Assured Guaranty Ltd (AGO) 2006 Q1 法說會逐字稿

Good day and welcome ladies and gentlemen to the first quarter 2006 Assured Guaranty earnings conference call. My name is Audrey, and I will be your conference coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of the conference. [OPERATOR INSTRUCTIONS] As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Sabra Purtill, Managing Director of Investor Relations. You may proceed.

Good morning. Thank you all for joining us for Assured Guaranty's first quarter 2006 earnings conference call.

We released our press release and financial supplement yesterday evening, and these materials, as well as other information on the company are available on our website at www.assuredguaranty.com. We also updated the information that we have previously released on our exposure to Hurricane Katrina, to reflect our exposure as of March 31, 2006. This information is also available in the Investor Relations section of our Wednesday. Our speakers today will be Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Ltd., and Bob Mills, Chief Financial Officer. After their remarks, the operator will poll for questions.

Before turning the call over to Dominic, I would 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 the replay of this call, please be advised that more recent information may be available on Assured Guaranty. Please refer to our most current SEC filings, as well as our earnings press release and financial supplement, for more information on factors that could affect our forward-looking statements.

With that I'd like to turn the call over to Dominic Frederico.

Take you Sabra and thanks to all of you on the webcast for your interest in Assured Guaranty. I am pleased to report another quarter of strong progress, We continue to focus on our core strategies of building our financial guaranty direct business, and maintaining our underwriting discipline and credit quality across the company as a whole.

During the quarter in our direct business, we closed 26 transactions, compared to 18 total deals in the first quarter of 2005, a 44% increase. Our financial guaranty direct PVP grew 11%, encompassing a broad mix of asset classes. First quarter 2006 benefited from one large deal. Conversely, first quarter 2005 contained two large deals, adjusting for the variance in large deals, financial guaranty direct PVP would show growth in excess of 50%, confirming our greater market acceptance. As importantly our underwriting discipline remained a key focus, as we maintained our AA- average credit quality rating for our portfolio, while increasing net par outstanding to almost $107 billion, up 11% over the last 12 months.

Our financial results reflect our planned sacrifice of sure term earnings for long term financial strength, consistent with our goal of achieving and maintaining AAA financial strength ratings. I would note in particular, that the comparison with the first quarter 2005 is skewed by income from several transactions that are not comparable in the 2000 results, as well as the implementation of FAS-123R in the first quarter of 2006. In a few minutes Bob Mills will review these impacts further, but our 2006 results compare favorably to the prior year's quarter after adjusting for these items.

In terms of our reinsurance production, this segment will generate results in-line with the general direct market. Our treaty volume was down about 24% over the prior year, principally due to lower U.S. insured public finance market activity. In addition, we saw fewer large deals, fewer large premium deals, in both the treaty and facultative sessions this quarter, than in the first quarter of 2005.

In the first quarter of 2005, we benefited from three large deals with PVP of $3 million or greater. In the first quarter of 2006 we did not have any transactions that were greater than even $2 million. This had a significant impact on reported gross statistics.

However, in regards to our long-term view, we are extremely pleased that submission activity has remained strong in the facultative markets. A key component of our reinsurance strategy. Facultative submissions were up almost 75% over 2005, continued confirmation of the market's need for reinsurance capacity, and our desirability as the supplier.

Looking forward, we continue to see good business prospects for Assured Guaranty. Our direct pipeline is the strongest it has ever been, and we hope to close on many of those transactions in the next quarter. At quarter's end the number of deals in our pipeline was double that of the prior year, which demonstrations the traction we are gaining in the market. Second quarter which is seasonally a strong quarter is off onto an excellent start. Today we have closed 7 primary and secondary public finance transactions, 2 public CDO financial guarantee deals, a large XXX securitization deal, as well as our first UK utility transaction.

All-in-all we continue to see growing acceptance of Assured Guaranty by issuers, underwriters, and investors, all evidence of the market's demand for new capacity in the financial guaranty market, and our qualifications as a participant in that market. While we continue to face obstacles in some markets due to our ratings differential with our competitors, we remain keenly focused on though markets in which we can participate. We also remain committed to managing our operations, consistent with the standards that will be representative of a AAA rated company from all of the rating agencies, and have been successful in our execution of these principles.

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

Thanks, Dominic and good morning to everyone. Before I begin I would 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 operations.

