Analyst Summary
- Total assets decreased from $11.019 billion to $10.128 billion, and shareholder equity decreased from $5.795 billion to $5.376 billion.
- Net income decreased slightly from $424 million to $403 million.
- Net earned premiums increased from $264 million to $306 million, indicating growth in the core insurance business.
- Net investment income decreased from $312 million to $282 million, potentially due to changes in investment strategy or market conditions.
- Operating Profit Margin increased from 56.57% to 64.07%, a 13.26% increase.
- Net Profit Margin increased from 53.07% to 60.33%, a 13.68% increase.
- Total Net Par Outstanding increased from $191.269 billion in 2023 to $201.607 billion in 2024, a 5.41% increase.
- The Net Expected Loss to be Paid (Recovered) decreased significantly from $293 million in 2023 to $17 million in 2024.
Opportunities and Risks
- Opportunity: Growth in net earned premiums indicates a positive trend in the core insurance business.
- Risk: Decrease in total assets and shareholder equity suggests a contraction in the company’s overall size and warrants further investigation.
- Risk: Decrease in net investment income could be attributed to changes in investment strategy or market conditions.
- Risk: Ongoing exposure to Puerto Rico Electric Power Authority (PREPA) and related litigation could significantly impact future financial performance.
- Risk: The NYDFS does not support the Proposed Transaction of the FGIC Novation Agreement.
Potential Implications
Company Performance
- Continued profitability is expected, but portfolio adjustments, regulatory matters, and below-investment-grade exposures pose challenges.
- The company’s ability to manage BIG exposures and mitigate potential losses will be critical.
- The outcome of the PREPA litigation and restructuring negotiations could significantly impact future financial performance.
- The shift in investment strategy and its impact on future investment income needs to be clarified.
Stock Price
- The decrease in total assets and shareholder equity could negatively impact investor sentiment.
- Positive trends in net earned premiums and profitability could support the stock price.
- Uncertainty surrounding BIG exposures and Puerto Rico-related risks could create volatility in the stock price.
- The company’s capital allocation decisions, including common stock redemptions, could influence investor perceptions.
SEC Filing Report: Assured Guaranty Ltd. 8-K
Executive Summary
This report analyzes Assured Guaranty Ltd.’s (AGO) 8-K filing, focusing on the financial statements of its subsidiary, Assured Guaranty Inc. as of December 31, 2024. The filing indicates a decrease in total assets and shareholder equity, alongside shifts in investment strategies and portfolio composition. While net income remains strong, changes in key financial metrics and the presence of below-investment-grade exposures warrant careful monitoring. Overall, a neutral outlook is suggested, pending further clarification on the long-term implications of the portfolio adjustments and regulatory matters.
Company Overview
Assured Guaranty Ltd. (AGO) is a Bermuda-based holding company providing credit protection products, primarily financial guaranty insurance, to the U.S. and non-U.S. public finance and structured finance markets. This 8-K filing provides an update on the financial condition of its subsidiary, Assured Guaranty Inc.
Detailed Analysis
Financial Statement Analysis
The following table summarizes key financial data extracted from the filing (in millions):
| Item |
Dec 31, 2024 |
Dec 31, 2023 |
Change |
| Total Assets |
$10,128 |
$11,019 |
-$891 |
| Total Liabilities |
$4,752 |
$5,224 |
-$472 |
| Total Shareholder’s Equity |
$5,376 |
$5,795 |
-$419 |
| Net Earned Premiums |
$306 |
$264 |
+$42 |
| Net Investment Income |
$282 |
$312 |
-$30 |
| Net Income |
$403 |
$424 |
-$21 |
Key Ratios and Trends:
- Asset Reduction: The decrease in total assets suggests a contraction in the company’s overall size, potentially due to strategic asset sales or run-off of existing exposures.
- Liability Management: The reduction in total liabilities, while positive, needs to be assessed in conjunction with the nature of the liabilities reduced (e.g., run-off of insured obligations vs. debt repayment).
- Equity Decline: The decrease in shareholder equity is concerning and warrants further investigation. The statement of shareholder equity shows significant common stock redemptions.
- Premium Growth: The increase in net earned premiums indicates a positive trend in the core insurance business.
- Investment Income Dip: The decrease in net investment income could be attributed to changes in investment strategy, market conditions, or a combination of both.
- Profitability: Despite the decrease, net income remains strong, indicating continued profitability.
Balance Sheet Observations:
- Shift in Investments: A notable decrease in short-term investments is observed, potentially indicating a shift towards longer-term, higher-yielding assets or a return of capital to shareholders.
- VIE Assets and Liabilities: Significant decreases in Financial Guaranty Variable Interest Entities’ (FG VIEs) assets and liabilities suggest a reduction in exposure related to these entities, possibly through settlements or run-off.
