Q3 2023 Assured Guaranty Ltd Earnings Call
Good morning, and welcome to their showed currency limited third quarter 2023 earnings conference call.
Speaker 1: Good morning and welcome to the assured currency limited third quarter 2023 earnings conference call. My name is Elliott and I'll be your author for today's call. All participants will be in listen and animal. Should you need a system? Please signal a conference specialist by pressing star then zero on your telephone.
My name is hope your operator for today's call.
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Speaker 1: Please note that this event is being reported. And now, I'd like to turn the conference over to our host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead.
Please note that this event is being recorded.
And I would now like the conference over to our host Robert Tucker Senior managing director of Investor Relations and corporate Communications. Please go ahead.
Speaker 2: Thank you, operator, and thank you all for joining a short guarantee for our third quarter, 2023 Financial Results Conference call.
Thank you operator, and thank you all for joining us short guaranty.
Third quarter 2023 financial results Conference call. Today's presentation is made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
Speaker 2: Today's presentation is made pursuant to the safe harbor provisions of the Private Security's Mitigation Reform Act of 1995.
Speaker 2: 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 through the new information or future event.
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.
Speaker 2: 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.
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.
Speaker 2: If you're listening to a replay of this call, or if you're reading the transcript of the call, please note that the 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 factor.
We're listening to a replay of this call or if you're reading the transcript of the call. Please note that the statements made today may have been updated census 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.
Speaker 2: 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 assuredgarentee.com.
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 in our current financials.
Supplement and equity Investor presentation, which are on our website at assured guaranty dotcom.
Speaker 2: Starting to the presentation, our speakers today are Dominic Frederico, president and chief executive officer of Assured Guarantee Limited and Rob Bansson, our chief financial officer. After their remarks, we will open the call to your question. 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.
Turning to the presentation. Our speakers today are Dominic Frederico, President and Chief Executive Officer of assured Guaranty Ltd, and Rob Bailenson, our Chief Financial Officer.
After their remarks, we will open the call to your question 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. We continued to build value for assured guaranty's shareholders and policyholders during the third quarter and first nine months of 2000 Twenty's great.
Speaker 3: Thank you Robert and welcome to everyone joining today's call. We continue to build value for assured guarantee shareholders and policy holders during the third quarter in first nine months of 2023. Adjusted both value per share of $148.3 and adjusted operating shoulders equity per share of $99.18 both reach record highs at the end of the third quarter. New business production has been strong this year. The significant contributions from US public finance, international infrastructure finance and global structure finance.
Adjusted book value per share of $148 three.
Adjusted operating shareholders' equity per share of <unk> $99 18.
<unk> reached record highs at the end of the third quarter.
New business production has been strong this year with significant contributions from U S public finance International infrastructure Finance and global structured finance for the fourth consecutive year, our Pvp for the first three quarters reached or exceeded $240 million coming in at $249 million for 2023.
Speaker 3: For the fourth consecutive year, our PVP for the first three quarters reshore exceeded $240 million coming in at $249 million for 2023.
Speaker 3: In July , we completed our transaction with sound point capital management and a short healthcare partners, which resulted in a $241 million pre-text game that have expense.
In July we completed our transaction with sound point capital management, and assured health care partners, which resulted in a $241 million pre tax gain net of expenses.
Speaker 3: We now continue our asset management diversification strategy to our 30% ownership interest in sound point.
We will continue our asset management diversification strategy through our 30% ownership interest in some point.
Speaker 3: Yearning from that stake will be reflected for the first time in our fourth quarter reporting. Pursuing our strategy of generating fee-based earnings to complement our risk-based financial guarantee earnings.
The earnings from that state will be reflected for the first time in our fourth quarter reporting furthering our strategy of generating fee based earnings call them at a risk based financial Guaranty earnings.
Speaker 3: We also expected hands returns on our investment portfolio based on a broader range of alternative investment options with sound points.
We also expect enhanced returns on our investment portfolio based on a broader range of alternative investment options with some point.
Speaker 3: More generally, these changes will also result in a streamlining some of our financial disclosures. Bravo.
We're generally these changes will also result in a streamlining some of our financial disclosures.
Rob will expand on this in a few minutes.
Speaker 3: And capital management during the third quarter we completed our current debt restructuring efforts by refinancing $330 million of our senior obligations due next year. We also picked up the pace of our share repurchases by $64 million worth of shares in the quarter and last week our board of directors increased our repurchase authorization by $300 million.
In capital management during the third quarter, we completed our current debt restructuring efforts are refinancing $330 million of our senior obligations due next year.
We also picked up the pace of our share repurchases by $64 million worth of shares in the quarter and last week, our board of directors increased our repurchase authorization by $300 million.
Speaker 3: Before I go into greater detail about the quarter and year-to-year results, I want to tell you about two important management promotions. I'm pleased to announce that TFO Rob Bailton will become a short guarantees Chief Lopperding Officer as of January 1st, 2024. Rob will assume responsibility over our financial guarantee under any and origination strategies worldwide, as well as other initiatives to grow our financial guarantee business and increase returns. We'll also be working with Mayo on setting the company's strategic direction and in assisting and executing other equipafriaries.
Before I go into greater detail about the quarter and year to date results I want to tell you about two important management promotions I'm pleased to announce that CFO, Rob Bailenson will become assured guaranty's Chief operating officer as of January one 2020 for Rob will assume responsibility over our financial guaranty underwriting and origination strategies worldwide as well as other initiatives.
