Good morning, and welcome to the Assured Guaranty Second Quarter 2017 Earnings Conference Call. All participants will in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. Please note that today's event is being recorded. I would now like to turn the conference over to Mr. Robert Tucker, Head of Investor Relations. Please go ahead.

Thank you, Operator, and thank you all for joining Assured Guaranty for our 2017 second quarter 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 the 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 Web site for our most recent presentations, SEC filings, most current financial filings and for the risk factors. The 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 Web site at assuredguaranty.com. Turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty; and Rob Bailenson, our Chief Financial Officer. After their remarks, we'll open the call to your questions. [Operator Instructions] I will now turn the call over to Dominic.

Thank you, Robert, and welcome to everyone joining today's call. Assured Guaranty's second quarter of 2017 was another highly successful quarter. Non-GAAP operating shareholders equity per share and non-GAAP adjusted book value per share attained record levels once again. Operating income reached $141 million, and the present value of new business production or PVP totaled $70 million in the second quarter. Year-to-date, through June 30, our new business written as measured by PVP is 114% greater than through the first half of last year. In the primary U.S. municipal bond market, par volume sold was 16% below that of the second quarter of 2016 due to lower refunding volume. However, insured volume was only down 7%. Monolines insured 7% of total part issuance including more than 27% of new issue par and 58% of the transactions sold by single A issuers. Assured guarantee widen its lead by being selected to insure 62% of the insurer pars sold up from 57% in the first quarter of 2017 and 53% versus the second quarter of 2016. We insured over a billion dollars more par than we did in the first quarter for a 38% increase despite average 30 year AAA municipal interest rates that were lower in the second quarter than in the first and credit spreads than narrowed to the tightest levels since last July. Through the month of June we ensured 80% of the new issue insured part due partly to S&P placing our competitors on negative credit watch during that month, more on that in a moment. Our second quarter par volume also reflected increased demand for insurance from institutional investors in large scale transactions. We insured more than $100 million dollars in each of seven primary market transactions. These include a one of the largest insurer airport revenue…

Thank you, Dominic, and good morning to everyone on the call. Our key financial matrix continue to demonstrate the success of our key strategic initiatives over the past several years through acquisitions re-assumptions of previous receded business lost mitigation efforts and common share repurchases we have built up our future stream of premium earnings reduced losses and increased per share results. In the second quarter of 2017, the operating income increased to a $141 million from a $136 million reported for the second quarter of 2016. As I've stated in previous quarters, we revised our calculation of non-GAAP metrics in the fourth quarter of 2016 and therefore these amounts now reflect the inclusion of gains some losses related to the effective consolidating FG VIE. However, for our internal core matrics that we use to assess financial performance we continue to remove these gains and losses. Economic loss development during the second quarter of 2017 was a loss of $47 million which was primarily due to an increase in reserves for certain Puerto Rico exposures partially offset by a benefit in US RMBS due to lower re-default assumptions and modified loans. Economic loss development for the quarter includes a $23 million loss attributable to the decrease in risk free rates. On a quarter-over-quarter comparison, loss to expense declined 30% to $64 million. This was mainly due because we had a large reserve additional on Puerto Rico credits in the second quarter of 2016 compared with second quarter 2017. This quarter, one of the main drivers of the increase in operating income was a $37 million tax benefit related to the release of reserves for uncertain tax positions following the close of IRS audit. This along with higher income in non-tax full jurisdictions reduces the effective tax rate on operating income for…

We will now begin the question-and- answer session. [Operator Instructions] And our first question comes from Brian Meredith of UBS. Please go ahead.

Yes, thanks. Dominic, I was hoping you could talk a little bit more about the market environment, post the downgrades. Are you seeing the same type of market share that you were getting -- I assume [indiscernible] getting a little bit more. And then also what are customers saying about the fact that now there's just going to be two bond insurers going forward?

