Assured Guaranty Ltd (AGO) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Assured Guaranty fourth quarter 2005 earnings conference call. My name is Ann Marie and I'll be your coordinator for today.

At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. If at any time during the call you require assistance, please press star followed zero and a coordinator will be happy to assist you.

I would now like to turn the presentation over to Ms. Sabra Purtill, Managing Director, Investor Relations. You may proceed, please.

Thank you and good morning. We'd like to thank you for joining us for Assured Guaranty's fourth quarter 2005 earnings conference call.

We released our earnings press release and financial supplement yesterday evening and these materials, as well as other information on the Company are available on our Web site at www.assuredguaranty.com.

We also updated the information we have previously released on our exposure to Hurricane Katrina to reflect our exposure as of December 31, 2005. This information is also available in the investor information section of our Web site.

Our speakers today will be Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Limited, and Bob Mills, Chief Financial Officer. After their remarks the Operator will poll for questions.

Before turning the call over to Dominic, I'd like to remind you that our commentary today may contain forward-looking statements such as statements relating to our financial outlook, business strategy, growth prospects, ratings goals, personnel, demand and other market conditions. Actual results may differ materially.

In addition, for those of you listening to the webcast or replay of this call, please be advised that more recent information may be available on Assured Guaranty. Please refer to our most recent SEC filings as well as our earnings press release and financial supplement for more information on factors that could affect our forward-looking statements.

Now I'll turn the call over to Dominic.

Thank you, Sabra, and thanks to all of you on the call and webcast for your interest in Assured Guaranty.

Before talking more specifically about the quarter, I think it's important to discuss the past year, our first full year as a public company. 2005 was an incredibly strong year for Assured Guaranty. We accomplished a great deal for the year.

For instance, at the beginning of the year we did not have a single AAA stable rating. Today, we carry a AAA stable rating from both Standard & Poor's and Fitch. The improvement of our ratings has been a key component of our strategy since the IPO.

In 2004, we insured 17 asset classes in our direct business. In 2005 we've nearly doubled that total to 30.

For the full year 2004, we wrote $70 million of PVP in our direct business. We more than doubled that number in 2005 to $145.5 million.

In 2004, 54% of our direct transactions were in financial guaranty form versus derivative executions. For 2005, that amount grew to 64%.

At year-end 2004, only 16% of our reinsurance par was in AG Re, our Bermuda company. Now it's over 54%.

Correspondingly in 2004 47% of our reinsurance business assumed was in the Bermuda company. In 2005, that percentage was increased to 92.5%, a key component of our strategy of making AG Re our center for reinsurance activity.

The accomplishments I just listed are only part of the significant progress that we have made as a company in the past year. Working together and totally focused on our strategy that we detailed in our IPO, we continue to expand our platform and remain committed to building a leading financial guaranty enterprise.

Focusing specifically on the quarter, Assured Guaranty continued to add to our list of firsts and bests. Looking at the firsts during the fourth quarter of 2005: include our first direct U.K. mortgage transaction, our first wrapped structured PFI deal, our first new issue XXX securitization, our first U.K. direct PFI transaction, our first primary wrap HELOC transaction for Countrywide, one of the largest mortgage originators.

In addition to the firsts, we had several post-IPO best's in the quarter. It was our best production quarter in direct financial guaranty with almost $8 billion in par insured and $46 million of PVP.

Our best quarter in U.S. public finance insuring $383 million in total par on 18 different deals for a total PVP of more than $7 million. This was also our biggest quarter ever in the secondary public finance market.

It was our largest international quarter ever with $18 million of PVP and $2.6 billion of par, another key component of our geographic expansion strategy. It was our best reinsurance quarter since the non-renewal of two treaties in 2004 with almost $38 million of PVP. This amount even exceeded fourth quarter 2004 on an apples-to-apples comparison.