Our financial Guaranty business and increase returns will also be working with me on setting the company strategic direction and in assisting in executing other corporate priorities.
Additionally, we are fortunate to have an outstanding person until rob's role as CFO, Ben Rosenbloom vendors.
Speaker 3: Additionally, we are fortunate to have an outstanding person that filled Rob's role as CFO , Ben Rosenblum. Ben is currently our chief actuary. Ben has managed under Rob many critical financial functions, including accounting and financial reporting. As CFO , he will add treasury, tax and investment management to his portfolio responsibilities. Ben's quantitative and management skills have helped us accomplish many business objectives.
<unk> is currently our chief Actuary, Venice manage under Rob many critical financial functions, including accounting and financial reporting.
As CFO Treasury tax and investment management to its portfolio of responsibilities.
Quantitative and management skills and helped us accomplish many business objectives since.
Speaker 3: as he joined us in 2004. Most recently he was instrumental in completing the sound point transaction.
Since he joined us in 2004.
Most recently he was instrumental in completing the sale point transaction.
Speaker 3: Probably been a veren these promotions by making numerous to giving contributions over there many years that assured guarantee.
We've been running these promotions by making numerous significant contributions over many years that assured guaranty.
Speaker 3: with their extensive understanding of our strategies, markets, business practices, and unique characteristics of the financial guarantee business. I'm confident they will provide great leadership in the years to come.
With their extensive understanding of our strategies markets business practices and unique characteristics of the financial guarantee business.
Im confident they will provide great leadership in the years to come.
Speaker 3: Turning to U.S. public finance. We're total year-to-year municipal bond power insurance with down 9% year-over-year. We nonetheless achieved a nearly 10% increase in the power amount of bond sold with our insurance, guaranteeing $14.1 billion for 62% insured market share. This includes $7.2 billion a par from 27 large transactions that each involved at least 100 million of insured par, up from 4.8 billion a par from 21 such transactions in the first three quarters of 2022.
Turning to U S public finance, where total year to date municipal bond insurance was down 9% year over year, we nonetheless achieved a nearly 10% increase in the Paramount of bonds sold with our insurance guaranteeing $14 $1 billion for 62% insured market share.
This includes $7 $2 billion a car from 27 large transactions that each involved at least 100 million of insured par up from $4 8 billion of par from 'twenty, one switch transactions in the first three quarters of 2022.
Speaker 3: Importantly, the industry has maintained relatively steady high and short penetration rates this year. The rate of 8.5% of new issue parcel for the first time months of 2023 compared with 7.8% for the first time months of 2022. 9 month 2023 penetration rate is the highest in the decade.
Importantly, the industry has maintained relatively steady high insured penetration rates. This year the rate of eight 5% of new issue par sold for the first nine months of 2023 compared with seven 8% for the first nine months of 2022 nine month 2023 penetration rate is the highest in a decade.
And in the third quarter of 2023 with overall par issued up only 3% year over year, we ensured almost 50% more primary market par sold than we did in the third quarter last year.
Speaker 3: And then the third quarter of 2023 was overall part of our life. It shoot up only 3% year over year. We ensured almost 50% more primary market part sold than we did in the third quarter last year.
Speaker 3: I'm sure part sold in the primary and guaranteed in the secondary market total is $4.4 billion up from $3.4 billion in the third quarter of 2022.
Our insurer pars sold in the primary and guaranteed into secondary markets totaled $4 4 billion.
Up from $3 4 billion in the third quarter of 2022.
Speaker 3: We're also pleased with the increase activity we are seeing on bonds with underlying double a ratings from S and P or Moody's. In that category, we ensure to press we $2.8 billion of part during the first nine months of 2023, out from $2.3 billion of part for the first time months of last year.
We're also pleased with the increased activity, we are seeing on bonds with underlying <unk> ratings from S&P or Moody's in that category, we insured approximately $2 8 billion of par during the first nine months of 2023 up from $2 $3 billion a car for the first nine months of last year.
Speaker 3: We wrote 64 policies on such double-a transactions during the nine month period, 55 which were for new issues. We believe investors see our guarantee on high quality credit as a midagent to downgrade and market value risks.
Rose 64 policies on such double a transactions during the nine month period, 55 of which were for new issues. We believe investors see our guarantee on high quality credits is a mitigate to downgraded market failure risks.
Speaker 3: And looking forward to the fourth quarter activity where we're off to a strong start. In the month of October through US public finance transactions, between 350 million and $75 million sold or close with our insurance. Two airport transactions and a green bond transaction in the power sector.
Looking forward to the fourth quarter activity, we're off to a strong start in the month of October through U S. Public finance transactions between $350 million, it's around $50 million sold or closed with our insurance to airport transactions in a green bond transaction in the power sector.
Speaker 3: Outside of US public finance are in international public finance business produced $38 million a PVP year today. They also have a promising plan.
Outside of U S public finance, our international public finance business produced $38 million of Pvp year to date.
We also have a promising pipeline of additional infrastructure business.
Speaker 3: closing flight transactions in the airport, what are your utility, higher education, and student accommodation sectors with part to early on with $600 million.
Closing five transactions in the airport water utility higher education, and student accommodation sectors with bar totaling almost $600 million.