Okay. Well, first downgrades, remember, we went one for two. So [indiscernible] 500 and get something into the hall of fame on that batting average, but obviously leaves the competitor in the market place. As you realized, Brian, the amount of business that was written by the former company national onto the MBIA platform didn't have a significant impact on the marketplace relative to the amount at par or number of transactions. So their downgrade, albeit taking competitor out, not a significant competitor relative to the overall market position. The reinstatement of advance rating obviously then puts them back in the market as an active writer, and principally the market has been serviced by two active writers. I don't expect any change in that environment. And if you really looked at the MBIA business, as we've said in the past, in some cases those credits would be underwriting standard, therefore, that would not present an opportunity for Assured or is well below our pricing criteria, in either case then it does represent a significant upside to our business written or market opportunities. However, having said that, you can see based on a number of factors the penetration, the single A issuer, the amount of a $100 million plus deals that we were able to execute today, our demand continues to increase irrespective of the competitive environment. And as we continue to position Assured has obviously strong and stable huge critical mass, great market reach, and service mentality, we believe that and that alone will still dictate Assured as the premier guarantor in the industry and look for a great continued positive development of business opportunity. And as you all know if we can get any help whatsoever from interest rate rise that stays permanent and is sustainable, that would even further our opportunities in the U.S. public finance market. And remember in our other two competitive marketplaces, we have no competition. We've had a great year in the international market place. We have a nice pipeline of further opportunities. We're clearly demonstrating our competitiveness in the marketplace. And people now recognize the size and strength and service mentality of our organization. And in the same token, our structured finance people continue to look for new ways to provide our underwriting discipline and risk profile to other asset classes that have created opportunity for them. So when one market we see competition, we still think we are the preferred insurer or insuring them marketplace, and the other two markets we have no competition and see further increase in opportunity, and they're having a very strong calendar year in terms of production.

Great. And then, Dominic, I'm curious, so there's still a couple of large runoff blocks out there, just kind of -- in general terms, can you say what are the kind of constraints right now preventing from those transactions happening? Is it the owners of that business? Is it talks about value business? Is it regulatory constraints? Regulators just not letting blocks go, what are the kind of biggest constraints those deals happening right now?

I started rating -- I ranked them from the top. So first and foremost is complexity of their capital structure. So if they have unpaid claim obligations, if they have surplus notes, if they have preferred stock, you know, we had a single equity holder makes it easier to negotiate a transaction obviously. So, number one is structure. Number two is the portfolio. Are we comfortable with the credits? Do the credits meet our risk profile? And is there enough money left relative to this kind of purchase price to win and in fact provide what we think is an adequate risk premium relative to those exposures? So typically, you know, credit quality becomes an issue; 38%, but some of these guys do like to survive, and therefore, there's little reluctance in an acquisition because obviously with the Assured size, financial stress and spread of services, we typical will not have incremental large expenses from many acquisitions. Therefore, it is kind of threatening to selling organization as to what happens to their employees. So, I think those three factors tend to indicate, but I would say it's the first two that probably created the greatest hurdle to transactions. That doesn't mean however Brian as you will know we are fairly aggressive in our desire to consolidate the industry, because I think we think it's a positive, right, we get to update those bond holders to the Assured Guaranty rating which is a huge benefit, it establishes that sustainability, creditability, consistent financial strength application to those holders, and therefore we think it furthers the business valuation proposition and attractiveness to other buyers of an assured product. So, we like to get that going. Of course we do make some money when we do those transactions.

Yes.

But as I said, it got to be equity structure, it's got to be the risk profile, and then we work away around the rest of the issues that we face.

Got you. Thank you.

You are welcome.

Our next question comes from Geoffrey Dunn of Dowling & Partners. Please go ahead.

Thanks. Good morning guys.

Hi, Jeff.

Rob, can you talk a little bit about two expenses, you know, obviously bouncing around a little bit here. How should we think about the back half of the year in '18?

Well, I mean there was a drop in expenses quarter-over-quarter from last year to this quarter -- this quarter mainly due to a reduction in rent expense. This quarter we moved offices, so we had two rents we are paying as well as we had to accelerate lease improvements. That was primarily the drop from second quarter last year to second quarter of this year. I would tell you that the run rate I would look at is the somewhere in the mid $50 million range. So, I would say that's quite…

Per quarter?

Per quarter?

All right. And then, also can you disclose the actual secondary par on PVP in the second quarter?

Hang on a second. I think it was in my speech, right, so…

Yes, I think you gave in the first half?

Yes, first half we do 1.2 billion, 241 policies of 50%. They are looking for us.

Yes, secondary?

Yes, secondary market.

So, the secondary market was par was $512 million, almost $513 million of par and premium, you know, that's it. PVP -- did you say PVP?

Yes.

PVP is about 13.4 million.

All right. And then, Dominic, can you talk a little bit more about what's going on with the U.K., obviously you are seeing a lot of attraction, its looks like every month we are getting announcement about the some other deal. What is generating the attraction kind of all of the sudden over the last year and probably more importantly what's the potential pent-up demand for, you know, the similar transactions or off-shoots of those types of deals. Within a reasonable timeframe I called it a year or two, you know, how quickly that market truly developing right now?