Income Statement Observations:
- Fair Value Fluctuations: Fair value gains and losses on various instruments (credit derivatives, VIEs, trading securities) contribute significantly to revenue volatility.
- Loss and Loss Adjustment Expenses: A benefit from loss and loss adjustment expenses in 2024 compared to expenses in 2023 and 2022 suggests improved claims experience or adjustments to loss reserves.
Management’s Narrative (MD&A) Insights
The 8-K references materials available on the company’s website, including the Assured Guaranty Inc. December 31, 2024 Financial Supplement and the Fixed Income Investor Presentation. These resources likely provide further context on management’s perspective, strategy, and outlook.
Red Flags and Uncommon Metrics
- Below Investment Grade (BIG) Exposures: The filing mentions the company’s strategy of underwriting new issuances that it views to be below-investment grade (BIG), typically as part of its loss mitigation strategy for existing troubled exposures. The company also acquires portfolios of insurance from financial guarantors that are no longer writing new business. The level of BIG exposures should be monitored closely.
- Puerto Rico Exposure: The filing highlights ongoing exposure to Puerto Rico Electric Power Authority (PREPA) and related litigation. The outcome of these proceedings could significantly impact future financial performance.
- FGIC Novation Agreement: The potential novation of certain FGIC policies to the Company is subject to regulatory approval and court approval. The NYDFS does not support the Proposed Transaction.
Conclusion and Actionable Insights
Assured Guaranty Inc. demonstrates continued profitability, but faces challenges related to portfolio adjustments, regulatory matters, and below-investment-grade exposures. The decrease in total assets and shareholder equity, coupled with the volatility in fair value measurements, warrants careful monitoring.
Recommendations:
- Monitor BIG Exposures: Closely track the performance of BIG exposures and the effectiveness of loss mitigation strategies.
- Assess Puerto Rico Risk: Evaluate the potential financial impact of the PREPA litigation and restructuring negotiations.
- Clarify Investment Strategy: Seek further information on the rationale behind the shift in investment strategy and its expected impact on future investment income.
- Evaluate Capital Allocation: Analyze the implications of common stock redemptions on the company’s capital structure and future growth prospects.
Financial Analysis of Assured Guaranty Inc.
1. Commentary
Assured Guaranty Inc.’s financial performance in 2024 shows a mixed picture. Net income attributable to Assured Guaranty Inc. decreased slightly from $424 million in 2023 to $402 million in 2024. Total assets decreased from $11.019 billion to $10.128 billion. The company experienced a decrease in total revenues, driven by lower net investment income and fair value losses, but this was partially offset by a decrease in total expenses. The merger of AGM on August 1, 2024, significantly impacted the shareholder’s equity, increasing it by $3.950 million.
2. Financial Ratio and Metric Analysis
Profitability
Gross Profit Margin
Metric: Not directly applicable as a service-oriented company.
Operating Profit Margin
Metric: Calculated as (Total Revenues – Total Expenses) / Total Revenues.
2024: (668 – 240) / 668 = 64.07%
2023: (799 – 347) / 799 = 56.57%
Trend: Increased from 56.57% to 64.07%, a 13.26% increase.
Industry: The operating margin for financial guaranty companies can vary significantly based on claims experience and investment performance. A margin of 64.07% suggests efficient operations and strong underwriting performance compared to the industry average.
Net Profit Margin
Metric: Net Income / Total Revenues.
2024: 403 / 668 = 60.33%
2023: 424 / 799 = 53.07%
Trend: Increased from 53.07% to 60.33%, a 13.68% increase.
Industry: A net profit margin of 60.33% is very strong, indicating effective cost management and profitable operations compared to the industry average.
Return on Assets (ROA)
Metric: Net Income / Total Assets.
2024: 403 / 10,128 = 3.98%
2023: 424 / 11,019 = 3.85%
Trend: Increased from 3.85% to 3.98%, a 3.38% increase.
Industry: An ROA of 3.98% is reasonable for a financial guaranty company, reflecting efficient use of assets to generate earnings compared to the industry average.
Return on Equity (ROE)
Metric: Net Income / Total Shareholder’s Equity.
2024: 403 / 5,376 = 7.50%
2023: 424 / 5,795 = 7.32%
Trend: Increased from 7.32% to 7.50%, a 2.46% increase.
Industry: An ROE of 7.50% indicates a reasonable return to shareholders, reflecting the company’s profitability relative to its equity base compared to the industry average.
Earnings Per Share (EPS) – Basic and Diluted
Metric: Net Income Attributable to Assured Guaranty Inc. / Weighted Average Shares Outstanding.
