Good morning, and welcome to the Assured Guaranty Limited Fourth Quarter and Full Year 2024 Earnings Conference Call. My name is Ezra, and I will be the operator for today's call. All participants will be in listen-only mode. [Operator Instructions] Please note that 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 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 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 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 produced many significant achievements in 2024, our 40th year in business and our 20th year as a publicly traded company. We earned adjusted operating income per share of $7.10 and created significant future earnings from strong financial guaranty originations. Once again, we reached record year-end highs for adjusted book value per share at $170.12, adjusted operating shareholders equity per share at $114.75, and shareholders' equity per share at $108.80. We continue to build value for both Assured Guaranty shareholders and policyholders. AGO's common stock share price rose 20% for the year to $90.01, and in our capital management program, we repurchased 11% of the common shares that were outstanding at December 31, 2023 while meeting our 2024 target of repurchasing $500 million of our shares, further managing our excess capital. In new business production, PVP across our three financial guaranty businesses topped $400 million for the second year in a row. US public finance originated $270 million in PVP, its highest annual total in four years and both non-US public finance and global structured finance saw strong production and built solid pipelines for 2025 and beyond. We insured the winner of the Bond Buyer's overall 2024 Deal of the Year and the Healthcare Financing, Northeast Regional and Innovative Financing category winners. Rob will tell you more about our participation in these exceptional transactions when he reviews our production results in a few moments. We expanded our geographic reach and pursued further opportunities in Australia, New Zealand, and Asia by opening an office in Australia and one in Singapore. We made further inroads in Continental Europe and continue to view it as an area of opportunity. As we mentioned on several previous earnings calls, we completed the consolidation of…

Thank you, Dominic. Business production across our three main business lines, US Public Finance, Non-US Public Finance, and Global Structured Finance continued to perform well in 2024. As Dominic mentioned, PVP across our three financial guaranty businesses topped $400 million for the second year in a row, and was appreciably higher than the $375 million in 2022. In US Public Finance, we had a very strong year, reaching $270 million in PVP. Results were primarily driven by continued recognition of the value of our guaranty across the credit spectrum and the use of our insurance on some very large infrastructure transactions combined with a record year in overall municipal par issued, which exceeded $500 billion for the first time. Bond insurance continued to be in strong demand in 2024 with the industry's annual penetration rate at 8.3% of par issued. This was the fourth consecutive year when industry par penetration reached 8% or higher. Assured Guaranty achieved a 14-year high for annual new issue insured par sold, ensuring more than $24 billion during 2024, the most since 2010. Assured Guaranty ensured 58% of the total insured par issued in 2024 as we continued our leadership position in the industry. We insured nearly 800 new issued transactions for the year. We finished the year with an excellent fourth quarter, capturing 61% share of par insured in the primary municipal bond market. Total insured municipal pars sold reached 10% penetration of the municipal bond market during the fourth quarter. Assured Guaranty fourth quarter primary market insured par increased by 37% year-over-year to $7.4 billion. During the year, Assured Guaranty wrapped par amounts of $100 million or more on each of 48 municipal transactions. This tied our 2021 all-time high in this category and included six deals with more than $500 million of…

Thank you, Dominic and Rob, and good morning. I am pleased to report fourth quarter 2024 adjusted operating income of $66 million, or $1.27 per share. By comparison, in the fourth quarter of 2023, we reported adjusted operating income of $338 million, or $5.75 per share, which included $208 million in non-recurring benefits related to tax law changes in Bermuda and New York State. The Insurance segment contributed $98 million of adjusted operating income in the fourth quarter of 2024 compared with $339 million in the same period of last year. The most notable item driving the quarter-over-quarter variance is the prior year benefit related to Bermuda tax law changes of $189 million. In addition, the fourth quarter of 2023 included an after-tax fair value gain of $25 million on Puerto Rico Contingent Value Instruments or CVIs that we received in 2022 as part of the resolution of most of our Puerto Rico exposures. Comparable amounts in the fourth quarter of 2024 were negligible. Since 2022, we've been strategically reducing our CVI position, and as of December 31, 2024, we held only 21% of the original notional amount we received, or $123 million on a fair value basis. Lastly, loss expense increased from $7 million in the fourth quarter of 2023 to $31 million this quarter, mainly due to lower expected recoveries on certain long-dated US public finance transactions and increased losses on certain insured healthcare transactions. Loss expense is based on both the amount of economic development in a reporting period and the amortization of the deferred premium revenue. In the fourth quarter of 2024, net economic loss development was $17 million, primarily attributable to certain healthcare and UK-regulated utility exposures. Turning to net earned premiums and credit derivative revenues. In the fourth quarter of 2024, we reported an…