Well, you know, we have a discussion on international quite frequently I should really left Mr. Bailenson answer the question; he has been the largest loudest proponent of our international company and personnel here. International is a funny business, right, these are long generating or gestating transactions, very lumpy deal flows. It's not a flow business, but remember, I am going to caution this, if you go back pre-2005, international represented about 25% to 40% of the $5 billion premium marketplace. It was huge significant, but in those days principally by very large deals like whole business securitization et cetera. As we said in the past, because of the great recession, because of the impact of our some of our other competitors, you know, there was a real lack of confidence and what a financial guarantee policy really meant in the international marketplace, and specifically U.K. We spent years rebuilding the credibility of our marketplace and our products here, and especially going around and soliciting and generating investor support. We now believe we have that the recent activity shows that we can place large deals in the market and get institutional investors to buy that paper, that has their most critical part of how this has to work for us to continue to maintain, you know, kind of an active presence here in the international markets and generate deal flow. We are now competitive relative to what is the overall total pricing on these infrastructure products with banks and other insurance companies. I have got people scribbling really fast, okay. Number two, there is a decent pipeline or refinancing opportunities, so in addition to new projects which you can imagine based on all the noised over here for Brexit et cetera are getting a little slower in the approval process…

Okay. Thank you.

You are welcome.

[Operator Instructions] Our next question comes from Kevin Mead of Reorg Research. Please go ahead.

Hi, thanks for taking my call. Yesterday's 8-K filing includes the footnote indicating that assured a fake claims on Federico's COFINA bonds, can you maybe discuss when and why those claims payments were made?

Why those claims were made because they didn't make the necessary debt service requirement and our, you know guarantees is unconditional. So, if the government doesn't pay, we pay it as, you know, we do disclose our disclosure each Federico entity, the COFINA for us represents one of our smaller disclosures I think it was a $6 million payment. We have made something very small. Obviously, it's frustrating because as, you know, the COFINA revenues was there and the government just decided not to pay the bonds. But once again the litigation is something for the future, currently we have to recognize and pull our guarantee and pay the claims, and the claim is COFINA it does have seniors and juniors as part of there kind of the waterfall were in the junior side and as, you know, there is some argument going on in litigation now. So, that's how we pay that amount of claims.

Okay. Thanks.

You are welcome.

[Operator Instructions] And next we have a follow-up question from Geoffrey Dunn of Dowling & Partners. Please go ahead.

Yes, hi, since nobody else had anything; a couple of more questions. Rob, first, what was the impact from the discount rate change this quarter?

$23 million.

Negative.

Let's say negative.

And then, can you update us on any incremental developments quarter-over-quarter on the alternative investment initiatives?

Well, as we said, we think, you know, we think it's a smart move for us, we used kind of the track capital that's in our operating companies to further increase not only returns there might be able or available in our current owned portfolio but also the start to create the different business model that would take some of our capital and put under a fee base, you know, revenue approach as suppose our risk base revenue approach and we continue to go through a very detailed diligence process and we continued to work through opportunities and as we said we set out requirements for any acquisition in this area to be financial accretive to be core competency accretive, and to be socially accretive. We continued to work down those pass and look at opportunities and as we get closer to someone meeting all three criteria, and we will then make a decision, we will communicate that decision to you in the market, and we hope that you'll be as excited as we are about those opportunities. And what it means to provide a growth engine to Assured beyond finance guarantee to provide a different revenue stream to Assured that kind of looks at preserving capital, and it's really about enhancing return. We obviously generate better returns within our investment portfolio. So, as we look at Assured in total, as you will know, we look at what is accretive, what is the most accretive transaction we can do in this company, what is going to move the valuation of our company forward, which typically means increases book value, adjusted book value, or earnings per share. And that's how we're looking at the alternative investment. And I would love to tell you we're getting close to where we have typically have been pretty close on a number of occasions that we just can't pull the trigger because of the certain amount of factors, and some cases we loses competitively in the market that are not willing to pay us much as what has been demanded. We had an opportunity currently where there was a list of demands put on by the company that we are looking to be a participant and if not acquirer of, and we walked away, because that wouldn't meet our other requirements of the [indiscernible] in that case, because they wouldn't give us kind of a say at the table, and that's not how we're going to structure this area. And as I said, for us, I think it's a necessary and really opportunistic diversification strategy for the company that is necessary.

Okay, thank you.

You are welcome.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Robert Tucker for any closing remarks.

Thank you, Operator, and thank you all for joining us on today's call. If you have additional questions, please feel free to give us a call. Thank you very much.