Good morning, and welcome to the Assured Guaranty Ltd. Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Harry, and I’ll be your operator for today’s call. All participants will be in listen-only mode. [Operator Instructions] Please note 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 Guaranty for our fourth quarter and year end 2023 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 assuredguaranty.com. Turning to the presentation. Our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Ltd; Rob Bailenson, our Chief Operating Officer; and Ben Rosenblum, 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’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. Assured Guaranty performed exceptionally well in 2023. We demonstrated again the power of our diversified production strategy as our U.S. public finance, international infrastructure and global structured finance businesses combined to produce $404 million of total PVP in 2023. This was almost 8% more than in 2022 and the sixth consecutive year in which new business production generated more than $350 million of PVP. In U.S. public finance, we led the municipal bond insurance industry with the highest market penetration since 2008, guaranteeing 61% of new-issue insured par sold. Our global structured finance business more than doubled the PVP that wrote in the previous year and produced its highest direct PVP amount in over a decade. And in non-U.S. public finance, we also – which we also refer to as international infrastructure, our PVP increased 22% year-over-year. Additionally, we brought key measures of shareholder value per share to new year-end highs. Shareholders’ equity per share increased 18% to $101.63. Adjusted operating shareholders’ equity per share increased 13% to $106.54 and adjusted book value per share rose 10% and to $155.92. We transformed our asset management business with the completion of our milestone transaction with Sound Point, contributing substantially all of our asset management business and return for an approximate 30% interest in the combined entity. That transaction, along with a separate transaction involving other AssuredIM related assets resulted in a pretax gain for the year of $222 million net of expenses. Most importantly, the Sound Point transaction significantly advances our asset management strategy as we now own approximately 30% of an entity with significant scale and distribution capabilities. Sound Point also provides a broader range of alternative investments from which we may receive asset management earnings, in which we may…

Thank you, Dominic. I’m excited to have taken on this new role, and I look forward to further growing our financial guarantee business and continuing to execute on other strategic initiatives at the company. 2023 was a great production year for Assured Guaranty. The $404 million of PVP was an outstanding result, especially because for most of the year, we faced a relative lack of supply due to reduced new issuance in our principal market, U.S. public finance. The benefit of our three-pronged origination strategy paid off as intended as we produced significant growth in both our non-U.S. public finance and structured finance businesses. While the $212 million of U.S. public finance PVP was, as usual, the largest contributor to our total PVP, global structured finance had a historic year, producing $109 million of PVP and in non-U.S. public finance, year-over-year, we increased PVP by 22% to $83 million. In U.S. public finance, both Assured Guaranty specifically and the bond insurance industry, in general, saw increased demand in 2023. The insured par penetration of the primary municipal bond market rose from 8% in 2022, to 8.8% in 2023, the highest annual level since 2008. Assured Guaranty was the main driver of the growth in the bond insurance industry accounting for over $2.5 billion of the $3 billion year-over-year increase in new-issue insured par sold. While demand remains strong across our target rating spectrum, the rising growth has been notably observed in the single A-rated space, where insurance was used on more than 30% of 2023 municipal par sold, up from around 20% in years prior to 2020. And when looking at the single A space based on the number of transactions sold in 2023, 62% of the deals used insurance. We believe the growth in recent years reflects both investors…

Thank you, Rob and Dominic, and good morning. I’m excited to be joined in the call, and I’m looking forward to working with all of you. I am pleased to report that fourth quarter 2023 adjusted operating income was $338 million or $5.75 per share compared with $14 million or $0.22 per share in the fourth quarter of 2022. Before I go into detail on the quarterly results, I wanted to highlight a change affecting our two Bermuda insurance subsidiaries. In December 2023, new legislation was passed implementing a Bermuda corporate income tax, which had a significant effect on adjusted operating income. Bermuda corporate income taxes, which will be at a rate of 15% will be assessed beginning in 2025. The new law allows an economic transition adjustment or ETA, equal to the difference between the fair market value and the carrying value of assets and liabilities of each of the Bermuda insurance subsidiaries. The ETA resulted in the establishment of a deferred tax asset of $189 million that was reported as a benefit in the fourth quarter 2023 adjusted operating income. It is expected to be utilized to reduce tax payments over 10 years to 15 years beginning in 2025. In addition to the Bermuda income tax benefit, there are a few other noteworthy components of adjusted operating income in the fourth quarter of 2023. In the Insurance segment, every component of the investment portfolio contributed to fourth quarter 2023 adjusted operating income. Fair value gains from contingent value instruments or CVI’s, which were received in 2022 in connection with various resolutions reached with Puerto Rico were $32 million in the fourth quarter of 2023, while the comparable 2022 fourth quarter amount was a loss of $4 million. Also of note is that all of the new recovery bonds…