[Operator Instructions] Our first question comes from Marissa Lobo with UBS. Marissa, your line is now open. Please go ahead.

Thanks. Good morning. Thanks for taking my questions.

Good morning.

I was hoping you could review the recent developments on Thames Water and what near-term developments are you looking for to -- look at your reserve provisioning. And also, any developments on Southern Water as well?

Sure. Sure. So let's start with Thames Water and we'll take it from there. So obviously, let's start with our -- the UK water sector is an essential service, obviously, and those water utilities are monopolies in their service areas. So that -- it's a good fact to start. The UK government has stated that they really don't plan to nationalize the water utilities, and frankly, they don't really seem to have the room in their budget to do so. And they would like to see additional investment. So I think the macroeconomic background for the UK water sector looks pretty good. When you drill down the Thames specifically, our debt is at the senior operating level, so again, it's an area that we feel pretty good about. They've made progress in their recent -- in the final regulatory determination recently. So again, an improvement in their underlying financials and they have stated along with some of the other UK water utilities that they're going to go through the competition and market authority and appeal that. And obviously the past is never predictive of the future, but historically, there's been success when companies have appealed that. So we do feel pretty bullish about that going forward. And frankly, obviously, our reserving means that we have to look at all possible scenarios. So when we look at the scenarios, we do feel really good about this. We think that these -- they will come out really well. But obviously, we do have some pessimistic scenarios that result in a loss. We are looking forward to see how the competition market authority plays out and how this plays out, frankly, in the public markets, and we are there to help support any restructuring that needs to be done, but we do feel we're going to get out of here with no loss.

I should emphasize we're at the operating company level and not the Holdco level. Number two, rates are adequate to pay debt service but not to provide for CapEx additional capital improvement. So it's a capital issue, not an operating issue. Three, they're going to appeal the rate that was granted to them and the appeal process has been fairly successful for the water companies in terms of succeeding in the appeal process. And they're not that far off between the requested reserve rate and with the current rate or the challenge rate could be. So when you look at it all in the factors included, it looks like a pretty good situation for us.

Got it. Thanks for that. And then the timeline to the CMA process, when you…

It takes a while. Yeah. I would say the probably best guess would be end of 2025, maybe beginning of 2026.

Remember, in Thames, we did sign the liquidity agreement, so that we've been able to take away the short-term issue of them running out of cash or having a deficit in the cash position even with the capital expense -- expenditures. So that really puts a lot of relief into the system as well.

Got it. Thank you. And could you discuss if the California wildfires had any impact on your exposures?

So we've gone through the portfolio more times than I can count, and we don't see really any exposure to the California wildfires. The municipals we have are kind of in good position. No one's missed the debt service, no one plans on missing a debt service payment. So at the end of the day, it's a tragedy without question, but it doesn't seem to have any effect on the municipal performance.

Great. And finally, just looking at the level of non-US structured finance par written this quarter, $2.1 billion came in well ahead of our expectations. Could you give us more color on the geographies that drove it and expected returns for these new exposures?

The geography is still dominated pretty much by the UK. However, because of our geographic expansion, we're seeing opportunities now, and we've actually recorded -- transactions Continental Europe as well as Australia. We're looking all around in Asia and the Far East for other opportunities.

