Assured Guaranty Ltd.
Annual Report 2014

Plain-text annual report

THE PROVEN LEADER IN BOND INSURANCE 2014 ANNUAL REPORT Assured Guaranty Ltd., through its subsidiaries (collectively, Assured Guaranty), guarantees scheduled principal and interest payments when due on municipal, public infrastructure and structured finance transactions in the United States and select markets around the world. OUR FOCUS ON FINANCIAL STRENGTH AND CREDIT DISCIPLINE HAS DRIVEN OUR SUCCESS SINCE OUR APRIL 2004 IPO INCREASE IN ADJUSTED BOOK VALUE PER SHARE 119% $372Billion $3.8Billion CUMULATIVE OPERATING INCOME INSURED PAR WRITTEN $372Billion$3.8Billion119%2 / THE PROVEN LEADER IN BOND INSURANCE Dominic J. Frederico President and Chief Executive Officer Dear Fellow Shareholders & Policyholders, I am pleased to report that Assured Guaranty had another successful year in 2014. In the tenth full year since our initial public offering, our operating share- holders’ equity per share reached $37.48, the highest level in our history. During the year, our adjusted book value per share increased 8.2%, ending the year at $53.66, and, to top it off, we earned $491 million of operating income.* Additionally, we accomplished the four strategic objectives that I discussed in last year’s Annual Report. Specifically: • We further optimized our capital management, primarily by continuing our share repurchases; • We increased new business production, with contri- butions from our U.S. public finance, international infrastructure and global structured finance businesses; • We reached an agreement to acquire a legacy insurer —Radian Asset Assurance Inc. (Radian Asset) —and further augmented our unearned premium reserve by reassuming previously ceded business; • And we extracted value from our own insured portfolio through loss mitigation and other loss recovery strategies. OBJECTIVE 1: CAPITAL MANAGEMENT Over the past few years, we have been generating more capital than we can put to work at acceptable returns in the current low-interest-rate environment. To address this excess capital position, during 2014, we repurchased 24.4 million common shares for $590 million at an average of $24.17 per share, representing a substantial discount to both operating shareholders’ equity per share and adjusted book value per share. We also increased our quarterly dividend per share by 10% in February 2014. Then, in February 2015, we increased it by an additional 9%. Over the two years from January 2013 through the end of 2014, we returned $1 billion of excess capital through the repurchase of 37 million shares, or 19% of our January 1, 2013 share count, and through quarterly dividends. We took some additional steps during 2014 to improve our capital flexibility and optimize our capital structure. First, we were able to increase unencumbered assets by approximately $275 million at Bermuda-based Assured Guaranty Re Ltd. (AG Re) by obtaining approvals for Assured Guaranty Municipal Corp. (AGM), Assured Guaranty (Europe) Ltd. and Assured Guaranty Corp. (AGC) to reassume certain contingency reserves from AG Re that had previously required collateralization by AG Re. In addition, AG Re increased its unencumbered assets by more than $100 million as a result of a commuta- tion agreement with a ceding company. Second, we requested and received regulatory approval to release more than $1.1 billion from contingency reserves into policyholders’ surplus at AGM and AGC, thereby increasing the dividend capacity of these subsidiaries. And third, we issued $500 million of 10-year, 5% senior notes. In a powerful market endorsement, the issue was eight times oversubscribed at its original target of $300 million, with bids from 130 investors.  ASSURED GUARANTY / 3 10 Years IPO ANNIVERSARY THE KEY PRINCIPLES OF OUR SUCCESS ARE VIRTUALLY UNCHANGED SINCE OUR INITIAL PUBLIC OFFERING OBJECTIVE 2: GROWTH IN NEW BUSINESS PRODUCTION Assured Guaranty recorded a present value of new busi- ness production (PVP)* of $168 million, 19% more than in 2013, with contributions from each business segment. In the U.S. public finance market, industry insurance penetration of new-issue par sold climbed to 5.9% from 3.9% the previous year. Assured Guaranty insured 43% more par volume of new issues sold in 2014 than in 2013. This is impressive progress considering the strong headwinds during the year. Thirty-year municipal bond yields dropped 133 basis