Assured Guaranty

We see a durable moat built primarily on efficient scale, ratings-driven brand trust, and underwriting know-how. Efficient scale: the U.S. municipal insurance market is served mainly by two players (Assured and BAM).

Assured insured about 58% of U.S. primary insured par in 2025 and remained the market leader in 1H 2026, reflecting entrenched distribution, issuer relationships, and large-case execution expertise.

Intangible assets: AA insurer financial strength ratings across core subsidiaries with stable outlook, and S&P highlighted capital adequacy above its AAA stress level, which confers credibility with issuers and investors and supports deal flow at attractive terms.

Switching costs: while issuers can select insurers at origination, the end-investor preference for wrapped bonds from a highly rated guarantor plus the policy’s life-of-bond permanence create meaningful stickiness and repeat business, though this is weaker than software-like switching costs.

Cost advantages: scale, data, and workout expertise help Assured price idiosyncratic risks and manage legacy exposures (for example, Puerto Rico) better than smaller peers. Network effects: limited. Ratings and reputation matter more than user counts.

Moat durability risks include: lower insurance penetration if spreads compress, potential competitive responses from BAM, rating-model changes, and legal outcomes around PREPA that could affect perceived risk. Overall, multiple moat vectors exist, led by efficient scale and ratings brand.

Pricing is cyclical and linked to credit spreads and investor risk appetite. When spreads widen or complexity rises, Assured can command higher premiums and PVP, as evidenced by 2Q 2026 PVP of $79 million with insured par of $8.4 billion and strong first-half production.

The franchise’s AA ratings and scarce capacity help maintain rational pricing and underwriting discipline. However, in benign markets, competition and narrow spreads can cap rate increases, and premiums may require concessions to sustain volumes. Net, pricing power is moderate and situational rather than absolute.

Policy cash flows and investment income are relatively steady, but GAAP earnings swing with marks on derivatives, alternatives, FX and consolidated VIEs. We therefore rely on adjusted operating results and in-force value.

Adjusted operating EPS was $3.74 in 1H 2026 versus $4.21 in 1H 2025; full-year 2025 adjusted operating EPS was $9.08, implying TTM adjusted operating EPS near 8.6 by adding 2H 2025 (~4.87) to 1H 2026 (3.74).

ABV per share reached $189.72 at June 30, 2026, reflecting the present value of expected future revenue streams and deferred premiums, which provides an intrinsic value anchor.

Demand in the muni market is reasonably resilient and defaults are structurally rare relative to corporates over long horizons, supporting long-term predictability of losses and underwriting margins.

Key uncertainties include insurance penetration shifting with rates/spreads, and idiosyncratic credits (for example, PREPA) causing loss and timing variability.

Capital quality is a core strength. As of June 30, 2026, claims-paying resources were about $9.98 billion and net debt service outstanding coverage ratios remain robust. S&P affirmed AA financial strength ratings in July 2026 with stable outlook and cited capital adequacy redundancy above AAA stress levels, along with exceptional liquidity.

Adjusted book value per share was $189.72 and shareholders’ equity per share was $126.18 at quarter-end, both at or near records, reinforcing the balance sheet. Investment portfolio quality is high-grade with diversified exposures, although the company also holds alternative investments and some CLO tranches, which add volatility.

Legal tail risk centers on PREPA, though net outstanding par has been reduced and multiple legal developments offer some clarity; we still treat it as a monitored risk.

We view capital allocation as a competitive advantage.

In 2024, Assured returned about $570 million to shareholders, including $502 million of repurchases; in 1H 2026, it repurchased $120 million and paid $17 million in dividends, further reducing the share count to 44.1 million as of June 30, 2026. Per-share value creation is evident in record ABV and adjusted operating equity per share.

Assured also recycles capital into new business at rational returns, evidenced by healthy PVP conversion and disciplined underwriting.

Strategic M&A and partnerships have been mixed but improving: exiting most of the legacy internal asset manager while retaining a 30% interest in Sound Point aligns fee income with investment capabilities; the Warwick/Assured Life Re acquisition opens annuity reinsurance with targeted MYGA and PRT risk where the firm expects mid-teens returns at scale.

We applaud the measured growth but note it introduces new ALM, longevity, and spread risks that must remain tightly governed.

CEO Dominic J. Frederico has led the firm since 2003 and is widely regarded for disciplined underwriting, thoughtful workouts, and shareholder-friendly capital returns. The executive team is seasoned across credit, risk, and finance. 2025 results were framed as record or near-record on key per-share value metrics, reflecting effective execution.

Communication quality is high via detailed quarterly presentations and financial supplements. We see good alignment through consistent buybacks rather than dilutive equity issuance. Key person risk exists given the CEO’s long tenure; succession planning should remain a board priority.