Assured Guaranty Ltd.

Thank you. Good morning. With about 600 billion. Hi, I'm sorry. Could you hear me?

Yes.

Okay, great. With about 600 billion of projected muni supply in 26 and if penetration rates hold, what is your target for 2026 new issue insured PAR and is the pricing environment supportive to translate into higher growth premiums?

Well, if the market issue ends up, we would project our penetration would probably be inconsistent because of the credit conditions that exist in terms of spreads and rates. But we think the volume alone will give us a growth opportunity as well as we have some large deals that we know that are in the pipeline that will also help the year. So we expect a strong year, apples to apples. In terms of return, obviously now we have a very sophisticated ROE model. We calculate on every risk that we write. We have a review function now over the whole process to make sure the REs are in line with our cost of capital so that we're not leading at all the value of the company or the opportunities that we see. But we're being selective in terms of underwriting choices as well as the pricing that we're looking for in terms of spread and return. But like I said, volume will help our volume this year.

And we're seeing more triple B issuance as well as more infrastructure transactions and also in healthcare, which is giving us a significant amount more premium on those transactions.

Remember, we're the slave to large deals and large deals have their own timeframe in terms of closing. We've met many quarters where we expected a number of X and because two deals didn't close at the end of the quarter and fell into the next quarter, you have a very different buying structure. But as I said, if we look at it over the year, you know, apples to apples, we expect the year to be a strong year relative to public finance, as well as mirror return hurdles from the standpoint of profitability.

Okay, great. And how are you incorporating AI into your processes? And where do you see the biggest opportunity for it to improve your, you know, credit selection?

Well, that probably has the most discussion we're having in the organization. So, obviously, AI represents a great opportunity for us in terms of Being able to do the work we do, which is, you appreciate, fairly repetitive on a credit by credit basis, on a surveillance basis, on a review of the portfolio basis. A lot of those functions can be machine learned, and we're obviously applying it in every facet of our business. And most importantly, you've seen the activity in the secondary market, where we continue to push those numbers up, significantly utilizing artificial intelligence as part of the process. But remember, a human being still has to look at it to approve it. But at the end of the day, the compilation, the accessibility of the data, the molding the data into a format that would fit our process for credit and surveillance is critical to us. So we think as a company that does a lot of repeat functionality, we should be most benefited by the use of AI. And we've got literally an AI committee that looks at everything. We're applying applications kind of across the board in areas you wouldn't even think of, like financial reporting, surveys actually. So there's a lot of implications or applications that we're applying it to, and we think it's a critical tool for us to use in the future, both with how we want to manage the company and the business.

Marissa, that's why you see the velocity of our secondary market transactions go much more quickly, because we're actually using AI to interact with our clients much more quickly. In addition, our credit reports are being done using AI, but an individual actually reviews it, but it takes less time for an analyst to actually write them.

That's great. Thank you. And just moving, if I could, to the loss development, on Brightline with the going concern audit opinion that was just issued and the interest payment grace period expiring, you know, can you talk to us, is there any, has AGO been approached for any forbearance or restructuring or, you know, what scenario might it move to the Category 3 here?

There's a lot of activity on Brightline, as you can appreciate, and a lot of words in the marketplace in terms of the operations of the organization. However, if you look at our structure in terms of capital, the capital stack is roughly $7 billion. We're half of the top $2.4 billion. So you say to yourself, is the company worth at least $2.4 billion? And the answer resoundingly comes back, absolutely. We don't see this as a loss. situation, but obviously we have to compare ourselves to what the rating agencies think in terms of what their capital they're going to access, how the regulators view it. As you know, our accounting model requires us to consider all possible scenarios and probability weight them. So we've got to put a scenario out there that's got some lost content in it. But at the end of the day, we believe in the structure. We believe in our credit underwriting. We stand back on our historical results and time is on our side. Remember, in our portfolio, there's not any loss that would be significant to us in terms of principal and interest only when due. There's no acceleration. This, I think, has a $58 million payment annually to about 2042. So at the end of the day, it's not a big cash flow. And as I said, I don't mind owning a railroad for $2.4 billion. Okay.

Thank you very much.

Your next question comes from the line of Tommy McJoynt at KBW. Your line is open. Please go ahead.

