Assured Guaranty Ltd.

Good morning and welcome to the assured guarantee limited third quarter 2022 earnings conference call. My name is Bailey 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, please 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 third quarter 2022 Financial Results Conference call. Today's presentation is made possible 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. Turning to the presentation, 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 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. We continue to build shareholder value of Assured Guarantee during the third quarter and first nine months of 2022. As of September 30, 2022, assured guarantees adjusted operating shareholders' equity per share of $91.82 and adjusted book value per share of $137.87 were both record highs. Adjusted operating income per share of $2.11 for the third quarter and $3.88 for the first nine months represented increases of 369% and 49%, respectively, compared with last year's periods. New business production continue to be strong in the third quarter with $95 million of PVP. It's substantially the same as in the third quarter of last year and our best quarter so far this year. This year's third quarter was our best third quarter in international public finance and second best in U.S. public finance in more than a decade. We believe there's been a permanent shift in the market toward a greater appreciation of our value proposition. As the pandemic, the volatility in the markets and the global economy geopolitical unpredictability, and climate-related natural disasters have reminded investors of the vulnerabilities of their investments. Municipal bond yields, which had risen dramatically in the first half of this year, continued to climb in the third quarter, with the benchmark yield for 30-year AAA geo bonds finishing at 3.9%. Credit spreads remain tighter than have been typical over the past decade, although they have widened somewhat over the course of the year. While interest rates increases and credit spreads widening are promising facts, U.S. municipal bond issuance volume has not kept pace with last year's. There have been fewer refundings this year, wherein past year's refundings have helped drive high total new issue volumes during the year of ultra-low interest rates. Additionally, year-to-date demand has been curtailed by approximately $92 billion in net outflows from municipal bond funds and ETFs. Even with the reduced issuance volume, this was the third consecutive year in which insured volume in the primary market exceeded $21 billion during the first nine months. You'd have to go back to 2009 to see a higher insured volume. At 7.8% of part issued, the industry penetration rate was the second highest in over a decade for the first three quarters. For a sure guarantee year to date, strong demand for our secondary market municipal bond insurance also had some of the impact of lower overall issuance. In the secondary market, we wrote more insured part in the first three quarters of 2022 than in any first nine-month period of the last decade. Our $2.2 billion of secondary insured PAR totaled more than 11 times out of last year's first three quarters. With fewer opportunities to purchase insured bonds in the primary market, investors have evidently been seeking the security and other benefits of our guarantee through the secondary market, which we believe is a sign of fundamental demand that is likely to be reflected in the primary market as volume returns. Holders of uninsured bonds may also want insurance because it has the potential to stabilize the market value of a position compared to the uninsured position should a credit come under financial stress. Our secondary market policies command comparatively higher premiums that made an important contribution to our strong PVP this year. Assured Guarantee remains the market leader for bond insurance, insuring approximately 56% of all primary market insured parts sold during the first nine months of 2022. In total, our insured PAR sold in the primary and secondary markets was $15.1 billion, the third largest amount we have insured during the first nine months of any year in the last decade. This included $4.8 billion of PAR from 21 U.S. public finance transactions that each involved at least $100 million of insured PAR. During the third quarter of 2022, our insured PAR sold in the primary and secondary markets totaled $3.4 billion, of which $480 million was secondary market PAR. We were pleased to continue to add value on AA credits, where we believe investors see our guarantee on high-quality credits as a mitigant of various risks. During the third quarter, we insured $683 million of PAR on 24 primary and secondary transactions with AA underlying ratings. In aggregate, for the first nine months of 2022, we insured more than $2.3 billion of PAR on 103 primary and secondary market transactions that either S&P or Moody's or both had assigned AA underlying ratings. Outside U.S. public finance, our international public finance business had its best third quarter since 2009, producing $37 million of PVP and bringing its year-to-date PVP to $67 million. We guaranteed the transactions in the transportation, airport, water, and other utility sectors. We have good prospects for a strong finish to the year, including local authority debt and other transactions. In global structured finance, we are currently processing mandates in such areas as subscription finance, diversified payment rights, whole business securitizations, and portfolio capital management for banks and insurance companies. Our new business production benefits from our strong financial strength ratings. Last month, Crowl Bond Rating Agency affirmed the AA plus ratings it applies to our US, UK, and European insurance subsidiaries. In separate reports on AGM and AGC, KBRA highlighted the company's substantial claim-paying resources, ability to withstand KBRA's conservative stress scenario losses, and our skilled management team. Also last month, the Puerto Rico Highway and Transportation Authority settlement and plan of adjustment was approved by the district court in Puerto Rico, and the plan is expected to be implemented before year-end. Resolving HTA reduces our total remaining insured Puerto Rico net par exposure to about one-half of 1%, of our total insured portfolio. With regard to PREPA, after mediation had reached an impasse, the court had allowed certain litigation to proceed, while directing further mediation to resume concurrently. The PREPA bonds have robust creditor protections, but as always, we prefer to resolve the matter consensually if possible, as we have attempted to do for many years. Overall, our insured portfolios have improved significantly in the last five years. with below investment grade exposure diminishing from 4.8% of matured net point outstanding in September of 2017 to 2.5% today as a result of our loss mitigation efforts. And it's important to remember that only a portion of the BIG exposure is ever likely to produce actual losses. As many of you know, we acquired our asset management business in October of 2019 with the aims of, one, diversifying our revenue sources by adding a fee-based revenue stream, and two, getting an in-house platform to increase our investment returns through alternative investments. We refocused the firm and have now almost fully wound down the legacy funds that we wish to exit. In terms of our key objectives, as of September 30th, our asset management business had more than $17.5 billion of assets under management, substantially all of which is fee earning. In comparison, at the end of 2019, with a comparable amount of AUM, less than half was fee earning. We also made progress on the second objective, Since we've been investing in the short IM funds, those investments have generated an annualized internal rate of return of over 10%, which is markedly higher than any other insurance segment investment. Keep in mind, these investments are marked to market on the income statement and will therefore show more volatility than our fixed income investments. However, the current marks do not change our expectation of our ultimate returns. Capital markets have continued to experience volatility. In October, the 10-year treasury yield went above 4% for the first time since 2008. And last week, the Open Market Committee added another 75 basis points to the Fed funds rate. In the municipal market, the benchmark yield on tax exempt AAA 30-year GOs also exceeded 4% last month, a level last seen in January of 2014. In the muni market, yields are roughly now 260 basis points higher than what they averaged in 2021. Given the current environment of higher interest rates and what appears to be a weakening economy, we would expect to benefit from further spread widening and a potential return of municipal insurance volume to higher levels. If these occur, demand for municipal bond insurance should increase. And I can tell you that so far in October, in the fourth quarter, the municipal market saw greater insured penetration, while assured guarantee increased its market share, found more frequent opportunities to insure transactions with larger par amounts. We also believe that in volatile global markets, many participants in infrastructure and structure finance are likely to have good reasons to employ the personal tools we offer to manage the risk. Our outlook is positive as we continue to focus on our core principles of discipline risk management, excellent customer service, and prudent capital management that is optimized for the benefits of our policyholders, clients, and shareholders. I'll now turn the call over to Rob.