Yeah, we're seeing a lot of opportunity in Australia, a lot of the non-US global structured finance is going to be in Australia as we see going forward. We did a very large transaction for a core loan portfolio over at an Australian bank on an excess position. That's in the non-US structured finance sector. And we feel really -- we're very excited about it. And just to give you a little color on that -- that structured finance business that we're shifting to is more shorter dated, will earn more quickly. So when you're looking at PVP totals, we have other -- this business is more repeatable and so you'll have business rolling into the next years as opposed to these large life insurance capital relief transactions, which have to be constantly renegotiated. So you'll see a more repeatable performance in structural finance.

Much like our public finance, it has a steady stream of flow business, we're trying to create flow business in the other areas of the company as well. And fund finance represents a flow business for us in the structured area. And as Rob says, you can't record PVP on the same basis you would on the municipal side based on expected life of the program, you can only record it on the years you got actual contracted agreement, but these things tend to automatic -- not automatically, but renew annually. So you're understanding PVP, but you're building up a stronger earnings portfolio and a quicker earnings profile.

Got it. Thanks for that. That's it from me.

You're welcome.

Thank you very much. Our next question comes from Jordan Hymowitz with Philadelphia Eagles Capital Management. Jordan, your line is now open. Please go ahead.

Thanks. Thanks, guys. The only thing that makes me happier than following you guys for 19 years at this point is seeing the Eagles win the Super Bowl twice in my lifetime. I have a couple of questions. First of all, you say the average premium written was 1.26% and that's up from 1.23%, and I believe it was below 1.2% a year or so ago. So hypothetically, if everything would be put on at this rate, what would your return on equity be? I mean, it would be like 11%, 12%. Is that reasonable?

On the business rating, yes.

Yes. Yes.

The ROE or the return on the business is really based on mix, right?

Yes, as Dominic is saying, return on -- the ROA is based on mix of business. I just want to give you some numbers, Jordan. So the ROE -- so looking at ROE, public finance is generally in the 8% to 10% range. Structured finance is going to be somewhere between 12% and 18%, and international infrastructure is somewhere between 15% and 20%. So that mix of business changes it -- that's where the ROE is going to be coming from that mix.

And remember [indiscernible]

So what used to be in 8% to 10% business four years ago because it was almost all domestic is now with the current mix, probably a low double-digit mix on average fare.

Yeah. As you shift into more structured finance and international infrastructure, that's correct. But remember, public finance is always going to be a significant portion of your business mix.

So looking at a different way, if it was, say, 11, 12 versus 8 to 9, five years ago and what another way to say it is, once you right-size the capital, you could be earning $10 plus per share.

Yeah. Probably in that range. But again, you have to -- I think you got to separate two things. You got to separate out the amount of business being written and the amount of business being earned, right. So it does take a while for the business to come in and the ROE. What I'd say is, I think if we rightsized our capital, we'd probably be at low double-digit return company, right. So that would make sense. And then you got to look at how much business you're writing to achieve that low double-digit return to know exactly what your dollars-per-share earning is going to come out of that.

It's really important -- remember, we're writing business in today's current market, which means, the current day’s current interest rates and today's current credit spread, those things do change. So there's favorable markets in some cases and less favorable markets in other cases. And therefore, you got to remember, it's only one year's contribution. Our earned premium is made up of 20 years of contribution of different rates, different returns, et cetera. So it's a mix of business. But you're looking at the current market yields of today's business, which doesn't mean necessarily it's the same market you're going to see through the rest of 2025.

And it's also important to note that in public finance, we're still capturing, like, on average like 70% -- 60% to 70% of that spread savings. So you're still providing significant value. And the other lines of business, structural finance and international infrastructure are less sensitive to changes in credit spreads.

I understand all that, but I remember in 2019 and '20 arguing with people that you could make $7 a share, and people said that will take forever, and now you're there. And I'm just looking at the next leg obvious since we plan to be here for a long time. My second question is, interest rates have fallen a lot in the past month, and there's a $6 difference between stated book and operating book, which I believe is all AOCI. So, won't a fair amount of that AOCI be reversed, plus you'll get the $2 from Lehman this quarter. So could it be gap between adjusted book, or operating book I'm sorry, and stated book be much closer this quarter if the quarter ended today?

