Assured Guaranty Ltd (AGO) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2007 Assured Guaranty earnings conference call. My name is Jackie and I will be your operator for today's call.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's conference, Ms. Sabra Purtill, Managing Director of Investor Relations. You may proceed, ma'am.

Thank you, and thank you all for joining us today for Assured Guaranty's second quarter 2007 earnings conference call.

We released our earnings press release and financial supplement yesterday evening and these materials as well as other information on Assured including details on our subprime RMBS and CDOs of ABS exposures are available on our Web site at www.assuredguaranty.com.

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 the audience 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, fixed income market conditions and volatility, and other market challenges. 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. Please refer to our Web site for the most current information on Assured and to our most recent SEC filings for more information on factors that could affect our forward-looking statements.

I'll now turn call over to Dominic.

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

A lot has happened since our last earnings conference call, most of which we view as favorable for Assured and our long-term growth prospects. On July 11, we received our long-awaited Triple A rating for Assured Guaranty Corp. from Moody's. We have now achieved ratings parity with our peers.

As we have discussed, the benefits of this change in rating are significant. By narrowing our trading differential as the higher rating implies we will be able to participate in more asset classes in more geographic locations increasing our overall volume of business written.

In addition, our pricing margin will increase as well, improving our profitability across all asset classes. Clearly, this is great news for Assured and our shareholders.

This accomplishment and our enhanced opportunities have been somewhat overshadowed by the credit market concerns, particularly concerns related to subprime RMBS and CDOs of ABS. We have publicly stated for a long time, including at many investor conferences, that we were concerned about the deterioration in underwriting standards in the subprime market and that we had decided to take a conservative underwriting approach to this asset class.

Furthermore, since 2003, we simply refused to underwrite non Triple A rated subprime RMBS or any CDOs of ABS. On August 1, we released additional portfolio data that confirms that our aggregate exposure to these assets are highly rated and many analysts, including S&P, have analyzed our portfolio and indicated that is unlikely to generate credit losses.

You should also be aware that we applied the same standards to our reinsurance book as well. Subprime RMBS in this segment is only $332 million and only $43 million of this was originated in 2005 or 2006 and all but $2 million of it at the Triple A level. We have also excluded CDOs of ABS from our reinsurance treaties since 2003 and have only $61 million of exposure with an average rating of AA+ remaining.

One further point on reinsurance exposures. We do not rely solely on the primary companies for surveillance of our reinsurance book. We evaluate the credit performance of our reinsurance exposures ourselves and make our own determination as to what transactions belong on the CMC list and the timing and amount of reserves they might require. At Assured, credit is a team sport and we apply our standards consistently across the whole company.

Turning to the recent quarter, we continued our track record of making progress on each of our critical objectives, as we have in each and every quarter since our IPO. Our direct business continues to develop rapidly despite the split rating that we had to endure for, thankfully, the last time.

Direct PVP was $104 million, an all-time record for the Company and the first time our direct PVP has exceeded $100 million. Public finance had its best quarter ever insuring 33 direct U.S. public finance deals with net par of $705 million for PVP of $15.4 million. During the quarter we entered the competitive bid market and with the rating in hand, we are keenly focused on expanding our market share in the general government and tax-backed market, a critical segment for the Financial Guaranty industry and especially for Assured.

Our structured finance business continues to generate outstanding results with a 47% rise in PVP over the prior year. The quarter had a good mix of business in various asset classes including corporate pooled debt obligations, commercial equipment leases, and triple X insurance deals.

We are expanding our presence in the flow asset-backed business where we did not underwrite much in the past few years. We have ample capacity to take advantage of the market turn where we will continue to be diligent about credit quality and a strict adherence to our underwriting standards.

Our international PVP was down 45% due to a difficult comparison to the prior year quarter, which had a significant volume of U.K. utility business. Overall, the international franchise continues to develop nicely with increasing diversification of assets and geography, including our first two Australian deals, which is now a regional focus of our international operation.

