Good morning, everyone, and welcome to the Assured Guaranty Limited Second Quarter 2024 Earnings Conference Call. My name is Rune, and I'll be operating your call today. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be opportunity to ask question. [Operator Instruction] Please note, this event is being recorded. I would now like to turn the conference call 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 second quarter 2024 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 call, after 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 and 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 Limited; 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 had an exceptional second quarter and first half of 2024. Adjusted operating income per share came in at $1.44 for the second quarter of 2024 compared with $0.60 in the second quarter of last year. Our key shareholder valuation measures again reached new per share highs. Since June 30, 2023, on a per share basis, shareholders' equity rose 16%, adjusted operating shareholders' equity rose 15% and adjusted book value rose 12%. New business production for the first half remained strong, consistent with recent years results, was diversified across U.S. public finance, international infrastructure, and global structured finance. The first half PVP of $218 million, more than in any first half since 2009, and with the sole exception of first half of 2018, where we assumed a large portfolio from another bond insurer. Rob will give you more production details in a few minutes. But first, I want to discuss the merger we completed last week of Assured Guaranty Municipal into Assured Guaranty Inc., which is the same company you know for many years as Assured Guaranteed Corp. Those 2 companies have been our principal insurance operating subsidiary since 2009 when Assured Guaranty purchased FSA later renaming at AGM. The rationale for separately no longer exists we see the merger is beneficial to all of our stakeholders, Assured Guaranteed Inc. is the surviving company and its acronym is simply AG. This simplification of our brand marketing is only 1 of the many benefits. Two of the primary objectives of the merger are to achieve more efficient utilization of the combined capital to 2 companies and to increase operating efficiencies. This includes having 1 principal U.S. regulator, Maryland. By aggregating the 2 platforms into a single insurance company, the merger…

Thank you, Dominic. Assured Guaranty and in particular, U.S. public finance had very strong first half results for 2024. In fact, it was 1 of our strongest production half since 2009. As Dominic mentioned, new business production for the first half continue to be diversified across U.S. public finance, international infrastructure, and global structured finance. First half PVP of $218 million was the largest amount of total first half PVP since 2009. With the exception of first half 2018 and our assumption of a large portfolio from another insurer sharply increased our PVP results. Bond insurance penetration remained comparatively high at 8.2% for the first half and 8.9% for the second quarter of 2024, a continuation of the increased demand for bond insurance that we have seen since 2020. Bond insurance is increasingly being utilized across a variety of transactions ranging from very small to very large in size. We believe that more investors have realized that, in addition to the security provides, our bond insurance can potentially support price stability and market liquidity. And that issuers are using it to obtain greater certainty of execution in less predictable market environments in addition to reducing financing costs. Assured Guaranty continued its market leadership position for the first half of 2024, issuing $10.8 billion of primary which represented 56% of the insured pars sold in the primary market. Year-over-year, for the first half of 2024, Assured Guaranty's primary market insured par increased by 11%. In the second quarter, Assured Guaranty's primary market share was 58% and based on a 13% increase year-over-year in insured primary market par sold for a total of $7.2 billion. One driver of our production is the ongoing demand for our guarantee on larger transactions, which typically see interest from institutional investors. For the first half of…

Thank you, Rob and Dominic, and good morning. I am pleased to report second quarter 2024 adjusted operating income of $80 million or $1.44 per share, which is more than double the $36 million or $0.60 per share reported in the second quarter of 2023. The insurance segment, which contributed $116 million of adjusted operating income in the second quarter of 2024, up from $106 million in the second quarter of 2023 had a few noteworthy items. First, we had no loss expense in the second quarter of 2024 compared with $44 million in the second quarter of 2023. While we did have $21 million of economic loss development in the second quarter of 2024, primarily related to certain health care transactions, there was sufficient deferred premium revenue to absorb the development for the quarter, resulting in no loss expense. Second, we had a $10 million increase in equity and earnings, which represents the returns on alternative investments, primarily due to gains in CLO equity tranches and higher invested balances in the second quarter of 2024 compared with the second quarter of 2023. Fair value changes of assets underlying the alternative investment may cause volatility in adjusted operating income from quarter-to-quarter. However, on an inception-to-date basis, they have generated an annualized internal rate of return of 14% in the insurance segment. These increases were partially offset by lower fair value gains on the Puerto Rico contingent value instruments, which was $17 million in the second quarter of 2024, compared with $40 million in the second quarter of 2023. As of June 30, the fair value of the remaining CVI was $221 million. Our deferred revenue which represents the storehouse of future earnings in the Insurance segment remained strong at $3.9 billion and is a direct result of the new business…

[Operator Instructions] Our first question comes from Tommy McJoynt from KBW. Tommy, your line is open.