[Operator Instructions] Our first question today is from the line of Tommy McJoynt of KBW. Tommy, your line is now open. Please go ahead.

Hey good morning guys. Thanks for taking my questions. Could you walk through some of the…

Good morning, Tommy.

[Indiscernible] or science behind it why the $200 million was the appropriate amount to request from Maryland. It’s evidently a function of capital ratios and exposure size, claims paying resources and plenty of other inputs, I’m sure. But – can you just help us give us some guardrails as for some of those key ratios that you would point to, to show why the $200 million was the right figure there?

Well, Tommy, it’s consistent with our capital planning strategy in terms of buyback. We try to manage it to all the levels of restrictions that we have, which includes a multitude of rules and regulations we have to meet relative to both regulatory and rating agency. And as I’ve always said, we’ve been conservative with how we’ve looked at it. We always want the state to be very positive with Assured Guaranty and convinced of our financial strength. So managed amount based on what we targeted as share repurchases in 2024.

Okay. And can you remind me the differences between – when I look at the capital ratios of AGM and AGC, they’re vastly different numbers. Could you just remind me kind of what the underlying reason for the difference is? And just to be clear, I didn’t miss an update on the New York request for a special dividend. Did I?

You did. Did not, I’m sorry. So the difference is really the makeup of the portfolio and the capital that they have. And we run both of them through our own capital model through the AHP [ph] model through the various state regulation models and come up with our excess capital. And as I said, we plan our dividend policy off of that excess capital and our share repurchase target for the year. In terms of New York, obviously, as we said in the last quarter’s earnings call, we applied to both states for the special dividends. We’ve gotten to Maryland approval, and we’re working our way through the New York approval process, which we’re confident we’ll be successful.

Okay. Got it. And then historically, I think the request approval special dividend has been a fairly regular part of the strategy, at least it was pre-pandemic, even it’s called specials, but it seems like it was more of a regular function. Do you envision that again becoming a somewhat regular part of the strategy in light of your outlook for kind of your business outlook opportunity and anything else for the guarantor business where you might need capital just as you weigh your strategic alternatives?

Yes, we do, Tommy. And to give you some numbers. So for AGM, we’ve gotten dividend approvals in 2016 and 2017, that’s 2016, 2017. For AGC, we’ve gotten approvals in 2018, 2019 and 2023. So, we’re now looking at with all the problems behind us, pandemics, Puerto Rico, great recessions, et cetera, we now expect to be a normal part of our dividend process.

Great. Thanks for recapping those years. And then just last one, really quick. I’ll sneak it in a housekeeping one. Given your kind of mix of business by tax jurisdiction, what’s an appropriate effective GAAP tax rate that we can use for modeling earnings and going forward? I’m not sure how much the Bermuda tax law change would impact that, but you kind of have a rough effective GAAP tax rate we can use?

Yes. I think as you noted, the Bermuda tax law change is obviously going to affect our Bermuda-based income. I think when you look forward, it’s going to obviously at least on an expense basis, not necessarily a cash basis increase that over the next couple of years. And I’d probably guess somewhere probably 16%, 17%, 18%, that really depending on the mix of business that comes through.

It’s Ben Rosenblum, our CFO. For those of you who don’t recognize the voice.

I try not to scrub my first question.

Thank you.

Our next question today is from the line of Giuliano Bologna of Compass Point. Please go ahead. Your line is open.