Our reinsurance production results were at the low end of our projections at $21 million of PVP. As we have stated in the past, the impact of large deals tends to exacerbate the volatility of the facultative business which is the principle growth driver of this segment.

The impact of large deals is further demonstrated when you examine our submission activity and volume of closed deals. The number of facultative submissions in the quarter increased 43% over the prior year, while closed transactions increased by 15%. Facultative business comprised 44% of PVP in the quarter and is now 56% on a year-to-date basis.

Our commitment to strict underwriting standards continues to result in excellent credit results. Our total net par outstanding retained an average rating of Double A minus with over 45% of outstanding par rated Triple A.

Our below investment grade and CMC list decreased again this quarter to the lowest level on a dollar and percentage of par outstanding basis since our IPO. We remain very comfortable with the credit performance of our portfolio including our entire residential mortgage book, both prime and subprime, despite the concerns in the market.

I'm sure that you are all aware that credit spreads have widened out significantly in the last few months and liquidity has disappeared from some fixed income markets. Because Financial Guaranty helps provide not only credit protection but also liquidity to investors, we are seeing increasing demand for our product.

Environments like this when fear or the threat of loss is high, is often the best time to enter a market. Since as a new entrant with no exposure to the problem, you can demand the best price, terms and conditions. Assured has a clean book and with an improved trading value, we believe this market offers us a great opportunity.

As a result, our Financial Guaranty Direct pipeline is at an all-time high by any measure - deals, par, and potential PVP - and we are excited to be able to capitalize on these opportunities.

We believe that putting our capital to work today having just received the Triple A from Moody's at a time of significant improvement in market pricing, terms and conditions is the best way to create long-term value for our shareholders. I look forward to updating you in future quarters about the development of our Financial Guaranty franchise and the growth of our company.

I'd like to now turn the call over to our CFO, Bob Mills, who will discuss the financial results for the quarter in more detail.

Thanks, Dominic, and good morning, everyone.

I want 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. I'd like to begin this quarter with a brief update of the FASB project on accounting principles applicable to the Financial Guaranty industry.

Roundtable discussions to be conducted by the FASB on the exposure draft have been delayed until early September. We will participate in this dialogue and we'll keep everyone informed as the standard-setting process evolves.

Turning now to the performance for the quarter. Net income for the quarter, second quarter of 2007, was which $32.8 million, or $0.47 per diluted share compared to $44.5 million, or $0.60 per diluted share for the second quarter of 2006.

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 $46.7 million, or $0.68 per diluted share compared to $41 million, or $0.55 per diluted share for the second quarter of 2006.

Let's look at the details, the results in some more detail. PVP, or present value of gross written premiums, totaled $125.3 million for the quarter compared to $148.4 million for the second quarter of 2006. PVP for the direct segment totaled which $104 million, an increase of 5% from the second quarter 2006 amount of $98.8 million which was our previous record production quarter for the direct segment.

Production in the direct segment included strong performance across most of the sectors of the business, with the exception of international as exhibited by an increase in transaction volume from 46 in the second quarter of 2006 to 66 in the current quarter.

PVP for the reinsurance segment totaled $21.3 million, a decrease of 57% from the second quarter 2006 amount of $49.6 million. Both facultative business and treaty business decreased compared to the exceptionally strong second quarter 2006. Although there was an increase in the number of transactions in the current quarter, there was a significant decrease in the number of and PVP from large transactions comparing the second quarters of 2007 and 2006. The second quarter 2006 amount also included PVP of approximately $11 million from the Ambac treaty, which was cancelled in 2006.

Net earned premium for the quarter totaled $54.2 million, up 12% from the second quarter 2006 amount of $48.2 million. For the Financial Guaranty Direct segment, net earned premiums totaled $28.3 million for the quarter compared to $21.2 million for the second quarter of 2006, an increase of 33% in the current quarter, which is reflective of continued expansion in our direct book of business.

