Assured Guaranty Ltd. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• New Business and Market Position: U.S. municipal issuance was strong in the first half of 2025, with par amount 17% ahead of 2024's record pace. Insured 64% of primary market par sold. Second quarter new issue insured par was $9.5 billion, up 32% year-over-year.
• Business Mix: AA credits represented 32% of insured par in the first half of 2025, a 50% increase from the previous 3 years. In the second quarter, 54 policies totaling $3.3 billion of AA credits were issued.
• Capital Management: Targeted $500 million share repurchase, with $296 million repurchased by August 6, 2025. Board authorized additional $300 million in share repurchases. A $250 million stock redemption by the U.S. insurance subsidiary was approved by the Maryland regulator.
• Ratings: S&P Global Ratings affirmed AA financial strength rating with stable outlook; KBRA affirmed AA+ financial strength rating with stable outlook.
• Financial Results: Second quarter 2025 adjusted operating income was $50 million or $1.01 per share. Net earned premiums and net investment income on the available-for-sale portfolio were up. Insurance segment loss expense increased $27 million due to reserves on certain U.K. regulated utility and U.S. revenue exposures.

Segment Performance

• U.S. Public Finance: In the first half of 2025, Assured Guaranty insured 64% of the insured par sold in the primary market. Wrote nearly $900 million of secondary market policies, with first half secondary par 150% of 2024's total. First half PVP from U.S. public finance was $74 million.
• Non-U.S. Public Finance: Contributed $14 million in PVP for the first half of 2025.
• Global Structured Finance: Contributed $15 million in PVP for the first half of 2025.
• Asset Management: Contributed $4 million in the second quarter of 2025.
• Corporate Division: Had an adjusted operating loss of $29 million in the second quarter of 2025, down from a $35 million loss in the prior year.

Guidance

• U.S. municipal issuance is forecasted to surpass 2024's record of $500 billion, with total market volume reaching $278 billion by June 30, 2025.
• Confidence in opportunities in global infrastructure and structured finance.
• Board's $300 million share repurchase authorization and $250 million stock redemption are expected to support strategic initiatives.

Risks

• Lower interest rate environment impacts premium calculation and the book value of the insurance portfolio.
• Loss expense increase due to reserves on certain U.K. regulated utility and U.S. revenue exposures.
• Uncertainty around Puerto Rico Oversight Board dismissals and its potential impact on restructuring procedures.
• Credit risks in sectors like health care, such as Westchester Medical being downgraded to the BIG list due to liquidity and Medicaid/Medicare headwinds.

Question and Answer

• Q: Impact of lower interest rate environment on AGRO in primary and secondary public finance? A: Lower rates affect the basis of premium calculation, but the secondary market offers higher-rated, higher-ROE business. Spreads widening can offset some rate impacts. Also, lower rates may lead to more issuers entering the market.
• Q: Loss expense increase in big exposures, especially non-U.S. and Thames Water? A: Credits are evaluated independently, legal structures provide protection. Ongoing restructuring processes for Thames Water are being monitored, with confidence in the company's position in the refinancing plan.
• Q: Puerto Rico Oversight Board dismissals and impact on restructuring? A: Optimistic about potential improvement, as previous Board actions were slow. Uncertainty exists around new appointments, but it's expected to have a positive outcome.
• Q: Westchester Medical downgrade to BIG list? A: Evaluation of liquidity, Medicaid/Medicare headwinds, and proactive surveillance process led to the downgrade. The company generally works out health care credits and takes prudent measures to manage credit risks.