The fourth quarter was clearly a quarter that we demonstrated that there is demand in the market for Assured Guaranty as well as value in our reinsurance platform. We believe that we have good prospects ahead of us in 2006 as well, however, I would caution that there's only so much more significant improvement we can make with our split rating. Without the Moody's AAA we are still unable to participate in large sectors of the public finance and traditional asset-backed markets. This challenge will continue to pressure our near-term ROE and capital utilization.

During 2005, although our par insured grew quite favorably at 7%, GAAP equity grew even faster at 9%. Our consolidated net debt service to GAAP equity, which we refer to as capital leverage, was down to 87 to 1 versus 89 to 1 at year-end 2004. Keep in mind our competitors have capital leverage ratios of 130 to 1 to 200 to 1.

Based on these statistics, you can infer that we continue to generate capital at a faster pace than we're able to put it to work, which is largely due to our ratings differential, but also due to our underwriting discipline. We will never compromise our underwriting standards in pursuit of near-term earnings or production. At year-end 2005 the average rating on our book of business was AA minus, unchanged from year-end 2004. This is a testament to our quality approach to risk acceptance.

Our store of future earnings is growing. Despite some actions that we took in 2005 that reduced near-term earnings but support our case for long-term ratings improvement, such as the sale of our single name credit default swap book and the novation of some healthcare exposures back to FSA.

Our strong new business production in 2005 added to our store of future earnings and contributed to the 11% increase in adjusted book value per share. We are building tangible shareholder value that will be recognized in our earnings and ROE in the future although our current ROE is and will remain lower than our long-term target.

Although overall market credit spreads remain tight and competition robust, issuance trends look to remain reasonable in most sectors.

We believe that our market reputation for expertise, innovation, reliability, and responsiveness is becoming widely known, which will provide us with ample opportunities in 2006.

Now I'll turn the call over to Bob Mills, who will discuss our financial results.

Thanks, Dominic, and good morning. And a special good morning to the students from Loyola College in Baltimore that have joined the call today.

Before I begin, I'd like to remind everyone to refer to our press release and financial supplement for segment level details and further explanations of our financial position and results of operation.

Net income for the fourth quarter of 2005 was $42.1 million, or $0.56 per diluted share compared to $48.3 million, or $0.64 per diluted share for the fourth quarter of 2004, principally due to reduced unrealized gains on derivatives in the current quarter.

The fourth quarter of 2005 was straightforward with no significant unusual items. Our operating income, which we calculate as net income excluding realized gains and losses on investments and unrealized gains and losses on derivative financial instruments, was $38.5 million, or $0.52 per share compared to $35.9 million, or $0.48 per diluted share for the fourth quarter of 2004. Earnings from municipal bond refundings included in our reinsurance segment contributed approximately $0.01 per diluted share in the fourth quarter of 2005 and $0.03 per diluted share in the fourth quarter of 2004. Refundings in the reinsurance segment are reported on a one quarter lag.

Let's review the results of the quarter in a little further detail.

PVP, or present value of written premiums for all segments was $83.9 million for the quarter compared to $82.2 million for the fourth quarter of 2004. PVP for the financial guaranty direct and reinsurance segments increased by $8.6 million, or 11% over the fourth quarter 2004 performance, which was quite strong.

PVP for the direct segment totaled $46 million, an increase of 16% from the fourth quarter 2004 amount of $39.6 million. Production in the direct segment this quarter included continued progress in the public finance sector as well as extremely strong production in the structured finance sector. These amounts also compare favorably with the third quarter's direct segment PVP of $39.4 million. The current quarter had the benefit of one large transaction, which we have defined as having PVP in excess of $5 million, while the fourth quarter of 2004 included two large transactions. In total, we closed 44 deals in the quarter, up from 40 deals closed last quarter. This is the highest production quarter to date.

PVP for the reinsurance segment totaled $37.9 million, an increase of 6% from the fourth quarter 2004 amount of $35.7 million. The increase reflects higher levels of both trading and facultative business offset to some degree by the effect of the nonrenewal of two quota shared treaties that occurred in mid-2004. This segment reports PVP and par written on a one quarter lag basis for the installment business due to the delay in receiving new business information from the primary companies.