Net earned premiums for the reinsurance segment were $23.7 million, an increase of 3% from the second quarter 2006, amount of $23.1 million. The increase was the result of increased refundings and is in line with our expectations.

Net earned premiums for the mortgage segment were $2.3 million, down 38% compared to the second quarter 2006 amount of $3.7 million. The decrease reflects the run-off of the business in this segment. There was no new business written during the quarter as was our expectation.

Loss experience continued to be favorable in the quarter. Loss and loss adjustment expenses incurred a total benefit of $9.1 million for the quarter compared to a $6.5 million benefit for the second quarter of 2006.

The net recovery for the second quarter of 2007 was principally in the reinsurance segment related to Eurotunnel. There were no other remarkable changes in loss activity for the quarter.

As Dominic discussed, we provided additional disclosure on our Web site last week relative to subprime RMBS exposure. We have also expanded our disclosures in our supplement this quarter to include details of our prime RMBS exposures.

As previously stated, we've been conservative in writing risks in the subprime RMBS area for quite some time. To reiterate, since our IPO in 2004, we have not taken on any subprime exposure below the Triple A level in the direct segment. There was no significant impact on our reserves relative to subprime or prime RMBS during the quarter.

The book value of the investment portfolio increased $62 million from the balance as of December 31, 2006, the result of normal operating cash flow during the quarter. Yields remained relatively flat comparing the second quarters of 2007 and 2006 with pre-tax book yield of 5.1% at the end of the current quarter while we increased the duration to 4.6 years.

There's been no significant change in the investment portfolio asset allocation during the quarter and the average credit quality for the portfolio remains at the Triple A level. All mortgage-backed securities in the portfolio are rated Triple A.

The after-tax market value of our investment portfolio declined during the quarter by $33.9 million reflecting impact of the changing rate environment.

Operating expenses increased by $3.2 million, or 21% in the second quarter of 2007 compared to the second quarter of 2006. This increase was attributable to a number of factors including expanded headcount since the end of the second quarter of 2006, as well as higher expenses related to share and option awards, including higher expenses due to accelerated recognition of expense for awards made to retirement eligible employees.

The level of all other expenses remained relatively flat in the second quarter of 2007 and continues to be in line with expectations. The effective tax rate on operating results for the quarter was 14.4%. This rate is in line with expectations for the balance of 2007.

During the quarter we had after-tax unrealized losses on derivatives of $12.7 million. This was totally attributable to spreads widening and includes no credit losses.

The derivative business is an extension of our Financial Guaranty business and these financial guarantees in derivative form are not traded. As these instruments approach maturity, market fluctuations, both gains or losses, will revert to zero absent a credit event. Changes in the mark-to-market have no impact on statutory capital or rating agency capital.

The segment of the portfolio most significantly impacted was the structured credit area which includes subprime RMBS of which 94% is Triple A rated. Approximately 40% of the unrealized loss was attributable to the subprime portfolio with another 40% attributable to cash flow CDOs and trust preferred CDOs of which 98% is Triple A rated.

The net asset on the balance sheet related to the mark-to-market of derivatives is $19 million at June 30, 2007. With considerable volatility continuing in the market, this amount will fluctuate significantly in future periods.

Our book value per share was $24.98, an increase from the $22.98 book value per share at the end of the second quarter of 2006. Adjusted book value, which reflects the book value and adds 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 $37.82 per share at quarter end compared to $32.48 per share at the end of the second quarter of 2006.

The Company's operating ROE in the quarter, which is calculated by dividing our annualized quarterly operating income by average shareholders equity excluding accumulated other comprehensive income, was 11.2%.

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

(OPERATOR INSTRUCTIONS) Your first question will come from the line of Darin Arita from Deutsche Bank. You may proceed, Darin.

Hi. Good morning.

Good morning.

Congratulations also on getting your third Triple A rating.

Thank you.