Speaker 3: In global structured finance, we produce $82 million to PVP year-to-date, ensuring that 2023 will be our best year for direct structured finance production since 2009. We have another number of future mandates expected to close this year.
In global structured finance, we produced $82 million of Pvp year to date.
During the 2023 will be our best year for direct structured finance production. Since 2009, we have another number of future mandates expected to close this year.
Speaker 3: To grow the structure finance business, further value it's a three-pronged approach we take to writing financial guarantee business.
The growth of our structured finance business further validates a three pronged approach, we take to writing financial Guaranty business by.
Speaker 3: By diversifying across the US public finance, global structured finance, and international infrastructure markets, we can reduce production of all the utility over time, as we are conditioning one market can be all set by a more favorable environment than another.
By diversifying across U S public finance global structured finance and international infrastructure markets. We can reduce production volatility over time as we are conditions in one market can be offset by a more favorable environment in another.
Speaker 3: Our last remaining non-paying putty rego exposures to power authority prepper, which we continue our lost mitigation.
Our last remaining nonpaying, Puerto Rico exposures, the power authority PREPA.
We continue our loss mitigation efforts.
Speaker 3: After mediation, reaching in pass, proposed prep a plan of adjustment for the Purpose Headers towards a contested plan confirmation hearing.
After mediation reach an impasse proposed PREPA plan of adjustment appears headed towards a contestant play a confirmation hearing.
Speaker 3: We remain committed to resolving prepping consensually if possible, but we'll protect our bond claims and of course our credit illegal rights, the litigation, the 303 plan, confirmation, and appeals processes necessary. Meanwhile, our outstanding prepping and short exposure continues to reduce.
We remain committed to resolving PREPA consensually, if possible, but we'll protect our bond claims and of course, our creditor legal rights litigation the title III plan confirmation and appeals processes necessary.
Meanwhile, our outstanding private insured exposure continues to reduce.
Speaker 3: Overall, the strength of our insured portfolios improved significantly in the last several years, largely because of our lost mitigation efforts. We now classify only 2.1% of our $242 billion insured portfolio as below investment grade, compared with 4.6% of the portfolio in 2017.
Overall, the strength of our insured portfolio has improved significantly in the last several years largely because of our loss mitigation efforts. We now classify only two 1% of our $242 billion insured portfolio.
As below investment grade compared with four 6% of the portfolio in 2017.
Speaker 3: As I mentioned on our last call during the third quarter, SAP reaffirmed its AA financial threats rating with stable outlooks of our insurance companies, setting both our very strong financial risk profile and very strong business risk profile in its annual review of us. Its report describes many students supporting our AA rating, including SAP's view that we have excellent capital and earnings with a meaningful capital out of CPUF.
As I mentioned on our last call during the third quarter S&P reaffirmed its public financial strength rating with stable outlooks of our insurance companies. So I think both are very strong financial risk profile, a very strong business risk profile and its annual review of us.
Its report describes may strengths supporting our double a rating, including S&P's view that we have excellent capital and earnings with a meaningful capital adequacy buffer.
Speaker 3: Additionally in October , KBRA reaffirmed its AA-plus in shirt-finished thread-forating with stable outlook. Of our financial guarantee operating subsidiaries in the San Jose Vales reports on AGM and AGC.
Additionally, in October Kbr's reaffirmed its double a plus insurer financial strength rating with stable outlook.
Our financial Guaranty operating subsidiaries and its annual surveillance reports on AGM and AGC.
Speaker 3: It also commented that an investor demand for a product may be further enhanced by economic conditions such as tightening credit cycle, an economic environment of higher interest rates, all to our widening credit spreads and economic uncertain.
It also commented in investor demand for our product may be further enhanced by economic conditions, such as tightening credit cycle and economic environment of higher interest rates volatility widening credit spreads and economic uncertainty.
Speaker 3: Our product is designed to provide value no matter the market environment, including when credit or market conditions are particularly uncertain. We believe the market disrupts during the pandemic and more recently volatility in the markets and global economies to your political unpredictability and climate related natural disasters. I've resulted in a broader recognition of the protection and value our guarantee provides against unforeseen circumstances. And a greater appreciation for the capital of liquidity supporting our insurance growth falls.
Our product is designed to provide value no matter the market environment, including one creditor marketing conditions are particularly uncertain. We believe the market disruptions during the pandemic and more recently volatility in the markets and global economies geopolitical and predictability and climate related natural disasters are resulted in a broader recognition of the protection and value our guaranty provides against.
Unforeseen circumstance and a greater appreciation for the capital and liquidity supporting our insurance policies.
Speaker 3: We believe that concerns in the market can increase the demand for financial guarantee insurance. It goes to get up, support, price stability and provide greater certainty of execution for new issues in the volatile pricing environment.
We believe that concerns in the market can increase the demand for financial guarantee insurance.
We can help support price stability and provide greater certainty of execution for new issues in the volatile pricing environments.
Speaker 3: Our outlook as positive as we continue to work as on our core principles of pruning capital management that is up the much for the benefit of our possible to share holders. Discipline risk management and clear and well executed strategies for new business production. I want to now.
Look as positive as we continue to focus on our core principles of prudent capital management that is optimized for the benefit of our policy holders and shareholders disappear.
Disciplined risk management, and clear and well executed strategies for new business production.
I will now turn the call over to Rob.