Net income for the first quarter of 2006 was $34.9 million, or $0.47 per diluted share, compared to $44.3 million, or $0.59 per diluted share, for the first quarter of 2005, due to a number of factors which l will discuss. Our operating income per diluted share which we calculate as net income excluding after tax realized gains and losses on investments, and after tax unrealized gains and losses on derivative financial instruments was $35.6 million, or $0.48 per diluted share, compared to $41.3 million, or $0.55 per diluted share, for the first quarter of 2005.

During the first quarter of 2005, operating income included income related to the single main portfolio that was sold in that quarter, as well as substantial salvage recoveries in the CFS litigation. Adjusting for these one-time items, operating income for the first quarter of 2005 would be $31.6 million. On a comparable basis, operating income increased by 13% year-over-year for the quarter.

Earnings from municipal bond refundings included in our reinsurance segment, contributed approximately $0.02 per diluted share in the first quarter of 2006, and $0.01 per diluted share in the first quarter of 2005. Refundings in the reinsurance segment are reported on a one-quarter lag. Let's look at the results in a little more detail.

PVP, or the present value of written premiums, totaled $61.8 million for the quarter, compared to $82.6 million for the first quarter of 2005. PVP for the direct segment totaled $41.6 million, an increase of 11% from the first quarter of 2005 amount of $37.5 million. Production in the direct segment included strong performance in public finance, structured finance, and the international sectors. PVP for the reinsurance segment totaled $20.1 million, a decline of 37% from the first quarter of 2005 amount of $32.1 million.

There was a decline predominately in public finance sessions under existing treaties, and although facultative submissions received in the first quarter 2006 showed continue strong increases, the quarter did not have the benefit of large facultative transactions. In the first quarter of 2005, we closed three large transactions that generated combined PVP in excess of $10 million. We closed no comparable transactions in the first quarter of 2006. Adjusting for the difference results in comparable production between the periods.

This segment reports PVP and PAR written for treaty business on a one-quarter lag basis, due to a delay in receiving new business information from the primary companies. There was no production in the mortgage segment in the first quarter of 2006. The first quarter of 2005 had one transaction with PVP of $13.1 million.

As I have stated previously, this business segment is not a core element of our direct operations. It generates business at irregular intervals. 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 at March 31, 2006, was $625.4 million, an 11% increase compared to the March 31, 2005 balance of $562.1 million, reflecting good growth in our underlying portfolio of risks. Net earned premium for the quarter totaled $48.1 million, unchanged from the first quarter of 2005.

For the financial guaranty direct segment, net earned premiums totaled $20.7 million for the quarter, compared to $20.4 million in the first quarter of 2005. It is important to note, however, that the first quarter of 2005 included net earned premiums of $4.4 million from the single named portfolio that was sold in that quarter. Excluding the single named book, earned premium increased 29% in the current quarter in the direct segment, reflective of our continued expansion in that market.

Net earned premiums for the reinsurance segment were $23.3 million, an increase of 1% from the first quarter of 2005 amount of $23 million, due to the existing level of issuance in the direct market. This is slightly below our expectations, due to low current industry public finance production and high refunding activity. Based on the current public finance expectations, I expect net earned premiums to be comparable or slightly increased from that of the current quarter for the balance of 2006. Actual amounts will however, be somewhat dependent upon the level of refundings.

Net earned premiums in the mortgage segment were $4.2 million, down 9% compared to the first quarter of 2005 amount of $4.6 million. In-line with my expectations as stated during the call last quarter. Loss and loss adjustment expenses incurred totalled a $0.4 million benefit for the quarter, compared to a $9.4 million benefit for the first quarter of 2005. The 2005 amount included a litigation recovery of $6.8 million pre-tax.

During the first quarter of 2006, there were net case losses of $1.9 million, offset by net portfolio reserve reduction of $1.1 million. There was also a litigation recovery in the other segment of $1.2 million, related to the recovery on an equity layer CDO. For the balance of 2006, I expect loss and loss adjustments to result in a net expense as new business expands which will increase our portfolio reserves, and as portfolio runoff dissipates in our historic CDO book. Excluding the litigation recovery that we announced on April 11, 2006, in the amount of $8 million pre-tax, which will be recorded in the second quarter. Notwithstanding loss and loss adjustment expenses are subject to volatility based on production and credit losses.