The first question, I guess, in terms of Assured Guaranty Corp. thinking about the capital position there has a significant amount of excess capital.

I guess over the past 12 months, though, or even past five quarters, it's had very strong business production and just wanted to get a sense of the capital generation of Assured Guaranty Corp. Is it generating excess capital? Has it generated excess capital over this period or has it been consuming capital?

Darin, it's been consuming capital. Obviously, we look at the capital position and remember, we're also subject to the three rating agencies different calculation of capital required, so we've got to keep all of that in balance but by and large, on the direct business and when you include the internal session between AGC and AG Bermuda Reinsurer, we've been a net user of capital and we continue to project out our capital on a three and five-year basis to make sure we're in balance. So we're quite happy with the usage of capital because, as you remember, we've typically been very underlevered in terms of our capital position against business outstanding or business written, and we continue to move up those percentages which will obviously be beneficial to the ROE of the Company.

Okay.

And turning to the CDO your appetite for CDO of ABS, your Assured Guaranty Corp., if I understand the disclosures correctly, has not been active in this market really since over the past three, three-and-a-half years and just wondering what would it take for Assured Guaranty to become more active here?

It would take absolutely nothing. It would not be active. Our issue relative to the CDO of ABS is really a couple of things.

One, it's very hard to get a really solid estimate of correlation and then because of the nature of the makeup of the assets within the portfolio, the severity assumptions have to be incredibly tightly looked at.

And number two, it obviously is a tremendous exercise in terms of trying to get to the granular level of underwriting that we like to get to as we look at our risk. So the combination of the two I don't think for us really has the ability to be changed in terms of our appetite in the near future if at all.

Okay.

I guess if we could just understand though what changed because Assured Guaranty did have an appetite for it in 2003 and prior, and then it stopped. Can you help us out with that?

Well, remember, in 2003 we were very different company. We still wrote at typically at the Triple A level, the senior most position which is differently than what was currently being offered in the market today. It came through our reinsurance treaties where we were predominantly in 2003 a reinsurer.

As we've said we excluded that from those contracts starting in 2004, so I don't think it's a real kind of change of position. We were a very different company in '03, than we are today and I think this just reflects how we look at the Company and our underwriting principles and standards on the basis of predominantly being a direct writer, being a Triple A, Triple A, Triple A, you know, for the first time company as well.

Okay.

And turning to the direct subprime RMBS, can you describe with the change in market conditions would Assured Guaranty's appetite increase for that asset class?

Well, a couple of things fundamentally. One, the nature of the underwriting standards now being implemented on behalf of the originators is different, so the quality of the borrowers and the mortgages within the pool are going to change and are changing.

Two, the structure of the deals, especially those in terms of as you look at the ratings criteria for the rating agencies are requiring a lot more terms, conditions and subordinations, which also make it a better underwriting risk.

And then three, you're getting paid a hell of a lot more for today than you were and on a basis of a multiple. So we will look at that opportunistically, still stay absolutely committed to the underwriting discipline standards and quality that we've had and continue to have in terms of looking at not only that asset class but other asset classes, so we will look at it today probably at the Triple A, Double A level.

There is tremendous opportunity, tremendous value for pricing, and as I said, factoring in the underlying quality of the borrower or structure of the deals, this makes a lot of sense to us.

All right. Thank you.

Thank you.

Thank you, gentlemen. Your next question will come from the line of Mark Lane from William Blair & Company. You may proceed, Mark.

Good morning.

Good morning, Mark.

Can you talk about expenses and how you see building out your infrastructure and staffing levels given the upgrade to Triple A? I got on the call a little bit late so I apologize if you've covered some of this.

[You know], we haven't but the expenses are probably the easiest thing for us to talk about. If you look at the Company in total over the last year we added about 12 positions from second quarter of '06 to second quarter of '07. That represents a little less than 10%, and that's going to kind of be the activity you see as we buildout opportunities in certain of the areas today where we have not been very active, that'd be public finance, that being flow ABS.