Thank you Dominic and good morning to everyone on the call I.
Speaker 2: Thank you, Dominic, and good morning to everyone on the call. I am pleased to report third quarter 2023 adjusted operating income increased to $206 million or $3.42 per share. This represents an increase of 55% and 62% respectively compared with the third quarter.
I am pleased to report third quarter 2023, adjusted operating income increased to $206 million or $3 42 per share.
This represents an increase of 55% and 62% respectively compared with the third quarter of last year.
Speaker 4: The increase was primarily driven by the gain on the found point in HP transactions of $190 million, which is net up transaction expenses and deferred tax.
The increase was primarily driven by the gain on the sound point in HP transactions of $190 million, which is net of transaction expenses and deferred taxes.
Speaker 4: Soundpoint and AHP transactions were strategic milestones towards our goal of increasing fee-based and alternative investment earnings in order to grow the returns of the company while diversifying sources of income.
At some point in HP transactions, where strategic milestones towards our goal of increasing fee based and alternative investment earnings in order to grow the returns of the company, while diversifying sources of income with.
Speaker 4: With the sound point transaction, we will own a 30% interest in an asset manager with historically strong AUM growth that provides an array of alternative investment options.
With the sound point transaction, we will own a 30% interest in an asset manager with historically strong AUM growth.
Provides an array of alternative investment options.
In keeping with our commitment to invest a total of $1 billion in some point managed alternative investments within two years.
We committed $150 million to choose some funds in the third quarter and another $100 million since the end of the third quarter.
Speaker 4: including funds managed by SoundPoint, HP and others.
Including funds managed by standpoint, HP and others as.
Speaker 4: As of September 30, 2023, we had $630 million in alternative investment.
As of September 32023, we had $630 million in alternative investments.
Speaker 4: Our inception to date annualized returns across all alternative investments is 12%.
Our inception to date annualized returns across alternative investments is 12%.
Before I get into a discussion of the third quarter I wanted to highlight a few financial reporting changes, resulting from the standpoint and <unk> transactions.
Speaker 4: Before I get into a discussion of the third quarter, I want to highlight a few financial reporting changes resulting from the sound point and HB transaction.
Speaker 4: First, while we are still reporting an S-administered management segment, it now primarily consists of our 30% share of sound points earnings. Net eventing amortization of intangible assets associated with the sound point investment.
First while we are still reporting and asset management segment and now primarily consist of our 30% share of some points earnings net of any amortization of intangible assets associated with the sound point investment.
Speaker 4: Because all sound point reporting is on a one quarter lag. Our share of sound point results will be first reported in the fourth quarter.
Because that's all sound point reporting is on a one quarter lag our share of sound point results will be first reported in the fourth quarter.
Speaker 4: Second, the sound point and HP transactions triggered the decontalitation of all assured IMCLO's in CELA warehouse.
And second at some point and HP transactions triggered the deconsolidation of <unk>.
All of short <unk>, and CLO warehouses as well as the HP funds. However, due to the significant ownership interest and other control rights that we maintain in certain funds. We continued to consolidate three assured I am funds that are now being managed by standpoint.
Speaker 4: as well as the HP funds. However, due to the significant ownership interest and other control rights that we maintain in certain funds, we continued to consolidate three assured IAM funds that are now being managed by sound.
Speaker 4: CLO fund and two asset-based funds with a total net asset value of $272 million.
So fun and to asset based funds with a total net asset value of $272 million.
Speaker 4: The net impact of CIVs to adjusted operating income was a loss of $10 million, which primarily consists of a loss on decatalitation of the CLOs and AHB funds.
The net impact of Civs to adjusted operating income was a loss of $10 million, which primarily consists of a loss on deconsolidation of the CLO and HP funds.
Speaker 4: In the insurance segment, adjusted operating income was $59 million in the third quarter of 2023, compared with $159 million.
In the insurance segment adjusted operating income was $59 million in the third quarter of 2023 <unk>.
Compared with the $159 million.
Speaker 4: in the third quarter of 2022. The decline was primarily attributable to increased reserves on-
In the third quarter of 2022.
The decline was primarily attributable to.
Two increased reserves on PREPA exposures.
Speaker 4: and a lower benefit on RNBS transactions compared with the third quarter of 2022.
And a lower benefit on RMB S transactions compared with the third quarter of 2022.
Speaker 4: economic loss development in the third quarter of 2023 for RBS transactions.
Economic loss development in the third quarter of 2023 for RMB S transactions was a benefit of $48 million, primarily due to higher recoveries of charged off loans.
Speaker 4: was a benefit of $48 million, primarily due to higher recoveries per charged off loan.
Speaker 4: Higher earnings generated by the investment portfolio partially offset increases in loss.
Higher earnings generated by the investment portfolio, partially offset increases in loss expense.
Speaker 4: Net investment income on a VELD-foot-per-cell text maturity securities increased by $32 million due to the acceleration.
Net investment income on available for sale fixed maturity securities increased by $32 million due to the acceleration.
Speaker 4: of accretion on lost mitigation securities and higher short term interest rates and average investment balance.
Of accretion on loss mitigation securities and higher short term interest rates and average investment balances.
Speaker 4: Equity and earnings on alternative investments was a gain of $25 million in the third quarter of 2023.
Equity and earnings on alternative investments was a gain of $25 million in the third quarter of 2023.