There was no production in the mortgage segment in the fourth quarter of 2005 compared to $6.9 million of PVP in the fourth quarter of 2004. This business segment has a decreasing portfolio and is opportunistic with limited possibilities for new business due to our change in business strategy in the overall market for mortgage insurance. As I've previously stated, new business in this segment will be generated at the regular intervals. Absent new business, I expect earned premium to decline in 2006 in this segment by 10 to 15%.

Looking at the embedded value of our business, the present value of installment premiums in force on an after-tax basis and net unearned premium reserve net of DAC and taxes at December 31, 2005, was $610.8 million, an increase of 12% over the December 31, 2004, balance of $543.5 million.

Net earned premium for the quarter totaled $47.8 million compared to $57.1 million for the fourth quarter of 2004, a 16% decrease.

For the direct segment, net earned premiums totaled $19.8 million for the quarter compared to $15.5 million for the fourth quarter of 2004, a 28% increase. Looking ahead to 2006, I expect growth in net earned premium in the direct segment to continue, but the run rate of growth will depend on the volume of new business written in 2006 as we continue to have runoff of historic CDO book.

Net earned premiums for the reinsurance segment were $23.5 million, a decrease of 36% from fourth quarter 2004 amount of $36.5 million, reflecting the impact of a reduction of $2.8 million in refunding from the fourth quarter of 2005 compared to 2004, as well as the impact of the 2004 treaty cancellations and the reassumption of the FSA health care reinsurance book earlier this year.

I expect the impact of these changes to moderate in 2006, producing a quarterly scheduled net earned premium run rate for the reinsurance segment for 2006 comparable with the fourth quarter 2005 levels. Actual amounts, however, will be somewhat dependent upon the level of refundings, which I won't attempt to predict.

Net earned premiums for the mortgage segment were $4.6 million, down 12% from the fourth quarter 2004 amount of $5.2 million, and will continue to decline as I've previously discussed.

During 2006, we will enhance the disclosure in our financial supplement to include portfolio rollout schedules. This should assist readers in the analysis of expected earned premium income.

Loss and loss adjustment expenses incurred totaled a $6.2 million benefit for the quarter compared to a .2 million expense for the fourth quarter of 2004. However, the impact on net income for the quarter was a benefit of $2 million because there was a $4.2 million reclass from loss and loss adjustment expenses to profit commissions due to favorable loss experience in the mortgage segment.

Looking strictly at case losses and loss adjustment expenses for the fourth quarter of 2005, there was a benefit of $6.2 million due to the final settlement of expenses associated with the CFS litigation, as well as improvements in the CDO book in our reinsurance portfolio. This benefit was partially offset by net portfolio reserve additions for the quarter totaling $4 million.

During the quarter, there were changes in portfolio characteristics including new business, business runoff, and ratings changes such as the downgrades of certain Katrina-related credits in certain aircraft-related credits that resulted in the increase to the portfolio reserves.

At December 31, 2005, the closely monitored credits, or CMC list, contained 84 credits with net par outstanding of $1.43 billion, down $76 million from the $1.51 billion September 30, 2005 balance, and down 18% from the $1.74 billion amount at December 31, 2004. The decline during the fourth quarter was principally due to amortization of balances.

The investment portfolio balance increased by $109 million compared with year-end 2004. Yields were up slightly on the $2.25 billion portfolio comparing the fourth quarters of 2005 and 2004 with pretax book yield of 4.9% currently compared to 4.8% at December 31, 2004, while the duration is decreased from 5 to 4.4 years.

There's been no significant change in the investment portfolio during the quarter, and the average credit quality of the portfolio remains at the AAA level. During the quarter the market value of our investment portfolio decreased by $8 million net of tax as a result of interest rate movements.

