Assured Guaranty Ltd. Reports Full Year 2008 Net Income of $68.9 Million

Business Wire, Feb 25, 2009

Full Year 2008 Operating Income of $74.5 million ($0.84 per diluted share)

Book Value Per Share Increases 2% to $21.18

HAMILTON, Bermuda -- Assured Guaranty Ltd. (NYSE:AGO) ("Assured" or "the Company") today reported financial results for the fiscal year ended December 31, 2008. Assured reported 2008 net income of $68.9 million ($0.77 per diluted share), an increase of $372.2 million over the net loss of $303.3 million ($4.46 per diluted share) that Assured reported for 2007. The improvement in 2008 was principally due to the change in unrealized gains and losses on credit derivatives. Assured had after-tax unrealized gains on credit derivatives of $57.1 million ($0.64 per diluted share) in 2008 as compared to after-tax unrealized losses on credit derivatives of $480.0 million ($7.06 per diluted share) in 2007.

Operating income, a financial measure that is not in accordance with U.S. Generally Accepted Accounting Principles ("non-GAAP financial measure"), was $74.5 million ($0.84 per diluted share) in 2008, a decrease of 58% from $178.0 million ($2.57 per diluted share) in 2007. See the "Explanation of Non-GAAP Financial Measures" section of this press release for a definition of operating income and other non-GAAP financial measures referenced in this press release. Operating income in 2008 benefited from a $102.1 million increase in net earned premiums and a $34.5 million increase in net investment income compared to 2007 as a result of the growth of Assured's financial guaranty business in 2008. However, the increase in net earned premiums and net investment income was more than offset by a $260.0 million increase in loss and loss adjustment expenses ($201.7 million after-tax or $2.23 per diluted share) and a $40.1 million increase in incurred losses on credit derivatives ($30.9 million after tax or $0.34 per diluted share) compared to 2007. In both periods, the majority of the loss and loss adjustment expenses and incurred losses on credit derivatives were largely associated, either directly or indirectly, with the credit deterioration of U.S. residential mortgage-backed securities ("RMBS").

"Assured's long-standing focus on disciplined underwriting and proactive risk management helped protect our Company from the catastrophic losses experienced by so many other leading financial institutions this year," commented Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Ltd. "We are one of the few financial institutions to report net income and operating income for the year and we also had an increase in our book value per share, despite losses on U.S. RMBS. During the quarter, the performance of our RMBS exposures deteriorated at a faster pace than we expected, which resulted in the additional loss reserves we incurred in the quarter. We continue to aggressively pursue all of our rights and remedies under the terms of our contracts in order to minimize the ultimate net losses that we will pay on mortgage-related exposures."

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Shareholders' Equity and Book Value Per Share:

Assured also announced today that its shareholders' equity at December 31, 2008 was $1,926.2 million, an increase of 16% from $1,666.6 million at December 31, 2007. This increase was largely due to $250.0 million of net proceeds from Assured's April 2008 equity offering to WLR Recovery Fund IV, L.P. and affiliated funds, but also benefited from a $52.8 million increase in retained earnings related to the Company's 2008 net income less shareholders' dividends. The Company's book value per share, which includes the effect of the April share issuance, was $21.18 at December 31, 2008, up 2% compared to $20.85 at December 31, 2007.

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The Company's December 31, 2008 shareholders' equity was also affected by several mark-to-market related gains and losses compared to December 31, 2007, including: a $53.7 million reduction in accumulated other comprehensive income due to unrealized capital losses on the Company's investment assets attributable to market value changes; a $29.7 million reduction in after-tax mark-to-market unrealized losses on credit derivatives; and a $27.8 million increase in after-tax fair value gain on Assured Guaranty Corp.'s committed capital securities. The Company recorded a $57.1 million unrealized gain on credit derivatives in 2008 versus a $480.0 million loss for full year 2007, as a result of an increase in the fair value of financial guaranty contracts written in credit default swap form by the Company's financial guaranty direct and reinsurance segments during 2008. The fair value reflects the change in the Company's own credit cost based on the price to purchase credit protection on Assured Guaranty Corp., the Company's financial guaranty direct subsidiary, which widened during 2008, but was partially offset by the market value decline on credit derivatives. The Company's credit derivatives are generally held to maturity and management expects that the unrealized gain or loss on a credit derivative will reduce to zero as the exposure approaches its maturity date, unless there is a payment default on the exposure.