Looking strictly at credit losses and loss adjustment expenses for the first quarter of 2006. The major items that comprise the net amount are a $2 million recovery in the direct segment, associated with a sub prime mortgage transaction, being offset by expenses of $3.9 million in the reinsurance segment, associated with a number of credits. At March 31, 2006, the closely monitored credits, or CMC, list contained 85 credits with net PAR outstanding of $1.39 billion, down $68 million from $1.46 billion at December 31, 2005, and down 10% from the $1.55 billion amount at March 31, 2005.

The decline during the quarter was due largely to the amortization of balances. Credits added and removed from the list during the quarter substantially offset. Although there were a number of ratings improvements the quarter did include a downgrade of 3 reinsurance exposures from Category 2 to Category, with net PAR outstanding of $89.5 million.

The investment portfolio increased $102 million from the balance at March 31, 2005. Yields increased 20 basis points comparing the first quarters of 2006 and 2005, with a pre-tax yield currently of 4.9%, while the duration decreased from 4.6 to 4.4 years. There's been no significant change in the investment portfolio during the quarter, and the average credit quality for the portfolio remains at the AAA level.

During the quarter, the market value of our investment portfolio depreciated by $23.4 million net of tax, as a result of higher interest rates. Since the portfolio is long term investment in nature, changes in value are reflected in the accumulated other comprehensive income account.

Other operating expenses increased $2.7 million, or 19% in the first quarter, compared to the first quarter of 2005. The major portion of this increase, $1.7 million, was attributable to the adoption of FASB Statement 123-R for share-based payments, and the additional amortization of restricted stock awards.

The level of expenses in the first quarter overall, coincides with my remarks during the fourth quarter call, when I stated that the 2006 run rate would approximate the fourth quarter run rate, adjusted for FASB Statement 123-R additional restricted stock amortization and an increase of up to 4%, because of higher costs.

Our book value per share was $22.67 per share, increased from $20.45 per share at the end of the first quarter of 2005. Adjusted book value, which adds to the embedded value from after tax net present value of estimated future installment premiums in force, and after tax net unearned premium reserves net of DAC was $31.15 per share at quarter end, increased from $27.92 per share at the end of the first quarter 2005. The Company's operating ROE in the quarter, which is calculated by dividing our annualized quarterly operating income by average shareholder's equity, excluding accumulated other comprehensive income, was 8.7%.

I'm pleased to announce that yesterday the Board of Directors approved a new share purchase program for 1 millions shares. We will periodically repurchase shares under this program, dependent upon market conditions.

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

Ladies and gentlemen, [OPERATOR INSTRUCTIONS] And our first question will come from the line of Mark Lane with William Blair and Company. You may proceed.

Good morning, everyone.

Hi, Mark.

Maybe I missed it, but did you mention the number of transactions that you completed in the direct business this quarter versus the first quarter of '05?

Yes we did. It was 26 versus 18.

And within public seasons specifically?

In public finance, 10. Against what in '04? Or '05 rather? Let me see if I have that, 5.

Okay.

10 versus 5 in public finance, 26 in total versus 18 in total.

So other than the number of transactions, what can you point to that you track that is giving you more confidence that the breadth of your franchise is continuing to expand, that you are gaining traction, people are accepting your name.

We look at two things, Mark. One we look at the type of transactions, or the spread of asset classes, and we're very focused on, as we get more opportunities across a wider array of programs, so in the current quarter, we did our first UK PFI deal, we also did our first credit card deal. On that basis, it gives us further confidence that we are getting better known, and getting more visibility, so we're getting access for more opportunity.

The second thing we look at is the pipeline, and you know, we keep very tight statistics on the amount of opportunities we have as we look forward, and as I said in my earlier comments, our pipeline today is double what it was at this same time last year.

Okay. And--

And double is a pretty substantial increase.

Yes. Yes, it is. Do you believe that the security capital assurance IPO, that process, is that going to create any near term opportunities for you, given maybe some of the disruption in the marketplace from that for them?

Not on the direct side, Mark. I mean, obviously they are a competitor today, they will still remain a competitor regardless of share ownership. The opportunity we look at, is there's an opportunity for the reinsurance company as they now become a different kind of company, in terms of how they would buy protection from the market in general, the third party market as opposed to what they could theoretically engineer internally. So maybe we see an opportunity on the reinsurance side.

I'm just talking about maybe some of the uncertainty about the execution of the IPO, or just the marketing of the transaction.

