Assured Guaranty will merge its two U.S. bond insurers into one

Assured Guaranty Ltd. on Monday afternoon will merge its two U.S. financial guaranty insurers into one, which it says will enlarge the pool of capital available to support its insurance policies, create efficiencies and encourage continued growth.

It expects to merge Assured Guaranty Municipal Corp. into Assured Guaranty Inc. effective Aug. 1, the firm announced late Monday.

“We see this merger as beneficial for all our stakeholders,” Dominic Frederico, president and CEO, said in a statement.

Combining the two into a single insurance company will enlarge the pool of capital available to support each insurance policy and will result in further diversification of the insured portfolio’s credit portfolio, according to a release.

The merger combines two companies that have identical ratings of AA from S&P Global Ratings, AA-plus from Kroll Bond Rating Agency and A1 from Moody’s Investors Service. All assign stable outlooks.

“AGM and AG have the same financial strength ratings and we expect the combined company to have these same ratings upon completion of the merger,” according to a 20-page presentation published by the company.

The merged insurer will have a larger, more highly diversified insured portfolio; a larger investment portfolio and a larger capital base, creating a more efficient capital structure; and greater claims-paying resources, according to the release.

“It will result in more efficient utilization of the combined capital of the two companies, and it will simplify the administration and eliminate duplicative expenses of Assured Guaranty’s U.S. financial guaranty operations,” Frederico said.

The combined company will be domiciled in Maryland, where Assured Guaranty, Inc. was domiciled. Assured Guaranty Municipal was domiciled in New York. The merger has been approved by the New York State Department of Financial Services and the Maryland Insurance Administration, the company said.

“Interacting with one primary regulator rather than two is another way we will gain efficiency from the merger,” Assured said in a Q-and-A about the merger.

KBRA confirmed in a statement that its ratings will remain the same after the merger as all existing Assured Guaranty Municipal insurance policies will become direct insurance obligations of Assured Guaranty Inc.

It added that the ratings of its other subsidiaries, Assured Guaranty UK Limited, rated AA-plus, and Assured Guaranty (Europe) SA, rated AA-plus, and the issuer A-plus rating will also remain unchanged.

When S&P affirmed the ratings in May, analysts cited the company’s excellent capital and earnings, well-diversified underwriting strategy; and a cautious approach to business expansion outside the U.S. public finance market.

Assured Guaranty Municipal’s U.K. and European subsidiaries will become subsidiaries of Assured Guaranty Inc. with no change to their financial guarantees or operations.

The insured net par outstanding of the entire portfolio of AGM is $162 billion, and $28.8 billion for AG, which will become a combined total of $190.4 billion, minus eliminations. Currently, AGM has insured net par outstanding of $127.3 billion in U.S. public finance and AG has $19.6 billion, which will be $146.9 billion total under the merged company, minus eliminations.

It has total claims paying resources for AGM of $6.28 billion and $2.85 billion for AG, which will become a combined $8.844 billion, minus eliminations, according to the presentation.

New issue par wrapped with municipal bond insurance grew 24.4% year-over-year in the first quarter of 2024, according to LSEG data, trailing the 25.2% increase in overall municipal bond market volume.

The insurer has been involved in some sizable deals this year.

Assured Guaranty Municipal insured $800 million of the $2.55 billion in bonds priced by Bank of America for the New Terminal One P3 at New York John F. Kennedy International Airport in June, and for $1.13 billion of Brightline Trains Florida’s $2.22 billion in tax exempt debt issued on April 25.

In recent years, the company said, Assured Guaranty Municipal has served as the insurer’s flagship financial guaranty insurance company, offering guarantees on U.S. and non-U.S. public and infrastructure finance obligations, while Assured Guaranty, Inc. has provided risk and capital management solutions for insurance, pension and banking institutions, offered guarantees on structured financings, and served as the acquirer or reinsurer of insured portfolios of non-affiliated financial guaranty insurers in runoff.

In 2021, the company merged its Municipal Assurance Corp. into Assured Guaranty Municipal. MAC had been created in 2013 as a muni bond-only insurer.

Both AGM and AG’s insured portfolios contain public and infrastructure finance exposures and structure finance exposures, the presentation said.

“Over its nearly 40 years in the financial guaranty business, Assured Guaranty has continually evolved, constantly looking for ways to better serve our customers and grow our business,” Frederico said.

“This merger further positions us to achieve those goals,” he said.

The New York Stock Exchange-listed shares of Bermuda-headquartered Assured Guaranty Ltd. were at $79.02 at the close of trading Monday, before the merger was announced. The share price rose slightly at the beginning of trading Tuesday.