Hi, good morning. Good morning, Brian. For investors that have become accustomed to AGO buying back roughly $500 million in stock in 10 of the last 12 years, was the slower pace of buybacks you've made and the message of a slowdown in buybacks for the next three months Does that mean to signal just a temporary slowdown here, or is this a true change in the way you guys think about capital distribution?

Well, when you say temporary, Tommy, that's a good question. I would say we look at the capital management. It's still a critical issue, still a critical strategic objective in the company. It's what we pay the most attention to. But at the end of the day, we front the company significantly. We've got to look at how we manage that remaining capital, where the opportunities lie. As we talked about in the life business, for instance, theoretically based on its growth pattern, it could absorb or need somewhere between 50 and 150 million of capital to continue to exercise its growth program over the next 18 months. We want to make sure we have plenty of capital for that, as well as still have enough cushion to protect ourselves from some myopic views of lost activities, such as Brightline, in terms of what the capital charges are coming out of the rating agencies for that. So we have to protect the company relative to its ratings. We've got to provide the opportunity to grow the business. We've done a tremendous job, and I think we're going to have the credit we deserve. For the capital management we've done, as Ben talked about, $6 billion, 81% of the outstanding. Well, that's liquidating the company. We want to grow the company. We think we've got great opportunities to grow the company. But the same token, if we can't use the capital, if we see the excess capital continues to build, as it has in the past, we will be aggressive in our capital management. And, of course, we'll protect our stock as well.

Thanks for that. And then I think we've talked about this in the past, but I just want to confirm that when you think about your sort of first order or second order exposure to the Middle East crisis, I assume you think it's pretty minimal. But perhaps, you know, thinking of second order impacts around just the level of heightened risk globally. Have you guys seen an uptick in terms of like the pipeline or demand for sort of risk mitigation strategies from AGO, specifically over the past few months that you can pinpoint to the crisis in the Middle East?

No, we haven't, Tommy, thank God. If you notice, and I've been in this business, in this position for a long time, I've seen probably four or five recessions, maybe three or four more global crises And at the end of the day, look at the results that Assurance put up. Never had a loss. In order to buy back the amount of stock and pay the dividends we had, we had to be usually profitable. I see nothing affects that going forward. We haven't seen the demand, as you're saying, in terms of people running for the exits. Our basic policy today where our growth engine is fund finance, which is a very safe, highly rated book of business. We do capital arbitrage. But the volatility in the market does allow us to open up more portals of business opportunity because the spread widening, spread is increasing, which gives us more opportunity to make money and be looking for deals. But we don't see the panic at all. And as I said, in our life history, it really has never had an effect because the portfolio is so well written and so well protected from a credit point of view.

And Tommy, we're seeing the increase in structural finance globally and international infrastructure due to regulatory requirements on banks becoming, you know, we're part of their solution when it comes to their capital management and capital efficiency and risk management. So that's where we're opening up, and they're looking at our financial guarantee as a solution to helping their regulatory capital.

Yeah, I think what that says to the company, right, we're opening up more counterparty relationships against banks across the world globe providing us significant lines of credit capacity that they're willing to absorb in terms of insurance credit risk. Why would that be? Because they realize the strength of the company, the strength of its financial ratings, the ability to provide this capital arbitrage in spite of the market, and the results that we've been able to generate in the past. So I think that alone would indicate the confidence that the market has in us and continues to provide us those opportunities.

I also just want to add that it's in these banks' core lending portfolios. It's not anything that they're that they're concerned about is the core lending. They want to service their clients even further.

Thanks. And if I could just sneak one last modeling one in. Looking at the investment portfolio and excluding the alternative investments, what was your new money yield in the quarter relative to the effective yield on the portfolio?

So I'm going to spend, I don't have the number right in front of me, but I'm going to say we're probably, the new money yield is probably somewhere a little north of 4%. It's probably 4.4. So, you know, I might be off by, you know, 10 or 15 basis points there.

Thanks. Your next question comes from the line of Jeffrey Dunn at Dowling and Partners. Your line is open. Please go ahead.

