Assured Guaranty Ltd (AGO) 2012 Q1 法說會逐字稿

Good day and welcome to the Assured Guaranty Limited first-quarter 2012 earnings conference call and webcast. All participants will be in listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Robert Tucker. Please go ahead, sir.

Thank you. Good morning, and thank you for joining Assured Guaranty for our first-quarter 2012 financial results conference call. Today's presentation is made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. It may contain forward-looking statements about our new business and credit outlooks; market conditions; credit spreads; financial ratings; loss reserves; financial results; future rep and warranty settlement agreements; and other items that may affect our future results.

These statements are subject to change due to new information or future events. Therefore, you should not place undue reliance on them, as we do not undertake any obligation to publicly update or revise them, except as required by law.

If you're listening to the replay of this call, or if you're reading the transcript of the call, please note that our statements made today may have been updated since this call. Please refer to the Investor Information section of our website for our recent presentations; SEC filings; most current financial filings; and for the risk factors.

Turning to the presentation, our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Limited and Robert Bailenson, our Chief Financial Officer. After their remarks we'll open the call to your questions. As the webcast is not enabled for Q&A, please dial into the call if you would like to ask a question. I will now turn the call over to Dominic.

Thank you, Robert, and thank you all for joining Assured Guaranty for our first-quarter 2012 earnings call.

During the quarter, once again, Assured Guaranty delivered positive operating results in a tough macroeconomic environment. We have done this consistently during both the recession and its choppy recovery through a successful combination of writing new business and executing alternative strategies to create shareholder and policyholder value. I am also pleased to announce that, as one of the main components of those alternative strategies, we have finalized a settlement with Deutsche Bank that I had alluded to on a prior call.

Deutsche Bank is the second major financial institution that we have settled with in little more than a year. This agreement further strengthens our balance sheet by providing a substantial cash payment and provides certainty related to RMBS developments due to a loss-sharing arrangement on future claims.

With this agreement we have now reached favorable settlements with respect to approximately 37% of the remaining par outstanding of our coupled obligations and ensure Guaranty's legacy residential mortgage-insured portfolio, a critical statistic relative to our capital adequacy or financial strength which should have a significant positive impact for Moody's and S&P's rating evaluations.

Two other prominent alternative strategic events occurred in the first quarter. First, we completed a transaction with Radian Asset Assurance in which we reassumed $12.9b of par previously ceded to Radian; assumed an additional $1.8b of par of Radian direct public finance exposures; and agreed to acquire the bond insurance company, Municipal and Infrastructure Assurance Corporation, which gives us additional flexibility to respond to future challenges or opportunities in the financial guaranty industry.

In another similar transaction we reassumed $6.2b of par of insured public finance business from Tokyo Marine. These two transactions captured $20.9b of par insured, an amount equal to 124% of our 2011 production, a remarkable result that significantly mitigates the impact of reduced new business activity in the current market.

In terms of our new business production, total first-quarter 2012 PVP increased 7% over that of the first-quarter 2011. In looking at our public finance activities, including the business assumed in the Radian transaction, PVP increased by 54%. Further, we materially increased the total municipal par amount we insured in the first quarter of this year versus last year's comparable quarter, up 118% when including the direct assumed par in the Radian transaction, and up 37% excluding the Radian assumption.

In the municipal new issue market we insured 12% of all new municipal transactions and 5% of the par sold during the first quarter of 2012. More importantly, in our target market, which is new US municipal issues of single-A underlying credit quality, we insured 37% of the transactions sold and 18% of the par sold in the quarter, both of which are higher levels than in the first quarter of last year.

These results confirm the continuing fundamental demand for bond insurance. And we accomplished them with continued downward pressure on our ratings, average yields at all-time lows and tight credit spreads. Additionally, current market conditions have created an environment where many investors are unwilling to give up even the slightest amount of yield and, therefore, are foregoing insurance, while at the same time issuers are still able to borrow at historical -- historic low rates.

Despite these pressures we continue to maintain new issue premium rates in line with those of a year ago while improving the average credit quality of our new direct originations insured from A minus to single-A flat. Interestingly, in the first quarter 7% of our public finance insured par was for issuers rated in the double-A category by Moody's. This proves that bond insurance can add value even when it does not elevate an issuer's ratings.