No, we don't really have a view on that, you would be better than I would at answering that, we look at it from the business side, and we see no difference in the direct, and hopefully we have a potential for a new reinsurance client, or more expanded. Or more expanded, because they are a reinsurance client today.

Okay. And just a second question regarding Moody's.

What has Moody's told you specifically just about when it may issue a progress report? I mean not taking rating action, but at least putting something out? They have never written anything on you over the past year. At least maybe something that would outline what exactly they are looking for.

Yes, in this case maybe silence isn't golden, but obviously they give us a review of our quarterly earnings. They do a commentary on that, so we tend to look for tidbits in that, in terms of things that would lend to some indication, of potential future direction, but I'll fall back on the typical principal, you know, we manage the company as we think it should be managed, in conformity with what we believe are the standards for any AAA mono-line company.

We have been, I think, extremely successful. We have not made any changes in our strategy. We have not diverted from anything that we were doing in the pursuit of those AAA ratings. As we have talked about previously, we have been successful for two of out the three major rating agencies, and we're confident that with our continued execution and the results that we are achieving, that theoretically that should come into balance.

I'm not talking, I'm not trying to ask you to try to anticipate when they'll do a rating action, but typically during the review process they will do a write-up, they'll issue a progress report on how the company is doing, and you know, there's been nothing at all.

Understand Mark, it's an ongoing relationship. I mean we have discussions with them, you know, very frequently in terms of the exchange of information, et cetera, anything that they have ever pointed out us to be an issue or concern, I think we have dealt with it to the extent that we could, from a management point of view, and you know, we're awaiting the same way you are as well.

Thanks, Dominic.

Our next question will come from the line of Tamara Kravec with Banc of America Securities. Please proceed . Your mike is open. [OPERATOR INSTRUCTIONS]

We have a follow up from the line of Mark Lane with William Blair & Company.

Maybe I'm the only one that got on the call on the queue.

Were you able to shut everybody else's mike down?

Yes, I'm not sure what happened. Bob, maybe explain this within your comments, but just the case reserve activity within the financial, the direct business, can you go through the details of that again?

The case reserve activity in the district business is pretty limited. I mean, we had a $2 million recovery related to a sub prime mortgage deal, that's really it.

But why it is showing the negative case reserve?

It' showing a negative case reserve because of salvage recovery on the transaction.

The one that's anticipated to be collective on the second quarter?

No.

It's a different animal. We posted a reserve on a sub prime deal a few quarters ago, based on obviously our view of the credit at that point in time. In the deal we had an opportunity to close out the exposure, settle the transaction, we did that this quarter by actually buying the bonds.

As a part of that, there was an expectation of recovery on those bonds purchased, of which what is remaining is the left over piece of recovery, which we're obviously--

It will probably happen by the end of the third quarter.

Right. Highly confident of it. So we had the reserve. We closed out the position. We bought the bonds, and we're now selling the bonds, and this is what is left over in terms of the remaining piece of recovery.

Needless to say if they have a negative number there, we fully expect that is recoverable.

What about people flow, today versus the last the months, since the last call, transaction people in your major three businesses, hiring and has anyone left?

There's been, off of the top of my head, Mark, obviously personnel hasn't been a big issue recently. We have hired five new people in the quarter, and we have had three resignations. What w could call more traditional or standard activity.

Okay. And last question is the reallocation of expenses by segments, is that going to have any impact on taxes, or is that just an internal classification?

No. No. No, we're really just, you know, trying to get more granular, more specific in the allocation on a direct basis between the individual segments. That has no tax implications at all.

Okay. Thanks.

And our next question will come from the line of Geoffrey Dunn with KBW.

Thank you. Good morning. Dominic, I asked this question last quarter and wanted to bring it up again. Obviously you are in an extraordinary excess capital position relative to others, and you said that maybe towards the summer months you might get more aggressive in managing that, if you hadn't gotten your upgrade. Obviously you have an approval for the buy back, but that probably only puts a little bit of a dent in that excess position. Are you still looking to get more aggressive, above and beyond a 1 million share buyback with your excess capital position, or are you going to maybe extend that outlook, and remain more conservative?

I guess I'll take the aggressive comment also. I have been beaten about the head and the face by my own folks on that adjective. Obviously we continue to look at our capital, Geoff. We understand your position, we obviously believe to a certain extent the same thing.

We have got a capital base that's heavily dominated by common equity, and obviously there seems to be an opportunity as we will continue to evaluate it, to potentially re-engineer that, as well as other transactions as you said a minor share buyback, which is really just to take some surplus shares that will be coming out relative to the employee stock programs.