To calculate EPS, we need the weighted average shares outstanding. The provided data only gives common shares outstanding as of December 31, 2024 (5,810) and December 31, 2023 (9,924). Without weighted average shares outstanding, a precise EPS cannot be calculated.
Approximate Basic EPS (using year-end shares):
2024: 402 / 5,810 = $0.0692 (or $69.2 per 1000 shares)
2023: 424 / 9,924 = $0.0427 (or $42.7 per 1000 shares)
Trend: Increased from $0.0427 to $0.0692, a 62.06% increase.
Industry: EPS varies widely in the financial guaranty industry. A comparison to peers would be necessary to assess relative performance.
Liquidity
Note: Liquidity ratios are less critical for financial guaranty companies than for operating companies.
Current Ratio
Metric: Current Assets / Current Liabilities. We need to estimate current portions.
Based on the balance sheet, we can approximate current assets as Cash + Short-term Investments + Premiums Receivable = 69 + 717 + 1520 = 2306
Approximate current liabilities as Unearned Premium Reserve + Loss and Loss Adjustment Expense Reserve + Reinsurance Balances Payable = 3679 + 225 + 349 = 4253
2024: 2306 / 4253 = 0.54
Based on the balance sheet, we can approximate current assets as Cash + Short-term Investments + Premiums Receivable = 42 + 1249 + 1449 = 2740
Approximate current liabilities as Unearned Premium Reserve + Loss and Loss Adjustment Expense Reserve + Reinsurance Balances Payable = 3621 + 317 + 324 = 4262
2023: 2740 / 4262 = 0.64
Trend: Decreased from 0.64 to 0.54, a -15.63% decrease.
Industry: A current ratio below 1 is typical for financial institutions. The trend should be monitored, but it is not necessarily a cause for concern.
Quick Ratio (Acid-Test Ratio)
Metric: (Current Assets – Inventory) / Current Liabilities. Since inventory is not applicable, it’s essentially the same as the Current Ratio.
2024: 0.54
2023: 0.64
Trend: Decreased from 0.64 to 0.54, a -15.63% decrease.
Industry: Similar to the current ratio, this is less critical for financial guaranty companies.
Cash Ratio
Metric: Cash / Current Liabilities.
2024: 69 / 4253 = 0.016
2023: 42 / 4262 = 0.0099
Trend: Increased from 0.0099 to 0.016, a 61.62% increase.
Industry: A very low cash ratio is typical. Financial guaranty companies rely on their investment portfolio and access to capital markets for liquidity.
Solvency/Leverage
Debt-to-Equity Ratio
Metric: Total Liabilities / Total Shareholder’s Equity.
2024: 4,752 / 5,376 = 0.88
2023: 5,224 / 5,795 = 0.90
Trend: Decreased from 0.90 to 0.88, a -2.22% decrease.
Industry: A debt-to-equity ratio of 0.88 indicates a moderate level of leverage, which is typical for the industry. The decrease suggests a slightly stronger equity position.
Debt-to-Assets Ratio
Metric: Total Liabilities / Total Assets.
2024: 4,752 / 10,128 = 0.47
2023: 5,224 / 11,019 = 0.47
Trend: No change.
Industry: A debt-to-assets ratio of 0.47 indicates that a significant portion of the company’s assets are funded by equity, reflecting a stable financial structure.
Interest Coverage Ratio (Times Interest Earned)
Metric: Earnings Before Interest and Taxes (EBIT) / Interest Expense.
The data does not explicitly provide interest expense. We can approximate EBIT by adding back the provision for income taxes to the Income (loss) before income taxes: 490 + 87 = 577
Without interest expense, the ratio cannot be accurately calculated.
Activity/Efficiency
Note: These ratios are less relevant for a financial guaranty company.
Inventory Turnover
Metric: Not applicable as the company does not hold significant inventory.
Days Sales Outstanding (DSO)
Metric: (Accounts Receivable / Revenue) * 365.
Using Premiums Receivable as a proxy for Accounts Receivable and Net Earned Premiums as Revenue:
2024: (1,520 / 306) * 365 = 1810 days
2023: (1,449 / 264) * 365 = 2005 days
Trend: Decreased from 2005 days to 1810 days, a -9.73% decrease.
Industry: A very high DSO is typical for the industry, reflecting the long-term nature of premium collection. The decrease suggests improved collection efficiency.
Days Payable Outstanding (DPO)
Metric: (Accounts Payable / Cost of Revenue) * 365. Cost of Revenue is not directly available, so we will use Total Expenses as a proxy.
Using Reinsurance Balances Payable as a proxy for Accounts Payable:
2024: (349 / 240) * 365 = 530 days
2023: (324 / 347) * 365 = 341 days
Trend: Increased from 341 days to 530 days, a 55.42% increase.