This is because investors value Assured Guaranty's selection, underwriting, surveillance and the certainty of payment our guaranty provides. I believe this is a critical fact that Moody's must consider as they continue to express their concern about future demand for financial guaranty insurance.

In structured finance we continue to work with large financial institutions to provide credit protection for selected assets. And we closed another transaction during the quarter. In international business we have made progress on our objective to replace other guarantors on outstanding infrastructure transactions, following our successful fourth-quarter Ambac replacement transaction. We expect to see increased production from both of these areas over the course of this year.

Turning to our ratings, on March 20 Moody's placed Assured Guaranty and its subsidiaries' ratings under review for possible downgrade. A week later Moody's published credit opinions on AGM and AGC, with financial strength rating scorecards reflecting a strong double-A rating for each of those companies.

On April 26 Moody's published a very negative industry outlook on the financial guaranty industry, citing low insured volume and meaningful remaining risk from legacy portfolios for an industry that they say, quote, has not recovered from the financial crisis, end quote.

It's true that some of the other bond insurers have not recovered from the financial crisis, but that does not apply to Assured Guaranty. We have not just, as Moody's writes, survived the financial crisis, but have demonstrated our resourcefulness, financial strength and ongoing viability.

Moody's action as it relates to Assured Guaranty is not supported by facts in light of our strong earnings; increased capital; the reduction in our insured leverage; another rep and warranty settlement resulting in 37% of the par outstanding on troubled RMBS transactions, now subject to favorable settlement agreements; and our penetration in the A-rated issuer markets.

On April 13 we published a response to the Moody's announcement that is available on our website. The statement explicitly measures Assured Guaranty's performance relative to each of Moody's financial guaranty insurance industry metrics. I urge you to read it.

It shows that by applying Moody's own financial strength rating scorecard to Assured Guaranty's financial guaranty subsidiaries we have met Moody's own criteria for strong double-A ratings, just as Moody's itself concluded in their March 26 credit opinions.

The review of Assured Guaranty that Moody's announced on March 20 cites concerns about origination volume and future margins as reasons for a potential downgrade. We continue to question the relevance of these two factors in evaluating the financial strength of an insurance company, especially one that in an industry with significant deferred revenue.

We cannot comprehend what new business prospects have to do with the probability of our default, or our ability to pay claims on our existing portfolio. Future views of business activity or profit margins are directly related to an equity investor's evaluation, which I do not believe is what the market expects from Moody's or is relevant or beneficial to our policyholders.

The Assured Guaranty companies currently have recorded approximately $6b of deferred revenue, which provides a solid base of future earnings that offers strong protection against any financial disruption caused by temporary lack of current production due to a low interest rate environment and tight credit spreads.

We are well positioned to address current market opportunities prudently and are not pressured to insure risks outside of our strict requirements. In their industry outlook Moody's also expressed a concern that the stressed municipal issuers may choose to strategically default on insured debt obligations. However, they provided no data to support such a broad claim and we have seen no evidence supporting such a trend in our portfolio or across the industry. Moreover, Moody's own recent report on municipal defaults does not support this assertion.

I encourage all of you to listen to the replay of the Moody's call, which discussed their published outlook. Many of the callers questioned the use of market share in the ratings criteria and their ambiguous assertion on the selected insured defaults.

Despite the significant challenges we've faced since the onset of the great recession, Assured Guaranty has implemented effective strategies to provide value to issuers and to honor our commitment to bond holders. Our claims-paying resources increased by almost 17% since the end of 2007, ending first-quarter 2012 at over $13b, despite our paying over $4.3b in insured claims over that period.

Furthermore, we have recovered over $2.9b of losses on RMBS securities; produced over $1.7b of operating income; insured over $75b of municipal bonds in the last three years; signed two loss-sharing agreements that mitigates future RMBS losses; and significantly reduced aggregate leverage since the second quarter of 2009, reducing our insured portfolio exposure by approximately $96b.

The $96b overall reduction included $85b in structured finance, of which $11b was US RMBS. These strengthened achievements, especially during the recent global crisis, are indicative of a strong double-A rated company.

In turning to our RMBS loss-mitigation efforts Bank of America and Deutsche Bank have set a good example for rep and warranty providers by reaching a negotiated agreement. Unfortunately, other rep and warranty providers, such as Credit Suisse, have been unwilling to negotiate resolutions of these same disputes.