Speaker 4: compared with losses of $11 million in the third quarter of 2022.
Compared with losses of $11 million in the third.
Third quarter of 2022.
Speaker 4: In addition, fair value gains on Puerto Rico contingent value instruments were $4 million in the third quarter of 2023 compared with losses of $8 million in the prior year period.
In addition, fair value gains in Puerto Rico contingent value instruments were $4 million in the third quarter of 2023, compared with losses of $8 million in the prior year period.
Speaker 4: Net-earn premiums and credit to revivative revenues increased to $99 million in the third quarter of 2023, from $92 million in the third quarter of last year.
Net earned premiums and credit derivative revenues increased to $99 million in the third quarter of 2023 from $92 million in the third quarter of last year.
Speaker 4: celebrations were $15 million in the third quarter of 2023 compared with $12 million in the third quarter of last
Accelerations were $15 million in the third quarter of 2023, compared with $12 million in the third quarter of last year.
Speaker 4: Fert premium revenue remained steady at approximately $3.6 billion as new business production replenished the amortization of the Fert premium revenue.
Premium revenue remained steady at approximately $3 $6 billion as new business production replenished the amortization of deferred premium revenue.
Speaker 4: Total operating and compensation expenses across all segments were $91 million in the third quarter of 2023 down from $94 million in the third quarter of last year.
Total operating and compensation expenses across all segments or $91 million in the third quarter of 2023 down from $94 million in the third quarter of last year.
Speaker 4: The third quarter of this year includes $14 million in sound point and HP transaction expenses, and no longer includes asset management segment expenses, which were 24 million dollars.
Third quarter of this year includes $14 million in Sandpoint, and HP transaction expenses and no longer includes asset management segment expenses, which were $24 million in the third quarter of last year.
Speaker 4: As you know, our effective tax rate fluctuates from period to period based on the portion of income in different tax jurisdictions.
As you know our effective tax rate fluctuates from period to period based on the proportion of income in different tax jurisdictions.
On a year to date basis, the effective tax rate was 18, 4% for 2023 compared with eight 1%.
Speaker 4: On a year-to-date basis, the effective tax rate was 18.4% for 2023, compared with 8.1% for 2022.
For 2022.
Speaker 4: In addition to advancing our key objectives and asset management, alternative investments and new business production, we continue to focus on capital management. From the third quarter, we increase the pace of sharey purchases to $64 million or 1.1 million shares.
In addition to advancing our key objectives and asset management alternative investments and new business production, we continue to focus on capital management.
The third quarter, we increased the pace of share repurchases to $64 million or one 1 million shares.
Speaker 4: Last week, the Board of Directors increased the Sherry Purchase Authorization by $300 million.
Last week, the board of directors increased the share repurchase authorization by $300 million.
Speaker 4: We also achieved the great execution on the refinancing of $330 million of debt that was scheduled to mature in mid-2024.
We also achieved a great execution on the refinancing of $330 million of debt that was scheduled to mature in mid 2024.
Speaker 4: How our next Edmonds sure is now in September of 2028.
Our next debt maturity is now in September of 2028.
Speaker 4: The refinancing provides us the flexibility to pursue other capital management strategies, including sharey purchases. This is the first time in Chinese?? literally in the country that would have come for industrial
The refinancing provides us the flexibility to pursue other capital management strategies, including share repurchases.
At the holding company level.
Speaker 4: We currently have cash and investments of approximately $146 million.
We currently have cash and investments of approximately $146 million of which $67 million resides in AGL.
Speaker 4: of which $67 million resides in AGL.
Speaker 4: These funds are available for debt service from corporate operating expenses, as well as sharey purchases and other strategic initiatives.
These funds are available for debt service and corporate operating expenses as well as share repurchases and other strategic initiatives.
Speaker 4: The transformation of our asset management segment, the efficiency of our capital management activities, and focus on new business origination and earnings growth, continue to drive adjusted operating shareholders at-
The transformation of our asset management segment, the efficiency of our capital management activities and focus on new business origination and earnings growth continue to drive adjusted operating shareholders' equity.
Speaker 4: and adjusted book value for share to new records of over $99 to $148.
And adjusted book value per share to new records of over $99 to $148 respectively.
Speaker 4: I'll now turn the call over to our operator to give you the instructions for the Q&A period. Thank you.
I'll now turn the call over to our operator to give you the instructions for the Q&A period. Thank you.
Speaker 1: Thank you. We will now begin the question and answer session. To ask the question, you may press star then one on your telephone.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker 1: to withdraw your question, please press star then two. If you're using a speaker phone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roster.
To withdraw your question. Please press Star then two.
If youre using a speakerphone please pick up your handset before pressing the case.
At this time, we will pause momentarily to assemble our roster.
Okay.
Speaker 1: First question comes from Tommy McDrink or we have KBW. Your line is open.
Last question comes from Tony <unk> with <unk>. Your line is open.
Speaker 5: Hey, good morning guys. Thanks for taking my question. Good morning. Look.
Hey, good morning, guys. Thanks for taking my questions. Good morning, Good morning, Luke.
Speaker 5: Looking at the growth written premium and the PVP in the quarter, there was a sizeable decline and while I understand that the structured finance side can be lumpy.
Looking at the gross written premium in the Pvp in the quarter.
There was a sizeable decline and while I understand the structured finance side can be lumpy.