points over the course of the year, and credit spreads were as tight as at any time since 2008. Additionally, there was no meaningful growth in primary market volume. We continued to lead the market with a 58% share of U.S. public finance primary-market insured par sold, even as we conceded numerous small and mid-size issues that were insured by our competition at prices we found unacceptable. While small and mid-size issues represented the majority of our 2014 municipal business, we also guaranteed 41 new issues sold with insured par of more than $50 million each, 12 of which exceeded $100 million. The compar- able figures in 2013 were 26 transactions over $50 mil- lion, of which eight exceeded $100 million. This growth in the number of larger transactions reflects improved demand for our insurance from institutional investors. We attribute the increased demand for our insurance to the proven value of our guarantees. Investors have seen us pay claims and relieve insured bondholders of the burden of prolonged restructuring negotiations and bankruptcy litigation. They have also seen clear evidence that Assured Guaranty-insured bonds of troubled issuers hold their trading value much better than those issuers’ compara- ble uninsured bonds. And with over $400 million of our insured bonds trading every day, investors can see that bonds with our guaranty enjoy enhanced market liquidity. In the international infrastructure market, where transactions can take a year or more to complete, we guaranteed an innovative United Kingdom social housing project during 2014. In the last two years, we have demonstrated the viability of our capital market solution for new infrastructure projects, and we also continue to pursue opportunities related to interna- tional transactions previously wrapped by other legacy financial guarantors. In structured finance, we found opportunities for growth. We reopened the market for insured diversified payment rights transactions and found other opportunities in state-sponsored new markets tax credits and private transactions to provide capital relief for large institutions, such as life insurance companies. Our 2014 structured finance PVP of $33 million was more than four times that of the prior year. *Please see note 2 on page 18 regarding non-GAAP financial measures used in this Annual Report. 4 / THE PROVEN LEADER IN BOND INSURANCE EXERCISE DISCIPLINED UNDERWRITING AND RISK MANAGEMENT MAINTAIN HIGH FINANCIAL STRENGTH LEVELS  ASSURED GUARANTY / 5 Our discipline in credit selection, underwriting and enterprise risk management defines Assured Guaranty’s core competencies. This discipline is an important factor in preserving and building financial strength. We are the only financial guaranty company that maintained sufficient financial strength to write financial guaranty insurance before, during and since the Great Recession. 6 / THE PROVEN LEADER IN BOND INSURANCE 60 50 40 30 20 10 0 $48.92 $49.32 $49.58 $47.17 $53.66 $15.49 $0.69 $37.48 $14.95 $0.80 $33.83 $19.12 $1.66 $28.54 $15.98 $1.14 $30.05 $21.08 $2.31 $25.53 ADJUSTED BOOK VALUE PER SHARE* Net unearned premium reserve on financial guaranty contracts in excess of net expected loss to be expensed less deferred acquistion costs, after tax Net present value of estimated net future credit derivative revenue, after tax Operating shareholders’ equity per share 583.333333 466.666667 350.000000 233.333333 116.666667 0.000000 $655 $601 $609 $535 $491 OPERATING INCOME* (Dollars in Millions) ’10 ’11 ’12 ’13 ’14 ’10 ’11 ’12 ’13 ’14 36.9The number of shares we repurchased from MILLION January 1, 2013 through December 31, 2014 *Non-GAAP financial measure. See note 2 on page 18. OBJECTIVE 3: ACCRETIVE REASSUMPTIONS AND ACQUISITIONS In addition to reassuming previously ceded business totaling $1.2 billion of par in 2014, we agreed to purchase Radian Asset from the Radian Group Inc. for $810 million, subject to certain closing adjustments. We expect to close the transaction in the first half of 2015, subject to regulatory approval. When the transaction is completed, Radian Asset will be merged into AGC, and its book of business will become part of AGC’s insured portfolio. As of December 31, 2014, Radian Asset’s statutory capital was approximately $1.3 billion, and its insured statutory net par outstanding was $18.0 billion. Since the beginning of 2015, its structured finance net par outstanding has