Of course, we are also continuing to pursue other opportunities to limit future losses through servicing interventions. On transactions where we have already transferred servicing, or imposed special servicing contracts we continue to see significantly better collateral performance and industry norms.

Before the -- before I turn the call over to Rob I'd like to re-emphasize that we are confident about the strength of our financial resources, the benefits of our product for both issuers and investors, and our strategies for building shareholder value.

I will now turn the call over to Rob Bailenson for more details on the first-quarter financial results.

Thanks, Dominic, and good morning to everyone on the call. As always, I refer you to our press release and financial supplement for explanations and reconciliations of the non-GAAP financial measures that I will reference in my commentary. Before I begin my discussion of the quarterly financial results I would like to give you more detail on Deutsche Bank -- on the Deutsche Bank agreement which was signed earlier this week.

Because we anticipated reaching a settlement with Deutsche Bank that is consistent with the final economic terms of the agreement, substantially all of this rep and warranty benefit was incorporated into our loss development in 2011. In connection with this settlement, we received $166m in cash and going forward Deutsche Bank will participate in a loss-sharing arrangement.

Their obligation under the loss-sharing arrangement is collateralized by assets in an amount necessary for Assured to receive full rating agency capital credit under their stress-loss scenarios. The deal with Deutsche Bank is another major accomplishment in our loss-mitigation strategy.

Of the $1.6b total net rep and warranty benefit recorded, $840m is now collateralized and covered by loss-sharing arrangements, which leaves only $790m of rep and warranty benefit that is not yet covered under a contractual arrangement.

Turning now to the financial results, it's worth noting that, despite challenges in the global economy, in the first quarter of 2012 we earned $71m of operating income, or $0.38 per share. Adjusted book value increased to $49.37 per share and operating shareholders' equity increased to $28.83 per share.

Our first-quarter results were impacted by three items. The first two items were the assumption and re-assumption agreements with Radian and Tokyo Marine, which resulted in total payments to the Company of $210m. These agreements increased our adjusted book value by $139m and resulted in after-tax commutation gains of $54m. The revenue generated by these two agreements are equivalent of almost three-quarters of our 2011 new business premium production.

The third item that affected our quarterly results is related to the developments in Greece. The sovereign debt that we insured was assumed in the acquisition of FSA. First-quarter 2012 operating income includes $189m of losses incurred related to our guaranty of Greek debt, which represents a full-limit loss and puts this issue behind us. This was the largest single component of the $212m in total economic loss development.

US RMBS contributed $17m to the total economic loss development in the first quarter. Because early-stage delinquencies for certain classes of US RMBS and short obligations continued to improve slowly the Company increased its expected losses. This increase was substantially offset by improvements in the benefit for reps and warranties and the effect of increased discount rates. The effect of increased discount rates on the first-quarter loss development was a decrease of approximately $41m.

As we've discussed in the past, the development attributable to changes in the risk-free rates used to discount losses is not indicative of any credit improvement or impairment, nor is it reflected -- reflective of our own investment yield.

The other major drivers of operating income are generally in line with our expectations. Premiums and credit-derivative revenues declined consistent with the amortization of par and on premium reserve. Net investment income was down slightly, due mainly to higher prepayment speeds and lower reinvestment yields. The pre-tax book yield on the investment portfolio was 3.96% at March 31, 2012, compared with 4% at December 31, 2011.

Operating expenses were relatively flat year over year. The first quarter of each year includes accelerated vesting expenses, the long-term incentive compensation awards that are granted at the beginning of each year. For each of the remaining quarters of 2012 I expect operating expenses to be between $50m and $55m.

The effective tax rate on operating income varies from quarter to quarter due to the amount of income in different tax jurisdictions and was 18% for the first quarter of 2012. I expect our operating effective tax rate for 2012 to be between 20% and 24%.

I'll now turn the call over to our operator to give you the instructions for the Q&A period. Thank you.

Thank you. We will now begin the question and answer session. (Operator Instructions). Our first question comes from Geoffrey Dunn of Dowling & Partners. Please go ahead.

Thanks, good morning.

Good morning.

Good morning.

On the Greece loss you obviously took a full-limit loss there. Has that already been settled with the counterparty, or is there room for negotiation if that counterparty doesn't want the long-term exposure to AGO?

Well, it has not been settled. There's always room for negotiation. But understand they're not going to have the long-term credit of AGO because we're going to call the bond and settle it 100%.