Thanks. Good morning, guys. Dominic, I know you don't put hard numbers on this, but can you talk about how you think about the level of excess capital in the company or alternatively the ROE drag from the excess capital in the company? Last time I heard a number, it was north of $2 billion. And so outside looking in, it seems like you have enough money for all of the above to keep an aggressive buyback plan in place as well as consider new alternatives. Can you maybe flush that out a little bit more? And then also, you know, as you pointed out, you bought back over 80% of the company over the last 12 years. How much is the flow to the stock coming into as a factor with your buyback appetite going forward?

Yeah, I don't think flow is the problem to date. So that could be a problem down the road, but today it's not been a problem. So let's talk about capital. So right now, capital is predominantly equity capital. As we look to the future and see growth opportunities, that mix of capital has to be looked at and examined. Can we bring in more soft capital facilities to let the hard equity capital be aggressively managed from the standpoint of shareholder buybacks or other opportunities? The soft capital also would provide us opportunities to allocate some of that for growth. And right now, we're saying to ourselves, we've shrank the company significantly. Some of the triggers that now exist on the overall balance sheet or portfolio have to be examined more closely, and that's where soft capital could be a definite wave of the future. as well as when we look at the capital, we have rating agency, we have regulatory. When companies come to us for large deals, they look at our balance sheet and the size of that balance sheet also gives them the confidence to write a $2 billion deal, a $2.5 billion deal. So we need to maintain certain size of asset as well for certain size of balance sheet to make sure that the issuer has full confidence in our ability to execute on the transaction and obviously provide the value that we expect in terms of the loss cost, liquidity, protection for the ultimate investor. So I think we're going to look at all aspects of the capital and say, are we still a capital management company? Absolutely. Are we still going to use buybacks as a capital management tool? Absolutely. As we looked at the composition of capital, are we going to change the composition? Absolutely. Do we think we have tremendous opportunities? Absolutely. So we're trying to balance all those balls in the air. I think we're doing a pretty good job, and you'll see it by the end of the year, whether we've been able to meet the promise or not.

I think it's important, Jeff, that the large deals are where we really get paid. We get paid both on an absolute premium dollar basis, typically, and we get paid on a high return basis. And those are the deals we really need to capture to really grow ROEs. Rob ticked off. We had a bunch of deals in the first quarter that were over $100 million apart. These are the deals we're obviously going after. We need big deals. And those are the ones that are really going to drive the higher returns that we're looking forward to.

And don't forget, Jeff, those Significantly large fund finance deals earn very, very quickly. So that PVP that comes in in structured finance will earn over the next year to two.

And it also releases the capital over the next year. Exactly. We've got a lot of things to consider, Jeff, as you can appreciate. There's kind of a new wave of opportunity, new wave of businesses that we are looking at. And all that needs some capital. And as I said, we've got to look at the mix of our capital and move to more soft facilities as opposed to hard cash equities. in terms of how we meet some of these requirements and still provide ourselves the ability and the capability to do capital management through shared purchasing.

The magic number has been $500 million for buyback. When you think about the business plans for this year, do you anticipate deploying $500-plus million into non-FG, whether it be buyback or annuity REIT or anything like that? I'm just curious in terms of the excess capital deployment. where it's going changes, but your target amounts don't?

Well, we have the balances. What's running off in the portfolio from the standpoint of capital requirements, what are we putting on in terms of new business? And that delta can go anywhere from flat to maybe plus $200 million, depending on the type of business and where you write the business. So you got that issue. But then we also make money. So that increases the capital. So we look at the balance of the two and then look at the new business I talked about in the life business, we think, and we're pretty optimistic in terms of what we see in activity, that that could also require us to put up maybe anywhere between 50 and 100 million in capital for that growth for the next two years.

Again, I think, you know, we told you, you know, we told you guys to join the life business. If we're looking at, you know, the life business, we think, you know, roughly, you know, two, three years. You know, we'll get to some kind of steady state equilibrium. We could, you know, probably be printing, you know, 10 to 12% returns. And again, we are very focused, as Dominic mentioned earlier, on ROE. This is an area we're 100% focused on. We know we can do better. We are doing better, and we're seeing that. But we do need the capital to use to grow that ROE.

Gotcha. Okay. Thank you.

This concludes the question and answer session. I would now like to turn the conference back over to our host, Robert Tucker, for closing remarks.

Thank you, Operator. I'd like to thank everyone for joining today's call.