declined by $3.8 billion as a result of the termination of seven AAA-rated pooled corporate transactions, bringing the portfolio to be acquired down to $14.2 billion. We expect the Radian Asset transaction to be accretive to earnings, operating shareholders’ equity and adjusted book value. It should also increase AGC’s capital base and policyholders’ surplus and therefore AGC’s dividend capabilities. The transaction will benefit not only our shareholders and policyholders but also holders of bonds insured by Radian Asset, which will gain enhanced valuation and increased market liquidity. OBJECTIVE 4: LOSS MITIGATION AND OTHER LOSS RECOVERY STRATEGIES We succeeded in our loss mitigation efforts during 2014, achieving a $30 million benefit in our total net economic loss development and a $2 billion, or 27%,  ASSURED GUARANTY / 7 $655 $601 $609 $535 $491 OPERATING INCOME* (Dollars in Millions) ADJUSTED BOOK VALUE PER SHARE* Net unearned premium reserve on financial guaranty contracts in excess of net expected loss to be expensed less deferred acquistion costs, after tax Size of Radian Asset insured portfolio we agreed to acquire (statutory net par amount as of December 31, 2014) 583.333333 $18.0 233.333333 350.000000 466.666667 BILLION 60 50 40 30 20 10 0 50 50 40 40 30 30 20 20 10 10 0 0 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 $48.92 $49.32 $49.58 $47.17 $53.66 $15.49 $0.69 $37.48 $14.95 $0.80 $33.83 $19.12 $1.66 $28.54 $15.98 $1.14 $30.05 $21.08 $2.31 $25.53 DIVIDENDS Per share ($) Total paid ($ millions) $.40 $.36 $69 $.16 $.14 $.12 $.12 $9 $9 $10 $11 $.18 $.18 $.18 $.18 $33 $33 $22 $16 2004* 2005 2006 2007 2008 2009 2010 2011 2012 2013 ’10 ’11 ’12 ’13 ’14 ’10 ’11 ’12 ’13 ’14 Net present value of estimated net future credit derivative 116.666667 revenue, after tax Operating shareholders’ equity per share 0.000000 $0.40 $75 $0.44 $76 $0.36 $69 DIVIDENDS $0.16 $0.14 $0.12 $0.12 $10 $11 $9 $9 $0.18 $0.18 $0.18 $0.18 $33 $33 $22 $16 Per Share (Dollars) Total Paid (Dollars in Millions) † ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 In February 2015, we increased our quarterly dividend by 9% to $0.12 per share ($0.48 annualized). †In 2004, dividends were paid following our April IPO. The amount shown is the quarterly dividend, annualized. losses and contributing to adjusted book value. We also terminated over $4 billion of net par outstanding, including the transactions terminated under agreements with R&W counterparties, thereby reducing rating agency capital charges and accelerating premium earnings. Another way we mitigate losses is by working with troubled credits to resolve their fiscal difficulties, preferably before a default occurs, and by asserting our rights in distressed situations when necessary. In 2014, the bankruptcies of Detroit and Stockton were resolved with outcomes considerably better for us than the original offers. In these and other cases, we have shown that by consolidating the interests of insured investors under our guarantor’s umbrella, and by pursuing a constructive approach to developing In February 2014, we increased our quarterly dividend by 10% to $0.11 per share. *In 2004, dividends were paid following our April IPO. The amount shown is the quarterly dividend, annualized. reduction in our below-investment-grade residential mortgage-backed securities (RMBS) exposure. These positive results were largely due to a number of agreements we reached during the year with providers of representations and warranties (R&W) on RMBS we insured, including one with Credit Suisse. Through these agreements, we caused R&W providers and other responsible parties to make or agree to make payments or to terminate certain insured transactions whose projected future losses we thereby avoided. An estimated $581 million of such payments and pro- jected future losses are associated with our 2014 R&W agreements. 40 50 Additionally, in 2014, we purchased $355 million of our wrapped bonds for $309 million, mitigating expected 30 20 10 0 0.5 0.4 0.3 0.2 0.1 0.0 8 / THE PROVEN LEADER IN BOND INSURANCE GROW OUR FINANCIAL GUARANTY FRANCHISE  ASSURED GUARANTY / 9 We pursue business growth with close attention to its long-term impact on risk exposure and profitability. During 2014, we increased PVP by 19% year-over-year, reassumed $1.2 billion par of previously ceded business and agreed to acquire Radian Asset, including its insured portfolio. 