provide. Looking at the second quarter, our insurer PAR sold a total of $6.5 billion, of which $1.4 billion was secondary market PAR. Total insurance penetration for the quarter was 8.9%. Our bond insurance market share was over 54%. We also guaranteed 10 large transactions sold in the quarter that utilized over $100 million of our insurance each. These included a $608 million New York Power Authority issue entirely wrapped by a sure guarantee, and a $468 million portion of an Alameda Car to Transportation Authority issue, which closed after the quarter end and has contributed to the strong start we've seen for our third quarter PVP results. In fact, across our company, in the weeks since the third quarter began, we have already written more than $75 million of PVP. Remember, our first half total PVP was $145 million. In a sign that investors recognize the strength of our guarantee, we continue to add value on AA credits. For the first half of 2022, we insured $1.6 billion of PAR sold through 79 primary and secondary market policies on bonds rated in the AA category by S&P or Moody's or both. This included $1.1 billion of PAR on 52 deals sold in the second quarter, of which approximately $300 million was insured in the secondary markets. International public finance produced $30 million of PVVs during the first half of 2022, including $18 million in the second quarter. In May, we wrote a large secondary market guarantee for an institutional investor. Our pipeline of potential international public finance transactions looks very good and includes a number of significant transactions that we consider likely to close in 2022. And as I said previously, we have already seen a strong start in the third quarter. In global structured finance, we continue to see potential opportunities with such clients as life insurers, banks, other direct lenders, pensions funds, and asset-backed investors. We closed our second guarantee of a subscription finance facility for a bank during the second quarter and see many opportunities to work with new counterparts in the fund finance sector. The CLO market remains an important area of focus, and we are speaking with current and potential CLO investors about opportunities created by the recent spread widening. More importantly, our insured portfolio quality continues to improve. During the first six months of this year, our exposure to below investment-grade credits decreased by almost $2 billion of PAR, including the $1.3 billion of Puerto Rico exposure we extinguished as a result of the Commonwealth GOPBA plan of adjustment. Our BIG PAR exposure now represents only 2.3% of our insured portfolio. On our last call, I mentioned as part of the Commonwealth GOPBA plan plan of adjustment, we received cash and new GO bonds totaling approximately $1.2 billion plus additional contingent value instruments. In addition, concerning the Highway and Transportation Authority revenue bonds, in July, we received from the Commonwealth pursuant to the Commonwealth GO PBA plan of adjustment and the terms of the HTA plan support agreement, $147 million of cash and $668 million notional of contingent value instruments. The HTA plan of adjustment confirmation hearing has been set for August 17th and 18th. Assuming the current HTA plan is confirmed and implemented, we expect to receive additional recoveries in the fourth quarter. Firstly, all responsible parties understand that completing the island's debt restructuring is a key factor for its further economic progress in Puerto Rico. Title III court is applying pressure to complete mediation to achieve a consensual resolution of the treatment of the Puerto Rico Electric Power Authority revenue bonds. our last unresolved Puerto Rico exposure. On July 29th, the judge extended the term of the mediation to August the 15th. The improved quality of our already high-quality insured portfolio adds to the reasons for our insurance subsidiary's high financial strength rating. S&P has recently affirmed its AA financial strength rating for all of our financial guarantee companies, citing both our very strong financial risk profile and very strong business risk profile in its annual review of Assured Guarantee. This report describes many strengths supporting our AA ratings, including S&P's view that we have excellent capital and earnings with a meaningful capital adequacy buffer. You can read the entire report on our website, assuredguarantee.com. On the asset management side of our business, during the second quarter, we increased assets under management by approximately $950 million to $17.9 billion, of which 96% is now fee earnings. Third-party inflows totaled $1.3 billion. We closed the new CLO and held a subscribe final closing for our latest healthcare fund, and we continue to execute on our other strategic objectives. Given the uncertainty in this economic environment, it's good to reflect on the proven resiliency of our company. The first year of the pandemic, we saw investor appetite for bond insurance increase, and that heightened interest has been maintained, as this year's developments continue to remind investors that the future is often volatile. We have succeeded through decades of economic cycles by delivering on our commitments to protect investors' principal and interests against all risks, while proving our resilience through disciplined risk management and responsible stewardship of capital. Our insurance subsidiaries aggregate $11 billion of claim-paying resources today, or approximately the same as they were at the end of 2007. even though since then we have paid gross claims exceeding $13 billion to keep investors whole and return more than $5 billion to shareholders through share buybacks and dividends. We maintain those numbers by mitigating losses on gross claim payments to only $6 billion of net claims through recoveries, reinsurance, and reimbursements, and by earning more than $6 billion in adjusted operating income over the same period. Our $11 billion of claim-paying resources now supports a much smaller and higher-quality portfolio of insured risk. By every measurement that compares our capital resources to insured exposure, our insured leverage is less than half of what it was at the end of 2009. This resilience has positioned us to thrive as business and market divisions are creating more incentives for the use of financial guarantees. We have never been better prepared to serve our clients, protect our policyholders, and create value for our shareholders. We'll now turn the call over to Rob.