Assured Guaranty Ltd. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparison is primarily with fiscal 2020. Assured Guaranty is a Bermuda-based holding company operating in financial guaranty insurance and asset management.
Business context and financial performance
The Insurance segment provides credit protection for public finance, infrastructure and structured finance obligations. Asset Management, operating through AssuredIM, manages CLOs, funds and other investment strategies. Results are affected by insurance loss estimates, investment returns, market-value changes and the timing of premium recognition.
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $848 million | $1.115 billion |
| Net income attributable to AGL | $389 million | $362 million |
| Diluted EPS | $5.23 | $4.19 |
| Adjusted operating income, non-GAAP | $470 million | $256 million |
| Net investment income | $269 million | $297 million |
| Net earned premiums | $414 million | $485 million |
| Asset management fees | $88 million | $89 million |
| Operating cash flow before FG VIE/CIV consolidation | $420 million | $67 million |
GAAP net income increased despite lower revenue. A $423 million year-over-year swing in loss and loss adjustment expense—from a $203 million expense in 2020 to a $220 million benefit in 2021—was a major contributor. The benefit primarily reflected favorable Puerto Rico and U.S. RMBS loss development. Other contributors included higher CIV fair-value gains and investee earnings; offsets included a $175 million pretax debt-extinguishment loss and lower earned premiums. Adjusted operating income is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP results.
Insurance segment adjusted operating income was $722 million, versus $429 million. Asset Management reported an adjusted operating loss of $19 million, improved from a $50 million loss. AUM was $17.5 billion at year-end, including $1.4 billion managed for the Company’s U.S. Insurance Subsidiaries.
Financial position, liquidity and capital
| Metric at December 31, 2021 | Reported amount |
|---|---|
| Total assets | $18.208 billion |
| Total liabilities | $11.708 billion |
| Equity attributable to AGL | $6.292 billion |
| Fixed-maturity securities | $8.202 billion |
| Short-term investments | $1.225 billion |
| Cash | $120 million |
| Long-term debt, carrying value | $1.673 billion |
Short-term investments plus cash totaled $1.345 billion, though some assets are restricted or held within consolidated investment vehicles and are not freely available for corporate needs. Debt principal was approximately $1.728 billion before relevant eliminations. The Company issued $900 million of 3.15% notes due 2031 and 3.6% notes due 2051, and used proceeds in part to redeem higher-coupon debt. It paid $66 million in dividends and repurchased 10.5 million shares for $496 million in 2021. The quarterly dividend was $0.22 per share in 2021; in February 2022 the Board declared $0.25 per share.
Consolidated operating cash flow was negative $1.937 billion, versus negative $853 million in 2020, largely reflecting cash flows of consolidated investment vehicles and FG VIEs. Management separately reported $420 million of operating cash inflow before those consolidation effects. These measures have different scopes and should not be conflated.
Material changes versus 2020
- Net expected loss to be paid (recovered) declined to $411 million from $529 million; 2021 economic loss development was a $287 million benefit, versus a $145 million loss in 2020.
- Net par insured increased to $236.4 billion from $234.2 billion. BIG net par fell to $7.4 billion from $8.0 billion.
- Gross written premiums declined to $377 million from $454 million, while present value of new business production (PVP, non-GAAP) declined to $361 million from $390 million. U.S. municipal bond-insurance penetration rose to 8.2% from 7.6%; Assured Guaranty insured about 60% of insured U.S. public finance par in 2021.
- Investment portfolio carrying value declined to $9.608 billion from $9.838 billion; net investment income fell to $269 million from $297 million. The portfolio’s pre-tax book yield was 2.93%, compared with 3.25%.
- AGL equity declined to $6.292 billion from $6.643 billion, while equity per share rose to $93.19 from $85.66. The filing attributes the per-share increase in part to favorable loss development and share repurchases; repurchases and dividends reduced total equity.
- MAC merged into AGM on April 1, 2021, simplifying the insurance structure. The Company recorded a $16 million write-off of MAC insurance licenses.
Outlook, commentary and key risks
- Puerto Rico: Net par exposure was $3.6 billion at year-end, all internally rated below investment grade. Support agreements covered $3.4 billion, or 95%, of exposure. Orders entered in January 2022 addressed $1.4 billion of net par, subject to effectiveness and other conditions. The Company anticipated approximately $1.4 billion of gross claim payments around the expected resolution date and expected cash, recovery bonds and contingent value instruments in connection with the resolutions. It entered a post-year-end secured short-term facility allowing up to $550 million for up to 30 days and $150 million for up to six months; no borrowings had been made as of the filing. Outcomes, timing and recoveries remain uncertain and could materially affect results.
- Management outlook: The filing gives no formal earnings or revenue guidance. Management said it expected sufficient holding-company liquidity for the next 12 months and believed insurance-subsidiary liquidity needs for that period could be met from available assets and operating cash flows, while planning for substantial Puerto Rico claim payments. Management viewed possible interest-rate increases in 2022 as potentially supportive of insurance premium rates, but acknowledged low rates and tight spreads had weighed on demand and pricing.
- COVID-19 and credit risk: Through February 24, 2022, the Company had paid less than $12 million in claims it attributed at least partly to COVID-19 stress, and had recovered most of those payments. It continued monitoring vulnerable municipal, transportation, hospitality, education and commercial-receivables exposures. Further pandemic effects remain uncertain.
- Estimation and valuation: Expected insurance losses and recoveries rely on management assumptions and models and may change materially. The auditor identified valuation of the loss and LAE reserve and salvage/subrogation recoverable as a critical audit matter; year-end balances were $869 million and $801 million, respectively. Fair-value changes in credit derivatives, FG VIEs and CIVs can make GAAP results volatile.
- Other risks: Exposure to market rates and credit spreads, rating-agency actions, concentrated or correlated insured risks, alternative-investment liquidity and valuation, LIBOR transition, foreign exchange, regulatory limits on subsidiary dividends, and litigation—including Puerto Rico proceedings—could affect earnings, capital or liquidity. The filing reports no clear margin guidance.
Important facts for investors to verify
- Progress and final economics of Puerto Rico plan and debt-modification resolutions, including claim funding, cash and securities received, CVI valuations, and remaining PRHTA and PREPA proceedings.
- Assumptions underlying the $411 million net expected loss estimate and the $801 million salvage and subrogation recoverable, especially changes in recoveries and discount rates.
- Whether insurance-subsidiary statutory capital, ratings and dividend capacity support parent-company liquidity, dividends and further repurchases.
- Underlying performance, fee-earning AUM, third-party fundraising, valuation and liquidity of AssuredIM funds and consolidated CLOs/CIVs.
- Reconciliation of GAAP earnings and cash flows with adjusted operating measures and cash flows before VIE/CIV consolidation; assess the effect of fair-value movements and share repurchases.
- Use and repayment of the post-year-end Puerto Rico short-term borrowing facility and the timing of related claim payments and recoveries.