Other operating expenses increased by $.6 million, or 4% in the fourth quarter compared with the fourth quarter of 2004 due largely to increases in staffing. Operating expenses were flat compared with the third quarter of 2005. Looking ahead to 2006, I expect operating expenses to increase 2 to 4%, excluding the impact of stock option and restricted stock award expenses. The implementation of FASB Statement 123R for expensing stock options will add an estimated $4 million pretax to annual expenses, as well as additional amortization related to restricted stock compensation of $2.2 million pretax compared to 2005.

Our book value per diluted share was $22.28 per share, increased 10% from $20.19 per diluted share at the end of the fourth quarter of 2004.

Adjusted book value, which adds the embedded value from aftertax installment premiums in force and aftertax unearned premium reserves net of DAC has grown to $30.45 per diluted share at December 31, 2005.

We expect to release our first quarter 2006 earnings during the first week of May, and we'll update you on the time and date closer to that time.

With that, I'd like to turn the call over to the Operator to poll for questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] We'll pause for a moment as questions queue up. And your first question will come from Mr. Geoffrey Dunn with KBW. You may proceed, please.

Thank you. Good morning. I guess two questions.

First, a number question. On the CFS stuff, could you quantify the impact of that development in the quarter, please?

CFS, Bob.

Oh, CFS. That was $2.3 million.

Right. That was just us taking down what remained in the expense reserve as we have now closed out all litigation and settled out all balances.

We still had to close out the expenses associated with the litigation and that's all done now.

On the reserves -- on the direct side I think you continue to see benefit from the runoff of the CDS book. You probably have some runoff of your structured product and that's leading to favorable development. You have a lot of changes going on within reinsurance and you're seeing development there.

At what point do we see sort of the inflection point between your ongoing growth and the favorable development you're seeing now? When do we see the reserve provision need move to a continuously positive addition versus what we've seen in '05?

That's a great question, and it certainly is complicated by, and I will answer it absent any specific case activity that happens in the future, but during 2006, I think you'll probably see it be, you know, close to zero or slightly positive. Probably in 2007 you will see it start to go continuously positive because of the growth of the business.

Yeah, Geoff, I mean to put that a little bit more succinctly, we still believe that '06 will be influenced by more appropriately the runoff of both the CDO and the remaining mortgage quota share. Obviously going to be offset by the development of business activity. As we pointed out, that goes in the portfolio reserves unless there's a specific case or an issue that comes on CMC.

So by and large, we still think there is some negatives to still flow through the system through the 2006 year and then hopefully from that point on it's going to be pure adds as we grow the book of business.

Okay. So at some point in '06 we got that inflection.

Yes, and I would say later in the year probably, because we still have a pretty sizable CDO book that's running off.

The last question, in terms of capital, I know you're maintaining your capital position in order to further strengthen your story for potential upgrade with Moody's, but you are running materially above everybody else in the industry. I think you're running 1.7, 1.8 with S&P.

Is there any option for managing some of that excess capital between now and a potential decision from Moody's?

There is no option but we will only give it a certain amount of time. So we appreciate the issue. Obviously it affects our returns. We are carrying more capital, and we are in this kind of outer space, you know, temporary zone, and we will continue to monitor that through the beginning of this year up until midyear and then we'll look at other alternatives, if we see that there is no movement.

Okay. Thank you.

Thank you, sir. And your next question will come from Mike Grasher with Piper Jaffray. You may proceed, please.

Good morning.

Hi, Mike. How are you?

I'm doing well. Thank you.

Any change in trading value that you're seeing in the public finance and asset-backed area thinking about it both in terms of year-over-year as well as sequentially?

Well, definitely in year-over-year obviously you can just gauge that by the pickup in activity and the further execution of more transactions across a broader space of assets. It's really hard to get a trend because it really does differ almost security by security.

And we could sit here and kind of pump our chest and say we traded flat, or even inside of one of the existing mono lines, but then the next week we could have a trade that goes wider than we anticipated, but the overall trend has been an improvement and it's obviously resulted in us having greater opportunities to look at a greater array of businesses and asset classes.