Speaker 5: Should we read anything into this, that such as a pullback or a tightening of credit from your underwriting standpoint, or is this simply a function of what the market gave you and you're really trying to write as much new business?
Should we read anything into this that no such as a pullback or a tightening of credit from your underwriting standpoint or is this simply a function of what the market gave you and you're really trying to write as much new business as you can.
Speaker 3: It's really a function of mix of business in the quarter. You know, there was a rapid there start declining the triple B issuance in the quarter, which obviously is where we eat most of our pudding. So that affected what we were able to write. So we wrote a lot of what I'll call down the middle of the road, flow business, highly rated, now at the rates that are available to us in the marketplace.
It's really a function of mix of business in the quarter. There was a rapid start decline in the triple B issuance in the quarter, which obviously is where we most of our putting.
Effected what we were able to write so we wrote a lot of what I'll call down the middle of the road flow business highly ready to now at the rates that are available to us in the marketplace.
Speaker 4: And Tommy, as we said at the time, at the time, at the fourth quarter, we were seeing a strong flow in public finance.
Okay got it and tell me as we said the port Dominic as Dominic said in the fourth quarter we were.
Seeing a strong flow in public finance.
Speaker 5: Got it, okay. And then switching gears on the capital standpoint, is your leverage position your debt to capital, a constraining factor that could inhibit you from from doing more buybacks at some point? And when you and perhaps your regulators look at the opportunity for buybacks and what that could mean for your debt to capital ratios, do you look at a capital number that includes or excludes the other comprehensive income given that the swings that we've seen?
Got it okay.
And then switching gears on the capital standpoint.
Is your leverage position your debt to capital.
A constraining factor that could inhibit you from doing more buybacks at some point and when you and perhaps your regulators look at the opportunity for buybacks and what that could mean for your debt to capital ratios do you look at our capital number that includes or excludes the other comprehensive income given that the swings that we've seen there.
Speaker 4: Well, the regulator would look at excluding other comprehensive income. No, because they look out on the statutory basis.
Well the regulator would look at excluding other comprehensive income.
On a statutory basis.
Speaker 4: And we look, we generally look at our debt capital ratios with respect to the rating agency constraints. And yes, it's true that you know, as you, if in fact, you somehow shrink your capital, and you also have to deliver. But, you know, with our refinancing that we did this year, and we, and that we're able to push our maturity out five years where we have flexibility going forward of what we can do in capital management. Yeah, at this point, time it's not a constraint.
And we look we generally look at our debt to capital ratios with respect to the rating agency constraints and yes. It's true that you know as you. If in fact, you somehow shrink capital, but you also have to de lever but.
With our refinancing that we did this year.
And now we're able to push.
Our maturity of five years.
Have flexibility going forward.
What we can do in capital management at this point in time, its not a constraint.
But it's always something that we look at.
Speaker 5: Okay, got it. And then just last question, what's your initial understanding of the potential tax regime changes in Bermuda and how that could impact your business? And to the extent that the effective tax rates do increase there, do you think that your business could pass through those rate increases in order to maintain your...
Okay got it.
And then just last question, what's your initial understanding of the.
Potential tax regime changes in Bermuda, and how that could impact your business and to the extent that the effective tax rates do increase their do.
Do you think that your business could pass through those rate increases in order to maintain returns.
Speaker 4: Yes, and at the end of the day, as you know, the global minimum tax is going to be effective in 2024. So because Bermuda had a no tax jurisdiction, we would have had to pay whatever income that Bermuda makes 15% would go to the UK. Because we're UK tax residents.
Yes.
The end of the day as you know the global minimum tax is going to be.
Effective in 2024.
So because Bermuda had.
No tax jurisdiction.
We would have had to pay whatever income and Bermuda makes 15% would go to the UK.
Because we're U K tax resident.
Speaker 4: So if Bermuda initiates that, then we just would not have to pay that tax.
So if Bermuda initiate the tax then we just would not have to pay that tax to the UK, we would just pay that tax to Bermuda.
Speaker 4: to the UK, we would just pay that tax to Permuda. And yes, we believe that, obviously, would be profitable. And also, just remember, it's still significantly lower whatever tax, it's significantly lower than the US. And there's a significant amount of capital here in Permuda that earns at a lower tax rate, and we constantly evaluate and do tax playing based on that.
And yes, we believe that obviously it will be profitable.
So just remember it's still significantly lower whatever tax it was significantly lower than the U S and is a significant amount of capital here in Bermuda that earns at a lower tax rate and we constantly evaluate.
And do tax planning based on that.
Got it thank you.
Speaker 1: We now turn to Juliano Belonio with compass points. Your line is open.
We now turn to Giuliano Bologna with Compass point your line is open.
Speaker 6: Good morning and congratulations on you. Another special quarter of the British to continue to strong performance. Thank you, Julian. Well, one thing I was curious about asking and the amidness of Chinese credit remarks, I'm curious if there's any comments already about the special dividends or how you think about your ability to work especially better into this point or and then also how you think about it now.
Good morning.
Relations on there Seth.
For quarter.
Continued strong so thank you Julian one thing.
I was curious about asking America, signing compared remarks.
I'm curious if there was any commentary about special dividends or how you think about your ability to yes.
At this point.
And then also how you're thinking about now.
Speaker 6: Tapping off, yeah, capital-oldy company on the, yeah, go for a basis that way.
Yes topping off.
