Incorporated: 2003
NAIC: 524126 Direct Property and Casualty Insurance Carriers
SIC: 6331 Fire, Marine & Casualty Insurance; 6351 Surety Insurance
Bermuda-based Assured Guaranty Ltd. is one of the world's leading providers of reinsurance, credit enhancement, and related insurance and financial services to the global insurance market. Assured Guaranty develops credit derivatives, financial guarantees, and related financial support products designed to improve the credit ratings of debt obligations. The company provides insurance backing for primary insurance companies, banks, and other credit institutions in the event of nonpayment of loans, mortgages, and other credit. Assured Guaranty operates in four primary business areas: Financial Guaranty Direct, serving banks and other credit institutions; Financial Guaranty Reinsurance, serving the insurance market; Mortgage Guaranty, which develops guaranties specifically to mortgage lenders; and Other, which includes the company's operations in trade credit reinsurance, title reinsurance, and equity layer credit protection. Assured Guaranty is the holding company for three main subsidiaries. Assured Guaranty Corp. operates in the United States and has secured licenses to operate in all 50 states, as well as in Washington, D.C., and in Puerto Rico. This subsidiary supplies the public finance, mortgage, and structured finance and credit sectors. From the United Kingdom, Assured Guaranty (UK) Ltd. provides reinsurance and credit guaranty services throughout the United Kingdom and European Union. The company's reinsurance operations are grouped under Assured Guaranty Re Ltd., based in Bermuda. A spinoff of Bermuda's ACE Limited, Assured Guaranty is listed on the New York Stock Exchange and holds triple A ratings from Standard & Poor's and Fitch Ratings, and Aaa status from Moody's Investors Service. The company posted revenues of $322.1 million in 2006.
ACE Origins in 1986
Assured Guaranty stemmed from the operations of ACE Limited. That company was formed in 1985 as a partnership among a group of nearly 35 Fortune 500 companies in order to develop excess liability coverage. Founded in Hamilton, Bermuda, ACE wrote its first policy that same year. By 1986, the company had also launched a financial guaranty arm, called ACE Guaranty Re. Registered in Maryland and headquartered in Bermuda, ACE Guaranty Re served as an underwriter for the U.S. insurance market. The company's first policy was issued in 1988.
For most of the next decade, ACE's insurance guarantee operations focused especially on the reinsurance market. During this period, ACE itself grew strongly. In 1987, for example, the company took over Corporate Officers & Directors Assurance Ltd., or CODA. This allowed ACE to launch a diversification of its insurance products. Into the early 1990s, ACE entered the markets for satellite, excess property, and aviation insurance, among others. The acquisition of CIGNA Corporation in 1999 in particular helped ACE expand to a global level. In this way, ACE became one of only a few insurance groups capable of providing insurance products and services across the world.
ACE also continued to expand its reinsurance operations. In 1994, for example, the company launched the internationally operating Assured Guaranty Re Overseas Ltd., based in Bermuda. The company also made a number of acquisitions through the 1990s. The company added Financial Lines in 1995, bolstering its strategic and alternative risk products. In 1996, the company bought Tempest Re. That company, also based in Bermuda, allowed ACE to expand its operations into the catastrophe reinsurance sector. This move was reinforced by the creation of Sovereign Risk Insurance Ltd. The joint venture, formed in partnership with Risk Capital Re and XL Insurance Company, focused on providing political risk insurance and reinsurance in 1997.
By the end of the decade, the company's catastrophe operations had expanded to include CAT Limited, acquired in 1998. In that year, also, the company expanded its political risk business through an alliance with the World Bank Group's Multilateral Investment Guarantee Agency. The agreement called for the company to provide treaty reinsurance policies for the agency's own political risk activities. ACE also expanded its financial guaranty operations at the end of the decade. This came through another acquisition, of Capital Re Corporation, in 1999.
Primary Focus
Through the previous decade, ACE's Assured Guaranty operations had focused especially on the reinsurance market. With the new century, however, the company began shifting its focus to building up its operations in the primary financial guarantee segment. A major reason for this conversion was the desire by Assured Guaranty and ACE to boost their ratings from the primary credit rating groups in order to compete with its more established, AAA-rated rivals.
As part of this process, Assured Guaranty shed a number of its existing operations while also trimming its staff. Into the early 2000s, the company worked on narrowing its range to a focus on the financial and mortgage guaranty insurance market, on the one hand, and the financial guaranty reinsurance segment on the other.
The company's progress was reflected in the change of name of its U.S. operation, from ACE Guaranty Re to ACE Guaranty Corp., in 2003. ACE Guaranty Corp. was then placed under a new holding company, called AGC Holdings Ltd. The new company also took over the rest of ACE's financial guaranty operations, including ACE Capital Re International.