Okay. And then, second, on Moody's, is there is back-and-forth discussions going on between AGO and Moody's, or is this kind of they've put out what they've put out and it's a battle just to even see the capital models etc? Is there other active helpful discussions or is it some of the things we've seen in the past?

Well, Geoff, I would tell you that, as Moody's has to go through their rating process, there is a tremendous amount of dialogue as we exchange information, respond to questions and provide more clarity.

Number two, as they start to provide us capital information in terms of how they assess the risk in our portfolio, we obviously go through our own verification and make sure they've got the deal structure right, the par amounts right etc. And that dialogue continues ad infinitum and is ongoing as we speak today.

Okay, great. Thank you.

Our next question comes from Brian Meredith of UBS. Please go ahead.

Yes, good morning, a couple quick questions here for you. The first one, Robert, if you could just tell a little bit any P&L or balance sheet impact from the Deutsche transaction in the second quarter?

That will really depend on whether we do anything with loss reserves. There was a slight change in our benefit to a loss sharing at a different layer in the structure that, theoretically, could have some minor implications for a change in the number. But historically, as we enter into these negotiations, Brian, we have a very conservative number booked prior to engaging in detailed negotiation or settlement discussions.

As those discussions progress we typically look at what is the value of the offer on the table and begin to make sure that we're catching up our accrual or our credit against where the negotiations are by and large at any point in time.

So as these things -- and, of course, as you've seen in the Deutsche Bank cases things drag on for quite a long time, more around terms and conditions and the legal agreement, as opposed to the financial sharing structure on losses. We continue to update or revise our estimate of recovery.

Gotcha, and any others that you're close on?

I'll leave that as it is.

Okay. I'm just curious, when you extended the curve a little bit here, what does that do with respect to your capital cushion for S&P? Does it matter much?

It really doesn't. And as you look at the results, and we've kind of published them, I think it's well covered and, obviously, there's a lot of public information. You could make a lot of different arguments as to the extension or not and, especially across the different aspects of RMBS.

And we obviously try to maintain a very conservative position, because we don't know what we don't know. And obviously the recovery has taken a lot longer than anyone ever had envisioned, especially in the US real estate market and, therefore, we continue to monitor it closely.

We have a very disciplined approach to how we look at the reserves. They're very much predicated or keyed off of early-stage delinquencies. And you can follow this from home, or keep score at home, as they say in the old ball game, in terms of the numbers that we put up. But relative to S&P this is not a significant activity, because remember they're assessing us based on their stress-loss level and, obviously, that's not affected by any changes in our reserves.

Great, thank you.

Our next question comes from Matt Howlett of Macquarie. Please go ahead.

Okay, guys, thanks for taking my question. Dominic, on the R&W benefit, the $800m -- or just short of the $800m that you haven't collected yet, is that -- can we assume that's basically evenly split between the likes of UBS and Credit Suisse, or are there other major parties in there?

Well, there are two major parties and then a whole host of minor parties and I think the smallest asset we might have up for any given party might be in the $10m range, so it is spread across probably six to eight more counterparties. But two of them are major and then you've got two sub-major ones. Obviously, one is the one we're going to court on, on June 11, Flagstar Bank. So, yes, it's diverse. No one represents, I guess, more than 50% of the asset today if I had to guess.

That's great, got you. And then in terms of loss mitigation, obviously, the settlements have been the biggest driver of those. Could it go beyond -- I think you guys have talked about you paying -- you've paid out over $4b in claims over the last several years. Could it go beyond that? Could you end up recovering some of that back over time? Could you still have the ability to buy back the bond debt at a discount, right, and as well as changing servicing like you said?

Yes, all of the above. And remember even in the Deutsche Bank settlement we received $160m odd of cash this week which, theoretically, represents the reimbursement of previously-paid and incurred losses that went through our P&L. So there is further opportunity for collecting some of that $4. billion -- plus billion dollars of paid losses, number one.

Nnumber two, we continue to look into the market as another way to mitigate or diffuse losses by buying back the insured securities when they're offered, for whatever reason, at discounts. And obviously we've been very active in that market. I think as of the end of the first quarter we've bought back about $1.7b of that risk on a par basis and paid about $800m for it gross, so that would imply a $900m saving.

Got you, great.