10 / THE PROVEN LEADER IN BOND INSURANCE $11,091 $11,011 $10,799 $10,566 $11,333 $11,091 $11,011 $10,799 $10,566 $11,333 AVAILABLE-FOR-SALE INVESTMENT PORTFOLIO AND CASH (Dollars in Millions) AVAILABLE-FOR-SALE INVESTMENT PORTFOLIO AND CASH (Dollars in Millions) $1.8 $4.2 5 4 R&W RECOVERIES (Dollars in Billions) 3 2 $4.2 R&W RECOVERIES (Dollars in Billions) $1.8 ’12 ’13 ’11 ’14 Lifetime Total GAAP basis investment portfolio and cash, excluding other invested assets. ’10 ’11 ’12 ’09 & Prior ’14 ’10 ’13 $0.4 $0.2 $0.7 $0.6 $0.5 12 6 0 13.0 6.5 0.0 400 300 200 100 0 5 4 3 2 1 0 ’10 ’11 ’12 ’13 ’14 GAAP basis investment portfolio and cash, excluding other invested assets. 12 6 0 13.0 6.5 400 200 100 0 50 25 0 $12,630 $12,839 47X $12,328 $12,147 $12,189 50 42X 40X 36X CONSOLIDATED CLAIMS-PAYING RESOURCES AND INSURED PORTFOLIO LEVERAGE (Dollars in Millions) 31X 25 $12,630 $12,839 $12,328 $12,147 $12,189 47X 42X 40X CONSOLIDATED CLAIMS-PAYING RESOURCES AND INSURED PORTFOLIO LEVERAGE (Dollars in Millions) 36X 31X 0.0 ’10 ’11 ’12 ’13 ’14 0 Consolidated claims-paying resources Ratio of statutory net par outstanding to total claims-paying resources ’10 ’11 ’12 ’13 ’14 Consolidated claims-paying resources Ratio of statutory net par outstanding to total claims-paying resources $396 $404 $393 $403 $361 NET INVESTMENT INCOME (Dollars in Millions) 300 $396 $404 $393 $403 $361 solutions, we are in a position to reach a more favorable settlement in a shorter time than could investors nego- NET INVESTMENT tiating independently. We have consistently defied early INCOME speculations of large losses, and we have defended (Dollars in Millions) fundamental principles of municipal bond security, as we did by requiring that the secured status of unlim- ited tax general obligations be stipulated in our Detroit ULTGO settlement. Represents amounts included in operating income. ’10 ’11 ’12 ’13 ’14 Represents amounts included in operating income. ’10 ’11 RECENT DEVELOPMENTS IN PUERTO RICO While we have successfully resolved a significant number of the troubled exposures in our public finance insured portfolio, the Puerto Rico credits remain an area of concern, for which we established additional reserves ’13 during 2014. ’14 ’12 In February 2015, the United States District Court for the District of Puerto Rico ruled that the legislation enacted by the Commonwealth to establish a restruc- turing procedure for certain public corporations is void because it is preempted by the federal Bankruptcy Code, which explicitly excludes Puerto Rico’s public corpora- tions and municipalities from chapter 9 bankruptcy protection. While the Commonwealth is appealing that decision, the U.S. Congress is considering legislation that would extend to Puerto Rico the right to allow its public corporations and municipalities to reorganize under chapter 9. Within our Puerto Rico exposures, the most vulnerable credit is the Puerto Rico Electric Power Authority (PREPA), which is developing its restructuring plan. Through a Estimated total, gross of reinsurance, of (i) settlement receipts and commitments; (ii) R&W putbacks; and (iii) future projected losses on terminated insurance protection. The putbacks flow through the transaction waterfalls and do not necessarily benefit Assured Guaranty dollar-for-dollar. 1 0 $0.4 $0.7 $0.6 $0.5 ’10 ’11 ’12 ’13 ’14 Lifetime Total $0.2 ’09 & Prior Estimated total, gross of reinsurance, of (i) settlement receipts and commitments; (ii) R&W putbacks; and (iii) future projected losses on terminated insurance protection. The putbacks flow through the transaction waterfalls and do not necessarily benefit Assured Guaranty dollar-for-dollar. 12 6 0 13.0 6.5 0.0 400 300 200 100 0 $11,091 $11,011 $10,799 $10,566 $11,333 AVAILABLE-FOR-SALE INVESTMENT PORTFOLIO AND CASH (Dollars in Millions) ’10 ’11 ’12 ’13 ’14 GAAP basis investment portfolio and cash, excluding other invested assets. $11,091 $11,011 5 4 3 2 1 0 $11,333 ASSURED GUARANTY / 11 $4.2 R&W RECOVERIES (Dollars in Billions) $1.8 $0.4 $0.7 $0.6 $0.5 ’10 ’11 ’12 ’13 ’14 Lifetime Total Estimated total, gross of reinsurance, of (i) settlement receipts and commitments; (ii) R&W putbacks; and (iii) future projected losses on terminated insurance protection. The putbacks flow through the transaction waterfalls and do not necessarily benefit Assured Guaranty dollar-for-dollar. $0.2 ’09 & Prior 5 4 $10,566 $10,799 $12,839 $12,630 $12,328 $12,147 $12,189 47X 42X 40X AVAILABLE-FOR-SALE INVESTMENT PORTFOLIO AND CASH (Dollars in Millions) 36X CONSOLIDATED CLAIMS-PAYING RESOURCES AND INSURED 3 PORTFOLIO LEVERAGE (Dollars in Millions) 31X 2 1 $1.8 ’10 ’11 ’12 ’13 ’14 ’10 ’11 ’12 ’13 ’14 GAAP basis investment portfolio and cash, excluding other invested assets. Consolidated claims-paying resources Ratio of statutory net par outstanding to total claims-paying resources 0 $396 $404 $393 $403 50 $361 NET INVESTMENT INCOME (Dollars in Millions) $12,630 $12,839 $12,328 $12,147 $12,189 47X 42X 40X 36X CONSOLIDATED CLAIMS-PAYING RESOURCES AND INSURED PORTFOLIO LEVERAGE 31X (Dollars in Millions) 25 0 Consolidated claims-paying resources Ratio of statutory net par outstanding to total claims-paying resources 12 50 6 25 0 0 13.0 6.5 0.0 $4.2 R&W RECOVERIES (Dollars in Billions) $0.4 $0.7 $0.6 $0.5 $0.2 ’09 & Prior ’10 ’11 ’12 ’13 ’14 Lifetime Total Estimated total, gross of reinsurance, of (i) settlement receipts and commitments; (ii) R&W putbacks; and (iii) future projected losses on terminated insurance protection. The putbacks flow through the transaction waterfalls and do not necessarily benefit Assured Guaranty dollar-for-dollar. Represents amounts included in operating income. ’10 ’11 ’12 ’13 ’14 ’10 ’11 ’12 ’13 ’14 400 forbearance agreement, we and other creditors have agreed to allow PREPA time to develop a plan to restore its financial stability. Simultaneously, we are exploring possible ways to work with the Puerto Rico Highway and Transportation Authority (PRHTA). 300 200 We have appropriately reserved for our Puerto Rico exposure. Our current ratings and outlooks from Standard and Poor’s Rating Services (S&P), Moody’s Investors Service (Moody’s) and Kroll Bond Rating Agency (KBRA) all reflect our ability to withstand Puerto Rico stress-loss scenarios of varying severity. 100 0 RATING AGENCY RECOGNITION As we have continued to meet our operating objectives and build financial strength, rating agencies have begun to take notice. S&P upgraded our operating subsidiaries’ Represents amounts included in operating income. $396 $404 $393 $403 $361 ratings to AA from AA- and confirmed their stable outlook in March 2014. Significantly, this was the first upgrade we have received since the start of the Great Recession. Additionally, in November, KBRA initiated its coverage of AGM with a rating of AA+ stable, giving both AGM and MAC the highest rating assigned to any active bond insurer by a nationally recognized statistical rating organization. NET INVESTMENT INCOME (Dollars in Millions) Moody’s continues to rate us at levels below our S&P and KBRA ratings, but its reasons have essentially nothing to do with our capital adequacy or financial strength. Moody’s recently moved the goalposts again when it revised its bond insurer rating criteria on ’10 January 20, 2015. While Moody’s subsequently published an article maintaining our existing ratings under the new methodology, the revised criteria are clearly designed ’14 ’13 ’12 ’11 12 / THE PROVEN LEADER IN BOND INSURANCE MANAGE CAPITAL EFFICIENTLY AND RESPONSIBLY CONDUCT RIGOROUS SURVEILLANCE AND REMEDIATION  ASSURED GUARANTY / 13 During 2014, we bought back 24 million shares, which helped raise operating shareholders’ equity per share to a record $37.48 and adjusted book value per share to $53.66, and we issued $500 million of 10-year, 5% senior notes. Our success in reaching RMBS settlements led to a $30 million net benefit in our total economic loss development. We also negotiated settlements that limited our losses in two municipal bankruptcies. 14 / THE PROVEN LEADER IN BOND INSURANCE CONSOLIDATED NET PAR OUTSTANDING (as of December 31, 2014) 80% U.S. Public Finance A average rating 10% U.S. Structured Finance AA- average rating 8% Non-U.S. Public Finance BBB+ average rating 2% Non-U.S. Structured Finance AA average rating $403.7 billion A average rating Ratings are based on our internal rating scale. 