The restructuring came as the lead-in to the next step in ACE's attempt to increase the rating of its financial guaranty business. In April 2004, ACE spun off Assured Guaranty as a separate company, listing its shares on the New York Stock Exchange. The listing raised nearly $1 billion for the company, while reducing ACE's own holding to just 35 percent.
Earning Its Triple-A Rating
Following the spinoff, Assured Guaranty moved to expand its international reach. The company opened its London subsidiary in 2004, gaining authorization from the U.K. government in July of that year. The new subsidiary permitted Assured Guaranty to expand its operations throughout the European Union. Assured Guaranty (UK) Ltd., as the company was called, issued its first policy in 2005.
The United States, however, remained the company's primary market. With its initial public offering (IPO) successfully completed, the company set out to procure licenses for operating in all 50 states. The process was not as smooth as the company might have hoped. In California, for example, the company's former operations in the credit market prevented it from entering that state. Yet, after a lobbying effort that reportedly cost the company nearly $100,000, the state of California drafted new legislation that paved the way for Assured Guaranty's gaining a license there. By 2007, the company had successfully gained licenses for all 50 states, as well as for the District of Columbia and for Puerto Rico.
Assured Guaranty also began to make progress in its ratings. The company gained its first AAA rating from Standard and Poor's, albeit with a negative outlook. By 2005, however, the company gained an AAA rating from Fitch Ratings, while also seeing its rating upgraded at both Standard & Poor's and Moody's Investors Service. Nonetheless, the latter agency remained less enthusiastic over Assured Guaranty, and only raised its rating of the company to AAa into 2007.
Assured Guaranty's limited exposure to the subprime loan market, which collapsed in 2007, helped raise the company's profile that year. Assured Guaranty had focused its U.S. business primarily on the credit-card and accounts receivable securities market. With its competitors suffering from the ongoing crisis in the U.S. housing market, Assured Guaranty's own fortunes rose. By July 2007, the company received its coveted AAA rating from Moody's. This in turn helped the company boost its market share through the end of the year.
The continuing crisis in the sector made Assured Guaranty a still more attractive partner as the year drew to a close. In mid-December, the company announced that it had reached an agreement to reinsure about $29 billion of the financial guaranty contracts held by bond insurance giant Ambac Financial Group. That company had been threatened with a ratings downgrade. In exchange, Ambac agreed to provide Assured Guaranty additional reinsurance contracts over the next three years. Assured Guaranty appeared on its way to establishing itself among the major players of the world's financial guaranty markets.
Principal Subsidiaries
Assured Guaranty (UK) Ltd.; Assured Guaranty Corp. (U.S.A.); Assured Guaranty Finance Overseas Ltd.; Assured Guaranty Re Ltd.; Assured Guaranty US Holdings Inc.
Principal Competitors
Ambac Assurance Corporation; Financial Guaranty Insurance Company; Financial Security Assurance Inc.; MBIA Insurance Corporation; XL Capital Assurance Inc.; CDC IXIS; Radian Reinsurance Inc.; RAM Reinsurance Company Ltd.; XL Financial Assurance Ltd.; Channel Reinsurance Ltd.; BluePoint Re Ltd.
Further Reading
"ACE Raises $882 Million in Assured Guaranty IPO," Business Insurance, April 26, 2004, p. 1.
"Ambac, Assured Guaranty Strike $29 Billion Reinsurance Deal," Seeking Alpha, December 14, 2007.
"Assured Guaranty Ltd. Announces Authorization of Insurance Subsidiary in the United Kingdom," Business Wire, July 27, 2004.
"Assured Guaranty Spin-off Not Enough for Top Rating," Reactions, June 2004, p. 51.
Chang, Helen, "Bond Insurance: N.Y.-Based Assured Guaranty Receives License to Operate in California," Bond Buyer, January 13, 2005, p. 7.
"Fitch Assigns 'AAA' IFS Rating to Assured Guaranty Corp.," Business Wire, April 14, 2005.
Hanson, Matthew, "Assured's Parent Company Reveals $221M Pretax Unrealized Loss," Bond Buyer, October 24, 2007, p. 4.
------, "FSA, Assured Buck Subprime Trend: Amid Credit Crisis, Both Enjoy Boost," Bond Buyer, November 27, 2007, p. 1.
------, "Moody's Gives Aaa to Assured Guaranty: Firm Becomes 7th Gilt-Edged Insurer," Bond Buyer, July 13, 2007, p. 1.
Johnson, Matthew, "Bond Insurers: Assured Guaranty Reports 6% Drop in Profit As It Marks Year Since IPO," Bond Buyer, May 9, 2005, p. 6.
Meyers, Maxwell, "Assured Guaranty Raises Estimated Katrina Exposure to $220 Million," Bond Buyer, September 21, 2005, p. 6.
Saskal, Rich, "ACE's Assured Lobbying," Bond Buyer, June 18, 2004, p. 35.
— M. L. Cohen