I mean, first of all, interest rates are going to bounce around quite a bit. So a lot of this is unrealized gains and losses that come through on securities that we have. So it's not really tangible. I mean you can move it up or down it doesn't really matter. Obviously, you're right about the Lehman Brothers, you get 100 million in and that's -- we're just under 50 million shares outstanding right now. So that is $2 a share. So you would pick up -- pre-tax, right. You'd pick up $2 per share for doing that.

Got it. Okay. Thank you very much, and I'm looking forward to see if you might be interested in dying some of the Dela River green for next season.

We're always looking at supporting the Eagles.

Thanks, Jordan.

[Operator Instructions] Our next question comes from Tommy McJoynt with KBW. Tommy, your line is now open. Please go ahead.

Thanks. Tough to follow up some good Eagles banter. But a couple of the questions have been on various specific credit. So we had the UK Water, California wildfire. I'll ask about another one. With the Department of Government efficiency really going after and perhaps disrupting the DC market, can you talk about your exposure there, whether it's any public works projects, or any municipalities around there that might be impacted?

Yeah, I can't think of any significant exposure we have in the DC market. That would be subject to any potential issue relative to the government programs currently going on. We look at the portfolio pretty clearly. We have a toll road, maybe, but that usage, so I'm not concerned about that, and we probably have the airport as well.

I think Dominic is broadly saying, we don't have a ton of exposure we're concerned about. We obviously there's some tangential exposure that's maybe there, but we're not sitting here really spending a lot of time at this point worrying about that right now.

Okay. Got it. And you also called out the healthcare side. Can you remind me what's going on with like healthcare facilities in terms of like why some are seeing the financial troubles? I guess I think about some of the voluntary care procedures coming back that would help the healthcare facilities. Can you remind me what's going on there?

Healthcare, remember, is an operating risk, not really a financial risk. And you take the operating risk for a number of years. As we knew through COVID, there was a lot of pressure on all healthcare facilities in terms of loss of revenue that seemed to recover substantially once all the COVID restrictions were lifted, they started to get back healthy. Then the government threw a ton of money at it as well. That also made it a little bit better. They've been facing high labor costs, which has really put some pressure on it. But once again, these are operating risk type of things that get managed pretty expertly. We bring in consultants, we get involved in detail with any troubled credit, and our experience has been exceptional in the healthcare area. But like anything else, we downgraded credit, we got to take it through the reserve model, we have to do our possible scenario analysis and then allocate probabilities, and you wind up booking some losses that you never really realize.

Got it. And then just last question, just on the -- somewhat around the PREPA side of things. I guess my question is really focused on the political side. I mean, the US has seen a change in the White House, Puerto Rico saw a change in leadership. In your view, has this changed political landscape, been helpful to what might ultimately be necessary to get the backing to push PREPA toward a resolution or should we not read too much into the change in the political landscape.

Well, it could, but at the end of day, they've got a lot on their plate that they're trying to address. So I'm not expecting Puerto Rico to be one of their high priorities. They could put some pressure on the FOMB, which would be very helpful for us. But as we said, we're more than happy to play the litigation game. LBIE is a great example. That was a claim that they, I think, owed us back in the day. We claimed $26 million. It turned to $103 million. So if you want to play the long game, we're happy to play the long game. We've had our rights in terms of the revenue stream affirmed by the court. They challenged it twice, they lost twice. So someday, they're going to have to come to the table and pay the bill. And however long it takes, could the government help? Absolutely. Are we trying to get some help, sure we are. That's the nature of how we look at the business. We feel good about the new administration. We think the government is going to try to get involved, make PREPA a credit that can actually go into the market at some point in time. So therefore, that should help our cause as well. And as I said, the courts have backed us up 100%, the appeals court, not the local court of course, has backed us up 100%. So we're very comfortable with our legal rights, and we're going to continue to pursue them as we did in LBIE and let the chips fall where they may.

Sounds good. Thanks, Dominic.

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. Have a great day.