43%Growth in par amount sold of new U.S. municipal bonds insured by Assured Guaranty, 2014 vs. 2013 U.S. PUBLIC FINANCE NET PAR OUTSTANDING BY SECTOR (as of December 31, 2014) 44% General Obligation 19% Tax-Backed 16% Municipal Utilities 9% Transportation 5% Healthcare 4% Higher Education 3% Other Public Finance $322.1 billion A average rating to cap the potential rating of any bond insurer at a level below the AA category by relying, for example, on an unrealistic requirement of $2 billion for the industry’s aggregate annual present value premiums— a measure that says little, if anything, about an insur- er’s ability to meet its obligations or about its financial strength in general. PROVEN SUCCESS THROUGH A TUMULTUOUS DECADE At the end of our tenth full year since our initial public offering, we can look back with satisfaction on a decade that included some of the most difficult economic years in living memory. Through it all, Assured Guaranty has been profitable each year and one of the strongest financial companies, with a proven record of reducing issuers’ borrowing costs and keeping investors whole in distressed situations, while building value for our shareholders. In the ten-and-a-half years since our IPO, we more than doubled adjusted book value, insured $372 billion par of new business, earned $3.8 billion of operating income and built the industry’s leading franchise. The credit for these accomplishments is shared by all the dedicated individuals who have helped to build Assured Guaranty—our underwriters, risk management professionals, finance professionals, attorneys and administrative personnel, as well as our senior leadership and the highly engaged members of our board of directors. I want to give special thanks to Robert Mills, who served as our Chief Operating Officer through March 2015. His counsel and leadership were essential to the success of our IPO, the acquisition of AGM, our RMBS recovery program and so many other initiatives. U.S. PUBLIC FINANCE NET PAR OUTSTANDING BY RATING (as of December 31, 2014) 1% AAA 28% AA 55% A 14% BBB 2% BIG* $322.1 billion Ratings are based on our internal rating scale. *Below Investment Grade CONSOLIDATED NET PAR OUTSTANDING (as of December 31, 2014) 80% U.S. Public Finance A average rating 10% U.S. Structured Finance AA- average rating 8% Non-U.S. Public Finance BBB+ average rating 2% Non-U.S. Structured Finance AA average rating $403.7 billion A average rating ASSURED GUARANTY / 15 U.S. PUBLIC FINANCE NET PAR OUTSTANDING BY RATING (as of December 31, 2014) 1% AAA 28% AA 55% A 14% BBB 2% BIG* $322.1 billion Ratings are based on our internal rating scale. *Below Investment Grade $400MILLION Average daily trading volume of municipal bonds insured by Assured Guaranty CONSOLIDATED NET PAR OUTSTANDING (as of December 31, 2014) 80% U.S. Public Finance A average rating 10% U.S. Structured Finance AA- average rating 8% Non-U.S. Public Finance BBB+ average rating 2% Non-U.S. Structured Finance AA average rating $403.7 billion A average rating Ratings are based on our internal rating scale. U.S. PUBLIC FINANCE NET PAR OUTSTANDING BY SECTOR (as of December 31, 2014) 44% General Obligation 19% Tax-Backed 16% Municipal Utilities 9% Transportation 5% Healthcare 4% Higher Education 3% Other Public Finance $322.1 billion A average rating Ratings are based on our internal rating scale. U.S. PUBLIC FINANCE NET PAR OUTSTANDING BY SECTOR (as of December 31, 2014) 44% General Obligation 19% Tax-Backed 16% Municipal Utilities 9% Transportation 5% Healthcare 4% Higher Education 3% Other Public Finance $322.1 billion A average rating U.S. PUBLIC FINANCE NET PAR OUTSTANDING BY RATING (as of December 31, 2014) 1% AAA 28% AA 55% A 14% BBB 2% BIG* $322.1 billion Ratings are based on our internal rating scale. *Below Investment Grade READY FOR THE FUTURE I am confident about the years ahead because we continue to adhere to the core principles that have served us well. I do not know when interest rates will ultimately rise from their current near-record lows, but we are the best positioned guarantor to benefit from rising rates when they come. There is pent-up demand for capital to rebuild and expand governmental infrastructure. The asset-backed market continues to revive, and we see many applications of our guaranty for banks and insurance companies. With the challenges of many of our troubled exposures behind us, and with our legacy structured finance portfolio amortizing rapidly, we look forward in 2015 to building our financial guaranty franchise, further optimizing our capital structure and completing the Radian Asset acquisition, while continuing to manage risk intelligently. As we pursue the opportunities the market provides, we will continue, above all, to be responsible stewards of capital on behalf of our policyholders and shareholders. Dominic J. Frederico President and Chief