The expenses that you see reporting through the financials include a couple of things. As Bob mentioned, we do have the accelerated recognition of awards to the retiree-eligible employees in terms of the stock compensation. As we've talked before, that I'll continue to run through this year and finally, towards middle, late '08 you're going to see relief finally [you're] no longer generating an increase in the financials.

And lastly, we had some additional expenses related to the activity we have in our technology group as we're building out our systems. And as we talked, we've built out a front end public finance business to be able to handle the type of new businesses, competitive bid, et cetera, that we're entering into that market so the costs really get down to those three.

Selective hiring but typically at the lower levels, because we've got as we looked at the Company early on we brought in the management director-director levels because we needed to have that kind of interface to the marketplace, now we're filling in those staffs. So you'll see incrementally expenses going up and headcount going up kind of in that less than a 10%, and the rest is employee costs based on those additional hires and the acceleration, and lastly, is the software cost and the network that we're building out in terms of IT.

Okay.

Just a follow-up on Darin's question regarding the CDO of ABS business. So you haven't written the business so far which is a plus but --

It is a plus?

Well, you try not to be too positive in this market, so --

That's the bad part. Yes, we get our Triple A and everybody's depressed. This is kind of a hard call for us.

Right.

(Inaudible) wanted to have champagne bottles popping in the background here and it's just not going to happen because of with the kind of pale over the market.

Yes, tell me about it.

But go ahead.

Okay.

So the CDO of ABS, so even though the structures and the subordination has changed so dramatically, is there anything unique about your book in terms of correlation risk or do you need people with expertise in that area or do you not have relationships with those CDO managers in that asset class that you can get comfortable with? It's just hard for me to believe how things have changed so much that there can't be an opportunity there.

None of all of the above, Mark. It is not an asset class that we are attracted to. We're talking about the CDOs of ABS, not subprime, right?

We think there is too much correlation in that type of an underwrite. There's obviously a harder view because of the level of the underlying ratings of the given instruments within the portfolio where you really got to look at severity as a major factor and understand these things are very complicated [feats], right?

When you look at any one of the individual securities representing the risk, there are so many factors that go into the potential for the loss, and we could stress them 'til we all fall off our chairs and as you're seeing in the current marketplace today, the amount of standard deviation is well outside of anybody's expectation, say, if you look at the indexes today and where they're currently pricing at. So it's virtually not in our view that this is an area that we want to spend a lot of time in.

And you can require additional subordination, but I think as we're going to find in some of the current problems in the market for that specific asset class, that I'm not so sure how much subordination's going to be needed to protect some of the higher tranches from still experiencing a loss. The correlation risk and [the] severity risk for us becomes something that when we look at these things we can't get comfortable on, and therefore, it just doesn't make sense for us to look at that and there's just too much other opportunity elsewhere in terms of the vanilla, what I'll call it, subprime RMBS.

Yes.

We do have good people, but we just don't want to utilize them in that capacity.

Okay. Good. Thank you.

You're welcome.

Thank you, gentlemen. Your next question will come from the line of Mike Grasher from Piper Jaffray. You may proceed, Mike.

Good morning, everyone.

Good morning, Mike.

Just a quick, first of all a follow-up to some of your comments earlier about the change in the structure of the deals. Were you speaking specifically to the RMBS and can you comment in terms of has the other shoe dropped or has it carried over to sort of the commercial aspect of structured finance?

I'd say principally we're speaking about RMBS, but for another instance if you look at the CDOs of specifically CLOs, right, of the loan structures, there was a lot of concern in the marketplace about covenant light loans that are being included in the portfolios.

I think you can see based on where the market is today, those are disappearing, they had a very short run, very short life, so even outside of subprime RMBS, you're seeing kind of a knock down or a knock-on effect in terms of quality, or I don't want to use quality, but change in structure or the underlying --

Terms and conditions?