Okay.

And could you talk just a bit about the execution in the U.S. versus the international? It seems like this quarter there was a surge in international.

Did U.S. opportunities slow and that's why there's the difference, or is there a drain on one team from the other, if international surges ahead here? Can you give us --

Absolutely not. As a matter of fact, if you look at the two markets, if you look at the domestic market, obviously we had our best quarter ever in public finance, obviously a critical part of our development, obviously our ratings story and the business, you know, in the U.S. marketplace.

We did talk to you, I guess last quarter, about making some managerial changes in our London operation. We brought in a team over the last year, and specifically a head of operation, which we felt were very, very focused in the European market, had tremendous relationships and would immediately have an impact in terms of business activity and volume.

And as we've done throughout, you know, all of our last year, when we go to make significant additions to staff, you know, we obviously key it towards people that we really believe have an impact, have a market presence and a following, and immediately hit the ground running, much like the commercial guys on the asset-backed side that we've brought in at mid-year, and you're just seeing that we spent a lot of money in Europe, we've built a good team, a good structure, and we're now starting to obviously gain the benefit of that team and structure and licensing in that marketplace, and obviously it had a tremendous impact in the fourth quarter, and we look at, you know, a further buildup of our activity and opportunity into 2006 on that business. So it's not one stealing from the other. They're two separate teams.

Obviously we do look at every credit centrally, because there is a 90% quota share between the U.K. and U.S. operations. So in that aspect it falls back to the same process of underwriting by and large, but yet the initial solicitation, underwriting, and execution is still done locally by separate teams entirely.

Okay, thanks.

Is it safe to say then that the pipelines remain strong for both segments?

Absolutely. We typically talk about pipeline as part of the call, and, you know, hopefully we continue to develop and build we'll get less into transaction counting, as I've said in the past in pipeline counting, but all I can tell you is our pipeline as of the end of year-end is greater than in terms of number of transactions and potential par and PVP than it has been at any other time in our history.

Thank you.

You're welcome.

Thank you, sir. And your next question will come from Mark Lane with William Blair. Please proceed.

Good morning, everyone.

Hi, Mark.

From a breadth standpoint, how many public finance deals did you actually do this quarter? I think there were, what, 11 last quarter?

I think we did 18. Yeah, it's 18. And there were 11 last quarter, you're correct.

So not to be completely negative, but --

Thank you, Mark. I appreciate that.

If the third quarter is a seasonally weak quarter in structured finance and the fourth quarter is by far the seasonally strongest quarter, why was the number of structured finance transactions down sequentially?

Okay, so you went from public finance to structured finance.

Well, I didn't know what the number of structured finance was. Now I do.

Okay.

Structured finance for us is obviously opportunistic. It does have a different, it's not a flow business, so you don't see it every day other than the CDO portion of it. If you look at just structured credit alone, we did 12 transactions in fourth quarter '05, 15 in third quarter, five in second, and seven in first. So you can see there's kind of variability to the number.

We're obviously extremely pleased in the activity. We do see now a regular flow on the CDO side, which is new, and wherefore we're having more and more confidence in terms of that volume of business repeating itself.

For 2005, we were ranked number two in the marketplace for all wrapped CDO transactions, So I don't know how much stronger of a statement I can make. So far volume's a little done. I think it's more [appro po] to the market. If you look at the trade papers, we ranked number two in total wrapped deals in the CDO marketplace.

Okay. And how about the amount of facultative business in reinsurance this quarter?

Facultative business this quarter was actually strong. For the total for the year, I think it's around -- and I'm looking for my cheat sheet on this, to be honest with you, 36 or so percent -- everybody's now handing me stuff, I'm getting knocked over here. Total FAC for the year was 36% of total PVP versus 20%, or really 15%, last year. So you're still seeing a tremendous increase in FAC.

The number of deals will change because in some cases we get a large PVP deal across the FAC wire. That's why it's a little harder to do transactions versus premium. And that's been rather consistent kind of quarter-to-quarter in terms of a buildup over the prior year.