Executive Officer March 2015 16 / THE PROVEN LEADER IN BOND INSURANCE ASSURED GUARANTY LTD. LEADERSHIP EXECUTIVE OFFICERS OF ASSURED GUARANTY LTD. ASSURED GUARANTY / 17 Robert A. Bailenson Chief Financial Officer James M. Michener General Counsel and Secretary Howard W. Albert Chief Risk Officer Russell B. Brewer II Chief Surveillance Officer Bruce E. Stern Executive Officer SENIOR MANAGEMENT Ling Chow Deputy General Counsel, Corporate Stephen Donnarumma Chief Credit Officer Ivana M. Grillo Managing Director, Human Resources Donald H. Paston Managing Director and Treasurer BUSINESS LEADERS Gary F. Burnet President, Assured Guaranty Re Ltd. William J. Hogan Senior Managing Director, Public Finance Paul R. Livingstone Senior Managing Director, Structured Finance William B. O’Keefe Senior Managing Director, Public Finance Nicholas J. Proud Senior Managing Director, International Robert S. Tucker Managing Director, Investor Relations and Corporate Communications 18 / THE PROVEN LEADER IN BOND INSURANCE FINANCIAL HIGHLIGHTS (Dollars in millions, except per share amounts) Year ended December 31, SUMMARY OF OPERATIONS Revenues: Net earned premiums Net investment income Net realized investment gains (losses) Realized gains and other settlements on credit derivatives Net unrealized gains (losses) on credit derivatives Fair value gains (losses) on committed capital securities Fair value gains (losses) on financial guaranty variable interest entities Other income (loss) Total revenues in net income Expenses: Loss and loss adjustment expenses Interest expense Other expenses 1 Total expenses in net income Income before income taxes Provision (benefit) for income taxes Net income Less after-tax items not included in operating income: Realized gains (losses) on investments Non-credit impairment unrealized fair value gains (losses) on credit derivatives Fair value gains (losses) on committed capital securities Foreign exchange gains (losses) on remeasurement of premiums receivable and loss and loss adjustment expense reserves Effect of consolidating financial guaranty variable interest entities Operating income 2 Net income per diluted share Operating income per diluted share 2 YEAR-END DATA Shareholders’ equity Shareholders’ equity per share Operating shareholders’ equity 2 Operating shareholders’ equity per share 2 Adjusted book value 2 Adjusted book value per share 2 NEW BUSINESS AND FINANCIAL GUARANTY INSURED PORTFOLIO Present value of new business production (PVP) 2014 2013 2012 2011 2010 $ $ $ 570 403 (60) 23 800 (11) 255 14 752 393 52 (42) 107 10 346 (10) 1,994 1,608 126 92 245 463 1,531 443 1,088 (34) 500 (7) (15) 153 491 6.26 2.83 154 82 230 466 1,142 334 808 40 (40) 7 (1) 193 609 4.30 3.25 $ $ $ $ $ $ 853 404 1 (108) (477) (18) 191 108 954 504 92 226 822 132 22 110 (4) (486) (12) 15 62 535 0.57 2.81 $ 920 396 (18) 6 554 35 (146) 58 $ 1,187 361 (2) 153 (155) 9 (274) 34 1,805 1,313 448 99 229 776 1,029 256 773 (20) 244 23 (3) (72) 601 4.16 3.24 $ $ 412 100 267 779 534 50 484 1 13 6 (25) (166) 655 2.56 3.46 $ $ $ 5,758 36.37 $ 5,933 37.48 $ 8,495 53.66 $ 5,115 28.07 $ 6,164 33.83 $ 9,033 49.58 $ 4,994 25.74 $ 5,830 30.05 $ 9,151 47.17 $ 4,652 25.52 $ 5,201 28.54 $ 8,987 49.32 $ 3,670 19.97 $ 4,691 25.53 $ 8,989 48.92 $ 168 $ 141 $ 210 $ 243 $ 363 Net debt service outstanding (end of period) 3 $609,622 $690,535 $780,356 $844,447 $926,698 Net par outstanding (end of period) 3 Public finance Structured finance Total net par outstanding CLAIMS-PAYING RESOURCES Policyholders’ surplus Contingency reserve Qualified statutory capital Claims-paying resources 4 $353,482 50,247 $386,179 72,928 $425,469 93,303 $442,119 114,711 $467,739 148,947 $403,729 $459,107 $518,772 $556,830 $616,686 $ 4,142 2,330 $ 3,202 2,934 $ 3,579 2,364 $ 3,116 2,571 $ 2,627 2,288 $ 6,472 $ 6,136 $ 5,943 $ 5,687 $ 4,915 $ 12,189 $ 12,147 $ 12,328 $ 12,839 $ 12,630 1 Includes operating expenses, amortization of deferred acquisition costs and, for 2010 only, expenses related to the acquisition of Assured Guaranty Municipal Holdings Inc. 2 Operating income, operating income per diluted share, operating shareholders’ equity, operating shareholders’ equity per share, adjusted book value, adjusted book value per share and present value of new business production (PVP) are financial measures that are not in accordance with GAAP, and we refer to them as non-GAAP financial measures. Please see Assured Guaranty’s annual report on Form 10-K, around which this Annual Report is wrapped, for a definition of these non-GAAP financial measures and a reconciliation of these non-GAAP financial measures to the most comparable financial information prepared in accordance with GAAP. 3 Net debt service and net par outstanding amounts are on a GAAP basis and exclude amounts related to securities the Company has purchased for loss mitigation purposes, which securities the Company refers to as “loss mitigation bonds.” See AGL’s Form 10-K Note 3, Outstanding Exposure, of the Financial Statements and Supplementary Data for additional information. 