And also as part of our loss mitigation we still are continuing to look at servicing enhancements to drive down or to improve the performance. And we really haven't, as I've said in previous calls, scratched the surface of servicer reliability. We've been going after the originator and securitizer as our first line of recovery, but obviously as you look to the market today and see where a lot of litigation is involved, a lot of it involves servicer reliability.

Got you. So that's another opportunity to look at that side of the equation.

And then [you're] just switching [and breathe] again. The conversation -- I know you obviously want to be double A at the entire Company, but have you talked to them about just a segment of the Company? I know you bought MIAC from Radian. That could possibly be double A, or splitting the Company apart. Are you looking at that?

And then, two, there must be some -- even if you go to single A or A1 there must be a path back to double A. It must tell you how you can get back there, other than just waiting for the industry to turn around.

Well, a couple of statements. One, I'm still highly confident in the ratings of the Company to be, at a minimum, double A and I see no rationale that would cause an answer to be beyond that. To the extent that Moody's continues to make an issue out of market share, well, under any company scenario in today's market of where the insurable marketplace is, where interest rates are, where people are still able to basically borrow at historical low rates, where spreads are, the amount of business opportunity is going to be muted in this economy. But it doesn't stay that way for ever and you really need the rate through a cycle, as opposed to just bury yourself in the middle of one.

So, first and foremost, I believe that the rating should be comparable to strong double A and that's exactly how we grade out. As a part of that, then, it really doesn't become a capital issue. So you can say, well, is there a recovery back. Unless we're going to see real interest rates return to the market, we see more ratings migration to put more issuers down into our insurable range of single A, high triple B, we're going to be stuck in this low-production environment.

But thankfully for the Company we have the ability to look at other ways to enhance economic value and this quarter is a great example of how we can creatively -- as Rob talked to you, we took three-quarters of our premium from last year in two transactions. We took 124% of the par. Obviously, we have ways to respond, but, most importantly, with $6b of deferred revenue we can sit here and be very prudent in where we put our capital to work in this marketplace, where you should be a little cautious and, therefore, to go chase market share would make absolutely no sense.

So when you look at this whole ratings issue, if it was a capital issue we'd solve it, if it was a portfolio issue we'd solve it. Give us something quantitative. And I think the Company has shown it's resourcefulness in terms of how it can address any challenge. But if it's something that is truly something indicative more of the market and the marketplace, and plays to our prudent underwriting standards, well, there's nothing we're going to be able to do about that. And hopefully the market will continue to make their voices heard to Moody's regarding this fascination with market share that really should not apply.

Got you. To follow on, then, are there any regulatory bodies that your [insurance can insure]? Are they monitoring developments? Are you in conversation with them, or someone in Washington on the lack of transparency for Moody's?

Well, I think, like anything else, we would be not doing our duties if we're not reaching out to all constituents, all potential regulatory bodies to ensure that they're aware of the activity that's going on. So you can assume that those conversations are taking place.

Thanks, Dominic.

You're welcome.

Our next question comes from John Helmers of Swiftwater Capital. Please go ahead.

Hi, guys, thanks for taking my question. Just following up on the last question, I don't think you touched on it, Dominic, is there any added flexibility related to the purchase of the Radian vehicle? Because it does seem like there's -- you might even do better than double A without having any of the legacy issues.

And again I don't understand fully the constraints, but given, as you said, the capital's no issue, and given the massive discount that the stock trades to the NAV currently, why not -- if that's a -- if you have that flexibility why not focus on buying back the stock more actively and then use -- capitalize with a certain amount this new entity at a level that you would think would be indisputable by Moody's?

Well, we have two valuable franchises out there that we very much like and support and believe are deserving of very high ratings. Be that as it may, to your question, sure, one of the reasons why we entered the Radian transaction, in addition to the recapturing of this business in building up further economic value, was of course having a 30-plus licensed company all dressed up and ready to go, and that still remains a strategic option of the Company.

But I will caution you once again, if Moody's says this is market share, that company starts out with zero. And it will not be able to generate much more market share and potentially very much less than we're currently being able to achieve with the two absolute strongest franchises in this industry, two franchises that still garner strong double-A ratings in a market where very few financial institutions have such a high rating. So if it's market share, a new company with great capital, a pristine balance sheet and a purely clean portfolio still doesn't get me there.