So capital evaluation for us is critical. We realize that obviously we have been a little bit hamstrung a bit by the, you know, kind of status that we have in terms of our ratings with Moody's. We would like to get some further clarity on that, much like you and the rest of the market, having received that clarity, then we would like to look at opportunities in re-engineering, but all in maintaining current capital levels of a deaggregate size, it's really the composition that becomes an opportunity for us, in terms of generating things like higher returns, et cetera.

Could you just update us, what is the amount of dividends that you can get out of the operating companies on a normal statutory basis for the rest of '06?

Dividend restrictions, obviously they are more restricted to the AGC side, than it is the reinsurance side. With any rating agent, I think we're limited to 10 million on AGC. The reinsurance company has a lot greater flexibility.

Are you able to give us a range or a number on that?

It's really going to be related to the capital, as opposed to a specific statutory restriction. So it is back to the rating agencies, Geoff, in terms of what they would be comfortable with, in maintaining our rating.

Okay. Thank you.

Our next question will come from the line of Darin Arita with Deutsche Bank.

Hi, good morning.

Good morning.

I'm full of questions here. Maybe I'll start off with a numbers question first. The 1.7 million of expenses related to FAS-123R, can you give us how that allocated among the segments for direct reinsurance and mortgage?

I'm not sure I have that at hand. Wait a second. I think it's 80%, a reasonable not exact, but a reasonable estimate is 80% would be direct, and 20% to reinsurance.

Okay. And thank you. And secondly, Dominic you talked about the pipeline being double today what it was a year ago, and I was wondering if you could quantify, to what extent that is a function of you know the AAA ratings from Fitch and S&P giving you access further to markets, versus Assured Guaranty just getting it's name out there, and you know, continuing to plug away.

I think there are a lot of factors that contribute to it. You know, probably most importantly is probably name recognition continued efforts on our part, in terms of hiring the right people that have relationships to go out and solicit the business, and obviously at the end of the day, ratings are still an incredibly critical piece of how you execute business in this industry. So it's not any one thing, it's a combination of all three.

Okay. Great. Well, thanks very much.

Thank you.

Our next question will come from the line of James Shanahan with Wachovia Securities. Please proceed.

Thank you, good morning, everyone. Regarding your guidance to plus 2 to 4% increase in operating expenses over the Q4 run rate, my question is why it isn't higher? You are hiring, and you have to have to pay people and I'm wondering why 2 to 4% is really enough to attain talented people.

We're not hiring that many people to start with, I think #1. And #2, Sarbanes Oxley expenses in 2005 our first year of implementation of Section 404, were much higher than they will be in the current year. So we try our best to control expenses, and so there will be, there is clearly additional employee expenses, but it will be offset by some savings in other areas.

I guess kind of a macro question, I was wondering if you would comment on your outlook for credit spreads sort of near term and other the course of the year, and also the comment on what you are seeing in the credit environment as it relates to consumer?

In terms of the spread environment, there's been some periodic up and downs on various asset classes, but in the main, spreads have remained consistently tight. Obviously based on our position that we have taken on the underwriting side of the mortgage or commercial-- or consumer asset backed part of the market, there is a concern on our part reflected in our underwriting appetite, as to some potential disruption in that marketplace, that heretofore has not come to the level that we would have already expected, but we still believe there's opportunity relative to a lot of things you seeing happening in the general economic market, that there would be some disruption on the consumer asset side.

We position ourselves, I think very defensively in terms of exposure, and that maybe could lead to a change in the spread in environment for that specific asset class. Additionally we look at, you know, general interest rates, and as they move up, even though that now seems to have ebbed a bit, what impact that would have. So spread environment we're not anticipating any tremendous change. Obviously, as I said we look at the consumer side, and say could there be some disruption there, that would lead to some widening out toward the end of the year.

Regarding rates, I guess what is your outlook for public finance issuance for the balance of this year.

Well, you know, everyone has an opinion, I don't think anybody has ever been right. You know it has been proven out over the last 2 years, so any one of us that would venture an opinion will probably be wrong. There is a general need that has to be met. However, there is the kind of interest of where we're at, in terms of overall rate environment. Issuance is down so far for the first quarter, and so is the insured penetration. The combination of the two is fairly substantial.