Starting off on PREPA. You mentioned and we saw the appeals court ruling in June, can you just walk through the, I guess, process for how sort of you guys seeing that information, that court ruling impacts, what you guys ultimately book as your sort of loss reserve or recovery around that specific credit in the quarter? I guess we were a little bit surprised not to see a more favorable mark once that ruling came through?

Well, I'll give you the top and I'll let Ben give you the bottom. So at the top, the ruling is very favorable. And obviously, it's a ruling that we had expected all along as the judge continued to avoid the law or the contract that was signed, so we thought that was going to be the outcome, number one. Number two, there's still a lot of road to hoe relative to appeals. Number three, timing does matter in how you look at your reserving in terms of when the settlements would actually take place. So we did adjust scenarios, but we thought it would be prudent because of the open areas in terms of mediation and appeals in terms of what an ultimate decision will be. So you got to continue to rely on the scenario analysis and probability weightings and we've done, I thought the right thing in keeping it kind of consistent while we wait for further information and further activity.

I would say, Dominic pretty much took all the words of my mouth, I couldn't have said it any better. I mean, you have scenarios and a lot of our scenarios assumed that we were going to win. We knew we had a very strong case. And now we just have to see it through and timing as we said, does matter.

And then switching topics, switching over to capital, kind of stick with me here where I walk through some numbers. You've done $400 million of special dividend sort of capital releases out of the subs to the holding company already this year. On Slide 16, it looks like the regular way dividend limitation is $483 million combined. So that's together nearly $900 million combined. I know the holding company has about $200 million of cash expenses annually. So that still leaves about $700 million. That's about $200 million in excess of your $500 million annual buyback target. Did you have any plans for what you'll look to do with that extra couple of hundred million dollars of liquidity .

Well, remember, it's a $500 million target per year. And obviously, we'd like to make sure we have enough cash in the foreseeable future to meet that obligation as it comes due, it gives us some flexibility as we hold on to the additional balances just a see something as an accretive opportunity being an acquisition, be it another business opportunity. But by and large, it's there for share repurchase. And as we said, we've always looked at a $500 million target, so this kind of ensures that 2025 looks pretty damn good as well.

On the acquisition opportunity front, is there anything that you guys are actively looking at right now?

Other than the remaining monolines, which we've always talked about as an opportunity, but they're really not capital consumptive at this point. So the answer would be no at this point in time for other acquisitions.

Our next question comes from Giuliano Bologna from Compass Point. Giuliano, your line is now open.

Congratulations on another great quarter. It sounds like the preference at this point is to kind of extend the runway of the $500 million buyback pace? And then it sounds like -- obviously, it sounds like it looks like you're in a very good position for '25. I'm curious how you think about that long term. Obviously, you're in a great position for the next couple of years. Is that the way you'd like to run your capital strategy for the next few years going forward? And do you think at some point it would evolve to more reinvestment into the business? Or how do you think about that longer term?

Well, we'll still continue to evaluate it as the most accretive transaction. So as long as we continue to look at that runway and the runway is positive, we're going to continue to execute on that basis. And this gives us tremendous flexibility as well. We stuck with the $500 million right, wrong or indifferent. We think that's been the best way to apply it. It's provided a consistent support for the stock. It's allowed the evaluation to continue to increase, we're near where we expected to be and where we expect it to get to ultimately but we still think it's the most true way to go. And like you said, this really does clear the runway for quite a period of time.

And then on the new business front, you obviously had some very good wins on some larger transactions that obviously have some institutional demand. I'm curious if there is -- if you see any opportunities on the structure side of the business or on the international side, like be accretive and scale in the near term.

It's Mr. Bailenson is ready to jump out of his chair, I'll let him answer the question.

Yes. We are seeing a lot of opportunities in structured finance and international infrastructure markets. We closed a number of subscription finance transactions, direct lending pooled corporates, whole business securitizations, transportation and regulated utility sectors. We're seeing this across the U.K., Continental Europe, North America and Australia. We have put resources, as you know, into Australia, and we're seeing some early successes there in structured finance as well as infrastructure. So we're really excited about that opportunity.