Capital to the holding company.
Yes go forward basis that way.
Speaker 3: Well, Juliano, please report that we filed applications with both regulators for a special dividend approval. So we're now just in waiting mode, which we're optimistic of those to be approved. So that's part of the capital management strategy, part of the capital, you know, buyback strategy. So we're doing exactly what we say we would do.
Well Giuliano I'm pleased to report that we filed applications with both regulators for a special dividend approval. So we're now just been waiting mode, which we're optimistic to be approved so that's part of the capital management strategy part of the capital.
Back strategy. So we're doing exactly what we said we would do.
Yeah.
Speaker 6: That's great. Then one thing I'd be curious about on the new business front, you know, the high risk for that environment has to be driving on, but it's not linear the way it flows through. I'm curious when you think about, you know, market penetration rates on the, on the community side, you know, and where that could go over the next, you know, a couple of years of this and then, you know, where we stay in a higher-for-longer environment.
That's great.
Then.
I'd be curious on the new business front.
The higher interest rate environment, obviously drives logging on but it's not linear the way it flows through.
I'm curious when you think about market penetration rates.
On the Muni side.
And where that where that could go over the next couple of years, obviously, assuming we stay at a higher for longer environment.
Well as I said in my comments penetration rates are at all time high relative to the last say 10 years, Let me give you some really startling statistic. So as we said in the quarter. There was not a lot of triple B issuance because they think there is a wait and see in terms of the interest rate marketplace and don't want to finance side, and then have the opportunity to look like later on in life that the rates are a lot lower but to give you some statistic.
Speaker 3: Well, as I said in my comments, penetration rates are at all time high relative to the last say 10 years. And it gave me some really startling statistics. So as we said, in the quarter, there was not a lot of triple B issuance because I think there's a weight in C in terms of the interest rate marketplace.
In the third quarter on a transaction basis 84, 7% of all Triple B issuance took insurance 84, 7% that means only 15% of the triple B issue did not take insurance, that's a tremendous statistic for the insurance industry I think it's reflective of the higher rate marketplace.
Speaker 3: On a transaction basis, 84.7% of law-triple-be-isewant took insurance.
Speaker 3: 84.7% that means only 15% of the triple V issuance did not take insurance. That's a tremendous statistic for the insurance industry and they're reflective of the higher rate marketplace. Our problems we just need more volume in the market to really drive more premium growth, which we can see in the future.
As we just need more volume in the market to really drive more premium growth, which we can see in the future as Rob mentioned, we're having a great fourth quarter start we expect the fourth quarter to be spectacular on the finance side as well as our other marketplaces as well.
Speaker 7: As Rob mentioned, we're having a great fourth quarter start. We expect the fourth quarter to be spectacular on the public finance side as well as our other marketplaces as well.
Speaker 6: That's very helpful. The, you know, I really just, it's very early in the process with the sound point transaction.
That's very helpful.
Yes.
It's very early.
And the process with the South point transaction.
Speaker 7: I'm curious, you know, just from a higher level, do you expect contribution to be positive, you know, starting next quarter, because you referenced the, you know, we get the full full quarter of, yeah. Absolutely. I'm sorry, you said about $50 billion as to manager, Tom, you said, or I'm sorry, Juliana, so we expected to be positive all the way through. You wouldn't have done it otherwise.
So I'm curious just.
From a high level do.
Do you expect contribution could be positive.
Starting next quarter, because you referenced we got the first full quarter.
Absolutely.
And about $50 billion asset manager, Tom you said or I'm, sorry, Julian on it. So we expect it to be positive all the way through you wouldn't have done it otherwise.
That's very helpful. I appreciate it and I will jump back into queue.
Speaker 6: That's very helpful. I appreciate it, and I will jump back in again.
Alright, thank you.
Speaker 1: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad now.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
Speaker 1: Now turn to Jeffrey Dunn with darling and partners. Your line is open.
Now turning to Geoffrey Dunn with Dowling <unk> partners. Your line is open.
Thanks, Good morning.
Speaker 1: I was wondering if you could just talk about how the market for new business has evolved in the last two years. Obviously, we've had a lot of movement on rates and spreads, but can you give either qualitatively or quantitatively how the market has changed over the past two years with respect to penetration rates, pricing terms, conditions.
Good morning, Jeff Dominick I was wondering if you could just talk about.
How the market for new business has evolved in the last two years, obviously, we've had a lot of movement on rates and spreads but can you give.
Either qualitatively or quantitatively, how the market has changed.
Over the past few years with respect to penetration rates pricing terms conditions.
Speaker 6: I mean, that, that it seems like it all should be positive, but obviously it gets the sort of from what we see with mixed change and all that stuff. So, I wonder if you could just big a little bit more into that.
But it seems like it all should be positive, but obviously it gets sort of from what we've seen with mix change and all that stuff. So.
Wonder if you could just dig a little bit more into that.
Speaker 7: Oh, Jev, I would say it's all positive except for one thing which is issuing. So let's talk about it. So number one, interest rates are higher. That's a real benefit to our business across the board. Both who we can charge for premium versus an addition time. Many people would seek insurance now, try to save some finance and cut.
Well, Jeff I would say, it's all positive except for one thing which is issuance. So let's talk about it. So number one interest rates are higher that's a real benefit to our business across the board both what we can charge for premium growth.