So there would be no benefit from the -- obviously, the backing of the two entities that, like I think we both agree, should be double A? So I guess what you're -- what one would hope is that you could get the benefit of the one and the benefit of the other by virtue.

Yes, the one thing we've left out, remember, right now we're talking specifically based on a Moody's view of rating and rating criteria. That doesn't mean that the new company would have to carry a Moody's rating and that's all I will say on that issue.

Okay, understood. And then -- and I assume that on buybacks, which seem clearly to be compelling at these prices, you're waiting on clarity from Moody's before you're more aggressive with your excess capital.

Well, I think we'd like to wait on clarity, but as we get further information relative to the capital adequacy, and this does not become a capital issue, obviously then that leads us with a different decision.

Thank you very much.

You're welcome.

(Operator Instructions). Our next question comes from Andrew Kleinberg of Glickenhaus. Please go ahead.

Good morning and thank you for taking my call. I'd like to revisit my question from six months ago. It's what I call the EGO quandary, which is, with an operating book value over $20, an adjusted book value over $45 and a stock price of $13 in change, why not go into run off and make extremely accretive stock buybacks?

You're response back in November was -- well, it goes back to the age-old question in terms of what we are trying to achieve. We're trying to achieve what we believe is a long-term value creation. We believe based on our preferred position in the market, our ability to demand pricing and terms that's an opportunity that one doesn't walk away from easily. And we believe our goal of attaining double-A rating stable through the end of this year is achievable. But like any other strategy that's subject to continued re-evaluation and we will re-evaluate it at the appropriate time.

We do see the same thing you see in terms of accretive opportunities relative to the stock price against both operating and adjusted book value and we try to affect those transactions when we think it's appropriate. But at this point in time, and we have plenty of time to make further evaluations and decisions, if that changes into the future we still think this is the best course of action.

Andrew, that's a great answer. Thank you very much. Hopefully, you're quoting me, but I actually like you when you replayed it that way.

Okay, it is you from back in November.

I sound a lot better, then, when somebody else reads my own words.

Well, you're more articulate than you realize and maybe sometimes when you hear it back over the phone it comes through. But since that response was given, the very time-consuming and seemingly never-ending battle with rating agencies has continued and the possibility of having to appease them is very worrisome to shareholders in terms of optimizing a capital -- optimizing capital and missing opportunities.

Secondly, the penetration of the Muni market, which was over 50% in 2007, has never -- has not got much better, from a level that's less than a quarter of that now. And now there is a new entrant into the business and another supposedly on the way.

Third, the new lines of businesses that you want to replace [the] Muni shortfall appear to be riskier lines outside of traditional experience and where the historical default data is not as benign as exemplified by today's Greek write-downs.

My two-part question today is, at what stock price does going into run off trump your current long-term value creation strategy, whether it's $10, $5 or $2? For $2 you could buy the whole Company for $400m. What price is it?

And, just as importantly, as CEO of this firm will you be able to make the very difficult decision to go into run off if it's in the best interests of shareholders, despite it not necessarily being in your own best interests?

Well, I'll take the second question first.

Okay.

So as a significant personal shareholder, where a significant amount of my wealth is tied up in the security or the stock in this Company, I have the same interests you do and my children definitely have the same interests you do. So I don't think of it any differently than you do. The second thing is, when you say at what price you go into run off, I hate to tell you this but I don't think there is any price that you ever consider a write-off -- a run-off, rather.

That doesn't mean that you will not downsize the capital relative to the business opportunity. And we have to be cognizant of that challenge that we face. And we have to make sure that we are planning the proper amount of liquidity, free cash etc. that we can effect that strategy. Because all of us understand that in this marketplace of where opportunities are you're not going to be able to write enough new business to support the capital base.

And we focus on that thing called ROE; we all struggle with the size of the E and we all appreciate that that E has to come down over time [at] when is the most opportunistic and accretive opportunity to do that. We do have a share repurchase authorization out there today that we can use and, obviously, we look forward to those opportunities to when we're going to start executing on that share repurchase.

I think what you're saying, what we're saying is pretty much the same; it's a matter of timing, execution and degree. We say in a market where interest rates are today -- if anyone believes that the interest rate environment that we have today is going to last forever, then you're exactly right. This market will be a $40m to $60m a quarter market and that's our life going forward. And that would be okay, writing about $200m to $250m, as long as your capital base makes sense relative to that.