Our next question comes from Geoffrey Dunn from Dowling Partners. Geoffrey, your line is now open.

Can you talk a little bit about the health care issues that you're facing? And what's causing some of the pressure on those deals? I know it's modest development we saw this quarter on an economic basis. But what are the pressures there? And more importantly, what are your protections in those deals?

Let me start from the top. So remember, when we look at health care, we always look at essential services, major leaders in the marketplace and provide ourselves with other covenants to protect our position. Obviously, coming through COVID that caused a tremendous spike in pricing both nursing and supplies, labor costs went through the roof, Other costs went through the roof. And I think it's been a while for both the third-party reimbursement to adjust as well as the hospitals themselves to adjust, as we've seen in our book of business, things continue to improve. As I said, we've got tremendous covenants and protections. So we're still very optimistic about the value of health care. And we only get paid when problems exist. So we're happy to make sure that the opportunities that we see in the market are realized. We typically have mortgages on the properties. We have liquidity constraints. We've got debt service reserve covenants. We've got debt service or debt service coverage covenant. So as I said, it's a well-protected portfolio obviously, the stress has been caused mostly by COVID and inflation, but we see the hospitals now all starting to address that and the results are improving. And as I said, the protection are pretty strong. We still like the business. We get paid when there's problems in the market, so it's a great opportunity for us, increase overall production as well as the return of those individual policies.

And then the other question I have, I'm not sure you can answer it, but obviously, the company's ROE is diluted with all the excess capital that you're sitting on, can you give a range as to what the underlying operating ROE looks like if you are running a efficiency?

No, we have a target that we got to get to double digit in every business that we write relative to the overall business written by each of the profit center side structured international and domestic public finance. So that's still the goal. What's killing us is obviously the excess capital that we carry, which has principally been in response to the problems in the past. The great recession, the pandemic, Puerto Rico, as those things now dissolve and basically dissipate biggest start we're having in the company, how much of accretion we want to keep on the excess capital and then take the rest of the capital down to that level. But as you know, with the statutory limitations that we have, it's going to take some years to get there, but we have a plan to get there over the near term. We're confident both in the growth in the business, the further diversification through things like asset management, we'll be able to achieve an increase in the OR, as I said, the is coming down based on the schedule that we established in terms of capital management, maybe not coming down as fast as we'd like. If I told you what the excess capital was, it's basically the same as it was back in 2013 when we started the buyback even bought back $5.2 billion, I think, of stock. We're still back to the same spot of excess capital, which is probably a good problem and a bad problem, but it does affect the ROE and we're still working to make sure that we can make a meaningful dent into that excess capital.

And Jeff, as Dominik said, as we expand nationally in structured finance and international infrastructure, those ROEs are mid-teens or even higher. So as we grow those, that sector, it really adds to the to the OR return to the numerator, but it does come over time.

So is it fair to say that this is more to the business than 10 to 12?

The international .

Could be even higher.

Higher than that. Yes, exactly.

It depends on the mix.

We earn very little premium. Jeff, remember, we take long lead time on earning premium, right?

It's a while to come through.

Amortization of the under premium reserve. When you think about each year's business, contributes about 8% to the bottom line, it takes a while to get the meaningful change. But as we see the production building, that will help tremendously 2 or 3 years out.

And I guess just a follow-up. Your -- the comment about the capital being the same, the excess capital, the same as 13, it's a little bit ironic with how much you return, you're sprinting to stay still here. How do you get ahead of that because you're...

A big problem. Remember, the spring, and then while we're at the same spot is because of really what I'll call unique opportunities that we took advantage of buying all the competitors up at huge discounts to the capital, doing some large reinsurance deals, right, doing some refinancing or restructuring of our capital base, mergers, eliminations of other companies. So we've had these unique transactions that have really accelerated earnings, the refunding wave based on the 0 interest rate environment. So now we see that kind of has dissipated a bit. Now it's solid core earnings type of thing, growth in the core businesses. So we're now more confident that we'll be able to make a real dent on the capital over the next few years. And our projections show as well.

This concludes the question-and-answer session. I would like to turn the conference back to our host, Robert Tucker for closing remarks. Please go ahead.

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.

Ladies and gentlemen, this concludes today's conference call. Thank you all for attending. You may now disconnect your lines. Have a great day.