4 Includes $450 million excess-of-loss reinsurance facility for the benefit of AGM, AGC and MAC, which became effective on January 1, 2014; 2013 and 2012 include $435 million excess-of-loss reinsurance facility for the benefit of AGM and AGC, which became effective January 1, 2012 and replaced a $298 million non-recourse credit facility terminated by AGM on December 23, 2011. CORPORATE & SHAREHOLDER INFORMATION Corporate Headquarters Assured Guaranty Ltd. 30 Woodbourne Avenue Hamilton HM 08 Bermuda Phone: 1 441 279 5700 Other Locations Bermuda Assured Guaranty Re Ltd. 30 Woodbourne Avenue Hamilton HM 08 Phone: 1 441 279 5700 United States Assured Guaranty Municipal Corp. Municipal Assurance Corp. Assured Guaranty Corp. 31 West 52nd Street New York, NY 10019 Phone: 1 212 974 0100 One Market, 1550 Spear Tower San Francisco, CA 94105 Phone: 1 415 995 8000 United Kingdom Assured Guaranty (Europe) Ltd. 1 Finsbury Square London, EC2A 1AE Phone: 44 0 20 7562 1900 Stock Exchange Listing Assured Guaranty Ltd. is listed on the New York Stock Exchange under the symbol AGO. Board of Directors of Assured Guaranty Ltd. Robin Monro-Davies Chairman of the Board and of the Executive Committee Dominic J. Frederico President and Chief Executive Officer and member of the Executive Committee Francisco L. Borges Chairman of the Compensation Committee; member of the Nominating and Governance, Risk Oversight and Executive Committees G. Lawrence Buhl Chairman of the Risk Oversight Committee and member of the Compensation Committee Stephen A. Cozen Chairman of the Nominating and Governance Committee and member of the Compensation Committee Bonnie L. Howard Member of the Audit and Finance Committees Patrick W. Kenny Chairman of the Audit Committee; member of the Nominating and Governance and Executive Committees Simon W. Leathes Member of the Audit, Finance and Executive Committees Michael T. O’Kane Chairman of the Finance Committee and member of the Audit Committee Yukiko Omura Member of the Finance and Risk Oversight Committees Investor Inquiries Our annual report on Form 10-K, quarterly reports on Form 10-Q, proxy statement, quarterly earnings releases and other investor informa- tion may be obtained at no cost by contacting our Investor Rela tions Department. Links to our SEC filings, press releases and product descrip- tions and other information may be found on our website at AssuredGuaranty.com. Our Code of Conduct, Corporate Governance Guidelines and Categorical Standards of Director Independence, Board Committee Charters and other information relating to corporate governance are also available on our website at AssuredGuaranty.com/governance. Our Investor Relations Department can be contacted at: Assured Guaranty Ltd. Investor Relations Department 30 Woodbourne Avenue Hamilton HM 08 Bermuda Phone: 1 441 279 5705 E-mail: info@assuredguaranty.com Independent Auditors PricewaterhouseCoopers LLP 300 Madison Avenue New York, NY 10017 Transfer Agent of Shareholder Records Shareholder correspondence should be mailed to: Computershare P.O. Box 30170 College Station, TX 77842-3170 Overnight correspondence should be sent to: Computershare 211 Quality Circle, Suite 210 College Station, TX 77845 Shareholder website www.computershare.com/investor Shareholder online inquiries https://www-us.computershare.com/ investor/contact In the U.S. Phone: 1 866 214 2267 Outside the U.S. Phone: 1 201 680 6578 For hearing impaired in the U.S. Phone: 1 800 231 5469 For hearing impaired outside the U.S. Phone: 1 201 680 6610 m o c . s r o n n o c - n a r r u c . w w w / . c n I , s r o n n o C & n a r r u C y b n g i s e D t r o p e R l a u n n A 30 Woodbourne Avenue, Hamilton HM 08, Bermuda | 1 441 279 5700 | AssuredGuaranty.com 

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