Thank you and congrats on the continued execution. I remember when you started buying back stock and your share count was closer to $200 million, not in the low $50 million range. So it’s been a long ride along the way. You got a handful of my questions were kind of asked before, but one thing I’d be curious about is that you’re still in a position where you’re most likely generating more capital than you’re consuming over the next few years. When you think about that and the kind of commentary around Specialty becoming more regular – of a regular capital planning strategy. Do you think the – if you’re going to has the ability to keep up the $500 million buyback rate beyond 2024 or any sense like how long did that lapse? Or is it just – is it just 2024 for now?

Well, Giuliano, in spite of our great growth opportunities across the board in all aspects of our business in the asset management business as well plus other opportunities to strategically expand both jurisdiction and product line. Capital management and capital management strategy is still number one in the company. And as you look at this year, we immediately returned back to the $500 million target. So each year is going to be an individual decision. But once again, capital management strategy is, number one, we know we need to get the equity down. We generated a higher ROE, which everybody in the market wants us to do, and we’re very cognizant of that fact.

That’s very helpful. And then pivoting over to the asset managing side. The equity and earnings from investees is about $5 million in the fourth quarter and that I think it was a powerful [ph] period anyways, and probably had some volatility just as actively as the entities were emerging. Is there a rough way to think about what the earnings capacity could be to your – to the equity from investees and then one kind of housekeeping point around that is whether or not that’s pretax or post tax?

We haven’t given out a number, Tommy, but you can – or Giuliano, but you can understand that the first quarter has a lot of integration costs in it. A lot of management shifting and desk shifting. We had about 100 employees in the AssuredIM. They took about 37 of those employees. So the benefit of that expense savings hasn’t come through yet. I think you’re going to see that number change dramatically as we go through the year, plus we have strategies targeting the growth of the asset manager as well. So, I think we’re very bullish on what we think the asset management is going to deliver relative to the bottom line. And I’m hesitant to give you a number because it’s really shifting fairly quickly. So I don’t want to give you a number. It’s either going to be way too low, and therefore, you get a different impression of what the asset management is going to deliver. So, I think as we go quarter-to-quarter, we’ll give you an update on where we stand synergistically, integration-wise and expansion-wise.

To answer your housekeeping question, that’s a pretax number.

Thank you. And I want a slight piece around that maybe following the housekeeping category. From a distribution perspective, you obviously the entry generate earnings and then distribute them at a certain point in time. Are the distributions quarterly, annual? Or is there anything expected pace for the distribution of from the – sounds good, that’s perfect. That’s all I had. No problem. Well, that was all had really appreciate it. Congrats on the continued execution.

Thank you, Giuliano.

Our next question today is from the line of Geoffrey Dunn of Dowling & Partners. Geoffrey, your line is now open. Please go ahead.

Thank you. Good morning.

Good morning.

I was just wondering if you could give a quick 101 of the accounting of the asset management business going forward as far as it hits the P&L. You still had an Asset Management segment this quarter as well as your equity earnings in investees. So very high level. How should we expect to see the income coming through in the future?

Yes. I think you’re going to continue to see it coming through much in the same way as we’re reporting it now. Most of it is going to be just coming through our equity ownership and Sound Point as well. And that’s probably how you’re going to see it going forward.

So what is the other income and expense line? Sorry go ahead. What were you saying, Dominic?

Ben’s getting…

So the other income and expense line, we have a number of other investments that still are legacy investments that we had before with Assured Investment Management and other investments in funds, and that’s what you’re seeing coming through.

Remember we started the strategy we both in...

I think you’re going to see that eventually dwindling down over time. But as we crystallize some of those investments, maybe a little volatility around that, but that will obviously dwindle down over time as we run those off.

You’re going to see…

Yes, exactly.

And you’re also going to see Geoff – remember, you’re going to see equity earnings in the funds that we’ve invested as well, but that’s going to be much more volatile given the debt that you’re investing in Sound Point funds, but the earnings from the GP are going to come through as Ben suggested.

Okay. All right, thank you.

Thanks, Geoff.

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 us on today’s call. If you have additional questions, please feel free to give us a call. Thank you very much.

This concludes today’s conference call. Thank you all for attending. You may now disconnect your lines, and have a great day.