If you looked at it, you know, quarter-over-quarter, there is a variability, but the average FAC contribution is going to roughly be in that 30% range. And we still see, you know, tremendous activity. Overall, FAC submissions for the year were almost double what they were last year, you know, significantly higher.

Okay. How about staff, senior production people in the fourth quarter additions, any departures?

No departures, obviously. As I said, in the fourth quarter, we brought on board the new U.K. director, and three other -- I'm getting a note here -- so really in the fourth quarter we had no significant additions to staff or subtractions.

Okay.

And then, Bob, just to clarify what you're trying to communicate on the net earned premium for reinsurance, the scheduled net earned premium, obviously less the refundings, you say that would be a run rate for 2006. I mean, as a starting point, or you expect that level in '06?

I would classify that as a starting point.

Okay. Thank you.

Thank you, sir. And your next question will come from Darin Arita with Deutsche Bank. You may proceed, please.

Good morning.

Hi, Darin.

And congratulations on a successful year.

Thank you.

Going back to the trading differential question that Mike had, you talked about it before on the public finance and structured finance business, and I was wondering if you could talk about how it compares on the international business now that Assured Guaranty Corp. has some a few international deals on a direct basis?

That's another good question and not one that lends itself to an easy answer. I mean, international on the ABS side will be similar to the U.S., which is kind of a 4 to 7, 5 to 8 type of number.

On the PFI side, it's a lot harder to do an apples-to-apples comparison on that basis, so I'd be hard-pressed to give you a number that would have any real validity in terms of consistency throughout the marketplace.

You know, the one deal we did, which is fairly public, the future flow deal, was traded three back of the other model lines, so I could use that as a huge success, but that's not going to be consistently applied across that marketplace.

Okay. And could you give us an update on your Hurricane Katrina exposure?

The exposure by and large remains relatively flat. We made some further additions that were not significant to the total amount of par.

As we did talk about in Bob's analysis of portfolio reserves, there was some movement in ratings by the rating agencies, and obviously the way we calculate portfolio reserves really triggers off of an individual obligation and its rating so that did cause an increase to the portfolio in the quarter of roughly a million dollars for six Katrina-specific exposures, principally in the New Orleans area that affected that. Their downgrade affected our portfolio reserve.

Obviously, we continue to watch that as close as everybody else, and we're still trying to assess what ultimately could be the impact from that.

Great. Thanks very much.

You're welcome.

Thank you, sir. As a reminder, ladies and gentlemen, it is star one if you do wish to ask a question. Your next question will come from Jeff Bernstein with Schroeder's. Please proceed.

Hi. Just wanted to circle back.

You originally said that you've taken the business plan, I think at the beginning of the call, about as far as you can with a split rating --

No, I said we wouldn't get much more significant improvement. I think we will continue to, as we have currently experienced, make advances in all aspects of the market from the standpoint of assets and geographical split, but in order for us to really break through and, I think, show continued significant improvement, we're going to need some cooperation from Moody's.

Okay.

So following on to that, later in the call you'd said, you know, give it until about midyear, and if you were not -- get the rating by then, you'll sort of reassess things. What is Plan B?

No, no, not reassess things. Let's make it very, very clear.

We talk about capital and the fact that we carry way too much capital. Obviously we want to be a very efficient manager of our capital. We want to provide ourselves the best opportunity for returns, and we want to be competitive in our marketplace.

As such, we've had to do certain things in terms of books of business, specific transactions, all to aid our ratings, and I think we've been fairly successful through the current year in accomplishing some of that. We obviously have the last threshold to go through, which is Moody's, and we are holding a whole lot of capital to make sure we meet every ratio you could possibly apply.

But at the end of the day as a management team, we still to have challenge ourselves to say, if by midyear, wherever Moody's is they are, or they've made a decision, as a efficient manager of capital we owe it to our shareholders to look at other alternatives in how we constitute capital, what is its makeup and what is the ultimate return implications of that.