In addition to how many people would seek insurance now try to save some financing costs.
Speaker 3: issuance has been as a the muse spas has been awash with the cat
Issuance has been a the municipalities have been awash with cash.
Speaker 3: they got through the pandemic, so they had a run out of their checkbooks, which is taking a quite a long time so we didn't have any need to finance. And then too, because of the volatility in the marketplace and the interest rate environment, people are a little concerned that there's always a prediction that rates are going to come back down, so we should wait to finance in six months or nine months because they'll get a better rate. So I think we've got conditions that support the growth of the business and support the insurance industry through the industry process.
The relief that they got through the pandemic.
Run out of their checkbooks, which has taken quite a long time. So we didn't have any need to finance and then two because of the volatility in the marketplace and the interest rate environment people are a little concerned that there's always a prediction that rates are going to come back down to where they should wait to finance in six months or nine months, because we get a better rate. So I think we've got conditions that support the growth of the business and support the <unk>.
Europe's industry through the interest rate process.
Speaker 7: Like I said, they have an idea to borrow, but we know in the municipality world, it's not a matter of it. It's only a matter of when and the when's coming. And because of the high rates, we think we're in great shape to make significant production gains across the board.
They haven't had a need to borrow but we know in the municipality world. It's not a matter if it's only a matter of when and the wins coming in because of the higher rates. We think we're in great shape to make significant production gains across the board.
Speaker 7: Spreads, of course, in a well to market, tend to be a little bit volatile. They're a little tight now, but we expect them to widen out as well, which will further benefit production. So I think it's a may tell two stories, the industry environment helps, but the issuance market is lower because of the awash cash that came out of the pandemic relief, as well as the fact that people are looking for better rates to finance.
Spreads of course in a well to market tend to be a little bit volatile there are little take now, but we expect them to widen out as well, which will further benefit production.
So I think it's a tale of two stories the interest rate environment helps but the issuance market is lower because of the wash cash that came out of the pandemic relief as well.
The fact that people are looking for better rates to finance.
Speaker 1: And if I remember, we were like six and change, penetrating it two years ago, and now you're, I think you said eight and a half year today.
And if I remember, we were like six and change penetration rate two years ago.
You said eight and a half year to date.
Alright.
Speaker 7: So that grows, and like I said, if you break it down between the where we're actually strong in the marketplace in the single A and the triple B. So to give you another statistics, I told you 84.7% of triple B transactions grabbed insurance, 59.5% of single A transactions grabbed insurance. So think of it both in the triple B and the single A space well over 50% penetration rate, which is what I predicted a thousand years ago based on penetration rates that I expect based on on a thing AA ratio, which is available in the market.
So that growth and like I said, if you break it down between the where were actually strong in the marketplace in a single day in the Triple B. So to give you. Another statistic. So I told you 84, 7% of Triple B transactions grabbed insurance 59, 5% a single eight transactions grab insurance so think of it both in the Triple B in the single agent base, well over 50% penetration.
Right, which is what I had predicted a thousand years ago based on penetration rates that I expect based on us being double a rated what's available in the market.
Speaker 7: Also, you know, the fact that we're in the other two markets are structured finance and international infrastructure really provides us further support and a little stability in the earnings that we can see and the production that we can make. And of course, as you know, the returns on those businesses are even higher, significantly higher than domestic public finance.
But also the <unk>.
We are in the other two markets are structured finance and international infrastructure really provides us further support the level of stability in the earnings that we can see in the production that we can make and of course as you know the returns on those businesses or even higher significantly higher than the domestic public finance business.
Speaker 8: And then one last follow up, give them what you just said about the thing will be in single leg penetration.
And then one last follow up given what you just said about the typical dancing penetration.
Speaker 8: You also indicated that you're gaining traction in AA. So is your view that it's an 8% percent type of penetration rate, or is it still a few years ago when you were talking about maybe you were covering a 15%. What it was.
You also indicated that you are gaining traction in Buffalo.
Is your view that it's an 8% to 10% type of penetration rate or is it still I think years ago, when we're talking about making a recovery of 15%.
What's your view on.
Speaker 7: The ultimate penetration. I still think we get to 50% of the 50%, which is 25%, that's my view and I still stick to it. And as I said, if I look at the triple B and the single A penetration we're there, we just need to get more participation in the AA. And I think we'll get to the numbers. So I think easily over 10% in a normalized marketplace. If you continue to see high interest rates and spreads wide now, that penetration will grow as well.
The ultimate penetration still think we can get to 50% of the 50%, which is 25%. That's my view and I still stick to it and as I said, if I look at the Triple will be in the same way penetration. We are there we just need to get more participation in the double a and I think we'll get to the numbers. So I think easily over 10% and a normalized marketplace. We continue to see high interest rates and spreads widened out that pen.
Tricia will grow as well.
Okay. Thank you.
Thanks, Jeff.
Speaker 1: This concludes the question and answer session. I would now like to turn the conference back over to our host, Robert Tucker, of the closing remarks.
This concludes the question and answer session I would now like to.
Teleconference microcontroller host Robert Tucker for closing remarks.
Speaker 2: 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.
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.
Speaker 1: This concludes today's conference call. Thank you all for your attending. You may now disconnect your lines and have a great day.
This concludes today's conference call. Thank you all for attending you may now disconnect your lines and have a great day.
Speaker 1: Connect your lines and have a great day.
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