Yes, exactly.

On the commercial side, the same thing kind of happened there a little bit. You had a lot of aggressive lending, maybe some standards that were being looked at a little bit lightly and now they 're back, obviously, getting paid a whole lot of attention to, so this has had spillover effects.

Okay. That's helpful.

And then just wanted to ask, I guess, a theoretical question around the international business and when one thinks about that certainly has its ups and downs because of the processes in place over there, so I'm wondering what the sensitivity is to the perceived change in liquidity out there in the marketplace?

Is there any reason to believe that it would be any different than what we may see domestically because of the general acceptance internationally has been slower to come in terms of the credit enhancement product?

Well, as we talked a little bit in the earlier comments in that our industry provides a couple of things, right? Obviously, kind of credit insurance or credit underwriting but more importantly, liquidity. And as liquidity now becomes a bigger issue, we would think you'd see a lot more activity coming back into the financial guaranty market than has historically, at least over the last few years, with very tight spreads where things were being done outside of our industry and we think now that'll start to turn its attention back to us because of the immediate value of liquidity and, obviously, the same thing as you and I all read the press is happening internationally.

So hopefully this helps to accelerate kind of the international development in what I'll call the more domestic predominant asset classes in terms of financial guaranty structures.

Okay. Thanks very much. That's helpful.

You're welcome.

Thank you, gentlemen. Your next question will come from the line of Heather Hunt from Citigroup. You may proceed, Heather.

Thank you. Good morning. Congratulations on your Triple A rating and thanks for this increased disclosure. It's really good to see.

Thank you, Heather.

Just, I guess, a couple questions.

On the reinsurance business, do you see much turnaround in the level of new production? It would seem that larger companies might want to start ceding again a little bit more if production does pick up?

Yes, we would agree to the exact same.

Okay.

And so, I mean, earned premiums at the current rate, they're sort of running off about $1 million per quarter. Do you think that that will sort of continue unless we start to get some new production?

Yes, you got to be careful on the earned premium on the reinsurance book. A lot of that is really more to the change in the composition of the reinsurance book as we get to more longer dated exposures. We do provide the rollout analysis, we've been fairly consistent in terms of the results that we're achieving.

The thing that I look at is I look at two things, right, the par and the PVP. And we're continuing to keep a level of par from third party business down, because remember, that's what you see on a GAAP basis, we always have to look at the Company including the internal sessions.

But we look at that par number and that has maintained a rather consistent number, albeit, pricing has come down in the last three years to be honest about that but as well, deals have extended out in terms of term, in terms of the type of business, so the earned premium is probably not really reflective of the underlying business activity. As we talked about in the quarter, we had a great quarter in the reinsurance book in terms of submission, closed deals, et cetera, but the PVP was lower because they wrote a lot more vanilla public finance deals through the reinsurance arm.

We look there at cash flow and investment income as also a huge contributor to the overall profitability of the reinsurance company. So we take all into consideration and we think the activity could, should, will pick up based on the change in the market, the earned premium that you got to understand has so many factors that are feeding into it, it's a little harder to relate that back to anything in terms of production level or business activity.

Okay. Great. Thanks. And I wondered, I'm not sure if you said this earlier, I jumped on late.

Can you update us on the trading differential on your bonds and did you see much pick up after the upgrade and did that really spur much more interest in (inaudible)?

Well, I think based on us telling you that our pipeline today is bigger than we've ever, ever had it and really significantly bigger, we don't really disclose that amount, we don't really have, we have a couple of good trades or marks on the structured credit side where we've been as tight as one back, we've been on top of on a floating rate obligation.

We don't really have a good mark on the public finance that we can quote in the quarter but, obviously, the activity we're seeing I think is reflective of the fact that of the narrowing differential and as we get more trades that we can talk about, we'll let those be known. As I said, the best marks we've had are flat to one of the big four and then one back on a very large side-by-side asset-backed deal that we did this quarter.