And at that level -- if you look at who is our client today, well, you'd have to say to yourself over the last, say, two years we've gone through nothing but ratings issues and ratings challenges. Yet there's a core level of issuers that have still come out and bought the insurance. Why? Because they need that second name on their issuance based on their size or recognition to market to be able to get that access. That hasn't changed. It's been very resilient. We continue to book roughly that same percentage of A rated.

What's -- the challenge of today in terms of total volume is that you go back to 2006, when we were all triple A, there was only 7% of the market that was triple A at the time. So theoretically they were the only people that were principally outside of an insurable opportunity. Today that percentage is like 61%. It went from 7% to 61% of what then is really outside the insurable market.

Do I expect that to stay the same forever? Absolutely not. So do I try to manage at the worst end of the cycle and make decisions and judgments, or do I say there is a normal cycle out there. Do we have the financial strength to continue to fight through this? Absolutely. Do we continue to make reasonable returns on earnings? Absolutely. Do we need to start taking down the capital? Absolutely. And when does that need to start taking place? But, as you read very eloquently my response from last year, I don't think we've given up any opportunity as we look at the Company today.

And what we accomplished over the last year I think is significant; the buying back all these insured securities. Would you be able to do that? Maybe. Maybe not. If you're providing the cash to the buyback of securities maybe you wouldn't have enough cash to buy back these opportunities relative to the insured securities.

And I'll tell you, we've done the analysis of what is more accretive. And when you look at just the number I gave you, if you bought $1.7b back for roughly $800m you embedded a $900m gain. That's pretty good for a shareholder. And I think they'd be very happy if that's how we're using our excess cash at this point in time.

But, you're right, we're challenged by the market and, therefore, we have to continue to evaluate this. This is a very dynamic process and every day we've got to take a hard look at what is the opportunity of that day and what should be the best decision. But to say we're not doing it, or to allude that there is a better interest of the shareholder that maybe we're ignoring, I think that's kind of unfair, because most of us here are pretty significant shareholders and, therefore, we do have that interest at heart.

Thank you. Our next question comes from Frank Donnelly of Dalton Partners. Please go ahead.

Thanks for taking my call. Dominic, we're long-term shareholders and I just want to expand on the previous call for a moment. I think your team -- you and your team have done an excellent job at navigating a very, very difficult environment and I can't be more pleased with the way you've managed the Company. We all know the Company is significantly undervalued.

I was just wondering if you could frame -- or if you've had discussions with the Board, I'm sure you have, frame the pros and cons of another alternative, taking the Company private. I know you talked just previously about the run off. I don't think that's viable because I think the environment will change meaningfully down the road. But that could be a long way and shareholders are sitting here with a stock that -- a security that's significantly undervalued, with an environment that doesn't seem to get better from a regulatory standpoint or even from the rating agencies'.

Just last night you see the overreaction, in our opinion, of the JP Morgan news. But that's the world that we live in and it's hard to see it changing any time soon, so if you could just talk about the pros and cons of taking it private, or if that was ever an idea that's been discussed with the Board. Thank you.

Yes, okay. All I can say to you is, as we look at the challenges and the opportunities, and hopefully -- and we're quite grateful for your comments. You have to consider that this management team is pretty good, pretty creative and pretty resourceful and that you would hope, and hopefully that you believe in it, that there isn't any stone that we do not at least turn over and examine very closely.

So I think, much like the previous caller, it's a dynamic process. We try to be as creative as we can be and as resourceful as we can be and look at all possible alternatives. Some are at early stages of development. Some are at later stages. There was a big discussion on the purchase of MIAC and how we view that.

If you can understand, obviously, there's been a whole lot of work done here in getting that ready to launch, if we determine that that's the best course of action, who rates it, what type of rating could it get. In a similar way you can consider that we've evaluated and continue to evaluate other opportunities. But obviously I am not at liberty to discuss any in-depth dialogue that we might or might not have had on that topic.

Thank you.

Thank you.

And this concludes our question and answer session. I'd like to turn the conference back over to management for any final remarks they may have.

Thank you, operator. I'd like to thank everyone for joining us on today's call. If you have additional questions please feel free to give us a call. My number is listed on the press release. Thank you very much.

The conference is now concluded and we thank you for attending today's presentation. You may now disconnect your lines and have a wonderful day.