The overall industry, whether that maintains throughout the rest of the year, you know, I don't think it will. We still have a reasonable expectation internally for the company, as a fairly flat municipal period to slightly down, and there is, you know, some cyclicalness to that activity first quarter. We don't think would be sustainable, but you, as I said every prediction that has been made in this area has not been right, so I wouldn't put a whole lot of support into that.

Understood. I was just wondering if Bob could go back over again, the guidance that he laid out for loss and loss adjusted expenses for this year, I think I missed a piece of that? Thank you.

Yes, what I said about loss and loss adjustment expenses for the balance of the year, is really looking at portfolio reserve movement, and the expectation that because of the continued expansion of new business, and the somewhat ebbing anticipation of the runoff of the old CDO business, that it will be what I would call, a minor positive number. Naturally loss and loss adjustments will be moved dependent upon the actual production, and any case loss activity that develops.

Sure. Thank you very much.

Thank you. Our next question will come from the line of Mike Grasher with Piper Jaffray. Please proceed.

Good morning.

Good morning, Mike.

Follow-up on the share repurchase. Can you maybe frame it in different perspective right now the amount is, you know, probably a little light as Geoff referred to earlier, but how it does proceed in terms of if you wanted to go back and go to a higher level? Would you have conversations with the rating agencies, to sort of frame the size and scope, or how do we think about that?

You are exactly right, absolutely we would have conversations with the rating agencies to look at size, scope, purpose, et cetera.

Can you update just in terms of what you are experiencing on trading differential?

Trading differential, you know it moves, you know, almost deal by deal, we have talked about, you know, improvement over the last few quarters. Currently we think we trade anywhere between 4 and 6 basis points back, on the asset backed side. Once again, that could be different for different tenures and assets, and about 15 back in fixed rate public finance, and 4 to 6 back on floating rate public finance.

Okay. And then one final question for Bob, on the 123-R the expenses there, is that top heavy, in terms of most of this is going to be, is in 1Q, and then it will be to a lesser extent for the rest of the year, or is this it?

No, there's no seasonality to this, so there's no real loading to it. The expense is pretty even quarter to quarter.

Okay. Thank you very much.

Thank you.

Our final question will come from the line of Tamara Kravec with Banc of America Securities, please proceed.

Thank you good morning.

Good morning you made it through.

Trouble with my phones this morning, sorry, and as a most of my questions have been asked, but I wanted to touch base on retentions at the primary companies, and see what your conversations are like about that, and what your thoughts are throughout the remainder of '06, and possibly beyond that.

Obviously if there's going to be a down volume in the market, the typical reaction from a primary point of view would be to increase your retentions, so that you are still feeding a good amount of opportunity of earnings to the bottom line, however, we have anticipated that for the last number of quarters, and we have built up the facultative side of the business, as well as targeting those opportunities to a significant extent, and as I had said in the quarter, we continue to see the fruits of those labors, the real issue with reinsurance this quarter was really the absence of large deals, and that seems to be a prevalent theme from the standard point of us, and maybe others in the industry.

We still look for continued expansion of opportunities, in terms of who we target for even greater penetration on the reinsurance side, and typically they would not be the large companies, right, because they have already have a very established capital base, and their ability to absorb additional nets are not going to be a burden, but as we look at the other players, obviously you can see we get a lot of flow of business from FGIC on the facultative side, obviously we would love to entertain a treaty relationship with them, and hopefully we're working very hard to you know, provide an opportunity for both sides, them and us, in that regard.

In the same way as we talked really briefly about the XL or the SEA IPO that maybe gives us further opportunity as well on the reinsurance side, to provide capacity to that company, so I think the large guys will you know play defense and rightfully so, and hopefully, the rest will continue to seek alternative means to manage risk, including, you know, using facultative but not only that, expanding relationships as they get more traction themselves, and start writing the broader asset classes, so they need more overall protection, to then expand those relationships into a treaty relationship.

Okay. Great. Thank you.

You're welcome.

And that does conclude our Q&A portion, I would now like to turn it back over to Sabra Purtill for closing comments.

Thank you and many thanks to you all for joining us today. I would like to remind you a replay of this call is available on our website, and also by telephone. At 1-888-286-8010 in the U.S., and at 617-801-6888 for international callers. The passcode is 40999268, and all of this information is available on the press release that we previously put out announcing this call.

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

Ladies and gentlemen, this does conclude your presentation. At this time, you all may disconnect, and have a wonderful day.