It has nothing to do with the strategy. The business stays the business. We are not ever diverting from that.

We really believe there is market opportunity, there's acceptance for Assured Guaranty and there's obviously a significant place in the market. It really has to do with how do we want to constitute capital.

You want to work in some more debt? You want to bring in some preferreds? You want to look at convertibles? How else can we constitute this thing to still meet every rating agency criteria that exists known to mankind.

So it has nothing to do strategy. It's not, well we'll relook and there's a Plan B. Absolutely not. It's all about capital, the efficient utilization of it and how we constitute it.

And lastly, what is the Moody's update? When did you last speak with them and when do you speak with them next?

We speak to them all the time. That is an ever continuing dialogue, and I think, you know, we await, you know, their next review from a credit committee point of view of our company, and when that is, I can't tell you, and what its outcome will be, I can't tell you.

But obviously we think we have accomplished a lot of things. We continue to execute a strategy that supports that rating upgrade, and we're, you know, continuing to work as hard as we can to make sure we're successful in that endeavor.

Okay. Thank you very much.

You're welcome.

Thank you, sir. And your next question will come from Mark Lane with William Blair. You may proceed, please.

Just as an add-on to the question on Moody's.

What else -- in the past you've talked about this kind of "but fors” and, I mean, what else is there? Is there anything else that has come up in terms of the quality of the portfolio, staffing, internal controls, anything besides building the franchise, building more breadth by asset class, distribution, fixed income investor base? Is there anything that's come up in those discussions other than that issue that you can address on your own?

The last issue we had as a "but for" was our percentage of below investment grade that they felt was higher than the rest of the market, yet obviously well within reasonable parameters, and, you know, we didn't really bring it up as a specific topic, but in their model of how they default certain credits as part of their stress testing, there were a couple of large health care exposures that we had, but in the current quarter we went out and specifically bought reinsurance really in effect novated or reassumed back to the original writer about $100 million of par related to that.

It was two health care exposures, which dropped our below investment grade in the total by a half a percent. So it went from like 1.6% to 1.1% -- 1.3%, thank you, Andrew, which gets us to 1.8 to 1.3, which gets us further back in the pack.

Not that it was an issue, but quite honestly our goal was also to get rid of the "but for's", and that was still a "but for" and if you break it down AGC to AG Re, obviously the numbers improve as well at the individual company levels, that was the last one that we really looked at and said, yeah, we can still do something about that. Beyond that, it's all about franchise I think.

If you write 30 asset classes in a given year, if you're number two in the world of CDO, ABS, MBS, if you continue to have a good spread of business both internationally and domestically, you continue to hit on a capital basis a fair share of the market against the rest of the market's capital, all those things, to me, would be a positive indicator of franchise.

We do get a lot of submission activity. They're well aware of that. And I can't make their decision for them. Obviously, if I could we wouldn't be having this conversation right now.

How much business are you ceding from the domestic company to the reinsurer?

In general, to our reinsurer, in general it's 25% on the domestic side, 50% on the international side.

Hasn't changed.

No.

Okay. Thank you.

You're welcome.

Thank you, sir. And there are no further questions at this time. I'd like to turn the presentation back over to Ms. Purtill for any closing comments.

Thank you.

Many thanks to you all for joining us today and we appreciate your interest in Assured Guaranty. Please note that additional information on the Company including updated fixed income investor presentations, our 10-K, 2005 annual reports and other information will be posted on our Investor Information section of the Web site as they become available over the next month to two and before the first quarter earnings call.

A replay of this call will be available on our Web site as well as by telephone at 888-286-8010 in the U.S., and at 617-801-6888 for international callers. The passcode is 53303838.

If you have any additional questions or information needs, please feel free to contact me. Thanks again and have a good day.

Once again, ladies and gentlemen, thank you so much for your participation in today's conference. This does conclude the presentation and you may now disconnect. Have a great day.