Industry: A high DPO is typical. The increase suggests a change in payment practices.
Asset Turnover
Metric: Total Revenues / Total Assets.
2024: 668 / 10,128 = 0.066
2023: 799 / 11,019 = 0.073
Trend: Decreased from 0.073 to 0.066, a -9.59% decrease.
Industry: A low asset turnover is typical for financial institutions. The decrease suggests a less efficient use of assets to generate revenue.
Valuation
Note: Valuation ratios should be interpreted with caution, as they are highly dependent on market conditions and investor sentiment.
Stock price at the time of reporting (AGO – 2025-03-14 – $86.28)
Price-to-Earnings Ratio (P/E)
Metric: Stock Price / Earnings Per Share (EPS).
Using the approximate EPS calculated earlier:
2024: 86.28 / 0.0692 = 1246.82
2023: 86.28 / 0.0427 = 2019.44
Trend: Decreased from 2019.44 to 1246.82, a -38.26% decrease.
Industry: A very high P/E ratio suggests that the stock may be overvalued, or that investors have high expectations for future earnings growth. However, given the approximate nature of the EPS calculation, this should be viewed with caution.
Price-to-Book Ratio (P/B)
Metric: Market Capitalization / Total Shareholder’s Equity.
Market Capitalization = Shares Outstanding * Stock Price = 5,810,000 * 86.28 = $501,346,800 (or $501.35 million)
2024: 501.35 / 5,376 = 0.093
Trend: To determine the trend, we would need the P/B from the previous comparable period, which is not provided in the filing.
Industry: A low P/B ratio suggests that the stock may be undervalued relative to its book value.
Price-to-Sales Ratio (P/S)
Metric: Market Capitalization / Total Revenues.
2024: 501.35 / 668 = 0.75
Trend: To determine the trend, we would need the P/S from the previous comparable period, which is not provided in the filing.
Industry: A P/S ratio of 0.75 is relatively low, suggesting that the company’s revenue is not fully valued by the market.
Enterprise Value to EBITDA (EV/EBITDA)
Metric: (Market Cap + Total Debt – Cash) / EBITDA.
Market Cap = $501.35 million
Total Debt = Not explicitly provided. We can approximate it using total liabilities less equity: 4752 – 5376 = -624. Since debt cannot be negative, we will assume that the debt is zero.
Cash = $69 million
EBITDA = Net Income + Interest + Taxes + Depreciation and Amortization. We can approximate this by adding back depreciation to the Income (loss) before income taxes: 490 + Depreciation. Depreciation is not explicitly provided, so we cannot calculate this ratio.
Growth Rates
Revenue Growth
Metric: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue.
2024: (668 – 799) / 799 = -0.164 or -16.4%
Trend: Revenue decreased by 16.4%.
Net Income Growth
Metric: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income.
2024: (403 – 424) / 424 = -0.0495 or -4.95%
Trend: Net income decreased by 4.95%.
EPS Growth
Metric: (Current Year EPS – Previous Year EPS) / Previous Year EPS.
Using the approximate EPS calculated earlier:
2024: (0.0692 – 0.0427) / 0.0427 = 0.6206 or 62.06%
Trend: EPS increased by 62.06%.
Other Relevant Metrics
Net Par Outstanding
The company provides detailed information on Net Par Outstanding, segmented by Public Finance and Structured Finance, and further broken down by rating category and geography.
Significance: Net Par Outstanding represents the total amount of insured debt outstanding. It is a key indicator of the company’s exposure and potential future claims.
Trend: Total Net Par Outstanding increased from $191.269 billion in 2023 to $201.607 billion in 2024, a 5.41% increase. This indicates growth in the company’s insurance portfolio.
The company also provides information on BIG (Bonds in Guaranty) Net Par Outstanding, representing bonds with the highest risk. This is a critical metric to monitor for potential losses.
Expected Loss to be Paid (Recovered)
The company provides detailed information on the expected loss to be paid (recovered), segmented by accounting model (Insurance, FG VIEs, Credit Derivatives).
Significance: This represents the company’s estimate of future claims payments, discounted to present value.
Trend: The Net Expected Loss to be Paid (Recovered) decreased significantly from $293 million in 2023 to $17 million in 2024. This is a positive development, suggesting a reduction in expected future claims.
Premiums Receivable, Net of Commissions Payable
Significance: This represents the amount of premiums due to the company.
Trend: Premiums receivable increased from $1,449 million in 2023 to $1,520 million in 2024, a 4.90% increase.
Deferred Premium Revenue
Significance: This represents premiums received but not yet earned.
Trend: Deferred premium revenue increased from $1,750 million in 2023 to $1,872 million in 2024, a 6.97% increase.
⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️