Okay. Great. Thanks very much.

Thank you.

Thank you very much. Your next question will come from the line of Geoffrey Dunn from KBW. You may proceed, Geoffrey.

Actually my question was just answered. Thank you.

Thanks, Geoff. Thanks, Geoff. Good morning.

Good morning.

Thank you very much. Your next question will come from the line of Tony Pramera from Banc of America. You may proceed.

Actually, it's Tamara Kravec from Banc of America. Good morning and also congratulations on your Triple A.

Hi. Thank you.

Just wanted to circle back to the international book and just understand whether it's your view that your Triple A upgrade will help there. I know it's really important domestically in the municipal positioning, but does it help you tremendously on a competitive basis internationally?

And then if you can touch on your ROE and just talk about that now that you have your rating and you're quickly ramping up your business, what your outlook would be for sustaining that in the double digits? Thanks.

In terms of international, you're right. The Triple A makes a huge difference in terms of the infrastructure market over there. We've been out of that market. As you know, those transactions are fairly long gestation. It's a complicated bid process, but we have not been asked to the dance because of the split rating and now we get asked to the dance in the same way, the, every other aspect of the market benefits by the fact that we now have that third triple.

Once trading value narrows it obviously opens up more opportunity in terms of even specific asset classes that were active today, but that international infrastructure market now presents a great opportunity for us which we've been absolutely out of for a number of years.

In terms of ROE, I'll throw that to Mr. Mills who would have shot me if I said any word about projected ROE.

Well, I won't let Dominic make any forecasts as to what our ROE is and certainly I won't do that either. We try to improve ROE on a gradual basis, and I think your question was specifically keeping it in the double-digit range, and I think that that's clearly what we expect and I won't say at what levels but, clearly, the goal is to get the ROE up to be competitive with the best-in-class that will take a little time.

Okay. Great. Thank you.

Thank you, gentlemen. (OPERATOR INSTRUCTIONS) Your next question is a follow-up question from Heather Hunt from Citigroup. You may proceed, Heather.

Thanks very much.

I just wondered if you could review for us your outlook on any loss mitigation gains that might be coming through the pipeline? Obviously this quarter was very nice. I wondered if you have any visibility on that? None that I would tell you about.

There are certain credits that we have that we have obviously monitored very closely. It's not something that we plan for. We've obviously been very beneficial recipients of which I think is a testament to a lot of folks in the Company including our legal staff.

But there is really nothing major out there. I mean, there are some other, we still continue to get activity on some old litigation claims. That'll continue to dribble in.

Which is income.

Right. Which is income, obviously, and I think your question was credits not us paying loses, right?

Yes, yes, credits.

So obviously the FASB and that whole position on how they're going to change recognition of loss reserves would have an impact but at this point, that's probably an '08 situation.

Maybe '09.

And maybe even '09. So there's nothing of significance that I could talk to you about, obviously, we think we keep a very tight view of loss activity. We're very transparent and diligent in evaluating all of our exposures and making sure we think we're carrying reasonable reserves.

One of the indicators is that CMC list as we talked very briefly, it is the lowest it's ever been, it's significantly lower than it was a year ago and, obviously, way significantly lower than the IPO, which also kind of indicates we don't have a lot of activity out there on the loss side.

Thanks very much.

You're welcome.

Thank you, gentlemen. At this time, there are no further questions in the queue so I'd like to turn the call back over to Sabra for closing remarks. You may proceed, ma'am.

Thank you and many thanks to you all for joining us today. We certainly appreciate your interest in Assured Guaranty and are available for any follow-up questions you may have today or in the following weeks.

I would note that 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 60786836.

If you have any additional questions or information needs please feel free to contact me or our Vice President of Investor Relations, Chris McNamee in New York at 212-261-5509. Thanks again and have a good day.

Thank you, ladies and gentlemen, for your participation in today's presentation. You may now disconnect and have a wonderful weekend.