Assured Guaranty Ltd (AGO) Q2 2021 Earnings Call Transcript

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Assured Guaranty Ltd (AGO 1.39%)
Q2 2021 Earnings Call
Aug 6, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Assured Guaranty Limited Second Quarter 2021 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I'd now like to turn the conference over to Robert Tucker, Senior Managing Director of Investor Relations and Corporate Communications. Please go ahead.

Robert Tucker -- Senior Managing Director, Investor Relations and Corporate Communications

Thank you, operator, and thank you all for joining Assured Guaranty for our second quarter 2021 financial results conference call.

Today's presentation is made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The presentation may contain forward-looking statements about our new business and credit outlooks, market conditions, credit spreads, financial ratings, loss reserves, financial results or 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 are listening to a replay of this call, or if you are 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 most recent presentations and SEC filings, most current financial filings, and for the risk factors.

This presentation also includes references to non-GAAP financial measures. We present the GAAP financial measures most directly comparable to the non-GAAP financial measures referenced in this presentation, along with a reconciliation between such GAAP and non-GAAP financial measures in our current Financial Supplement and Equity Investor Presentation, which are on our website at assuredguaranty.com.

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

I will now turn the call over to Dominic.

Dominic J. Frederico -- President and Chief Executive Officer

Thank you, Robert, and welcome to everyone joining today's call. Having completed one of the best first halves for direct insurance production in over 10 years. Key measures of Assured Guaranty shareholder value per share stood at a record high levels as of June 30, 2021, including shareholders' equity at $87.74, adjusted operating shareholders' equity at $81.81, and adjusted book value at $119.72.

During the first six months of this year, we earned $163 million of adjusted operating income, of which $120 million was earned in the second quarter. Additionally, we produced $167 million of PVP, almost half of which came in the second quarter. In contrast to the first quarter when record US public finance production, generated the lion's share of PVP. New business production in the second quarter was well diversified, with strong international production and a solid contribution from our structured finance business, exemplifying again how our diversified strategy helps to support our new business production.

At mid-year 2021, total par volume issued in the US municipal bond market was outpacing the rate of issuance at the same point last year, which was an all-time record year of monetary and fiscal policy are driving economic recovery, which means more money to invest for retail investors and more revenue and improved credit strength for municipalities. Additionally, many high net-worth individual investors that have been anticipating higher tax rates, which has driven up demand for tax exempted income. As a result, municipal interest rates have again been near historic lows, with the benchmark rate on June 30th at just 1.5% for 30 year AAA municipal bonds. Credit spreads trended tighter through the first half to levels not seen since before the Great Recession.

In these market conditions, yo would not expect municipal bond insurance to [Indecipherable] first half penetration rate in a decade, but that's exactly what happened. Assured Guaranty led the municipal bond insurance industry to a market penetration of 8.4%. Year-over-year, the industry is still first half insured par was up 34% more than double the 15% rate of increase for total par issued in the market.

Taxable issues made up a quarter of the primary municipal bond market year-to-date based on par amount sold. Taxable municipal bonds are currently attractive relative to corporate bonds as they are generally providing a stronger credit for an equivalent yield. Taxable issues also attract corporate par fixed income investors who are less familiar with municipal credit. And they want to know that the underlying obligations have been vetted by an experience insurer.

In the first half, bond insurance penetration of taxable par sold reached 10%. Assured Guaranty continue to see outstanding US public finance production for the first six months of 2021, guaranteeing 58% of new issue insured par sold. The $11.1 billion we insured in the primary market was 34% higher than in the first half of 2020. And looking back to a comparable period just before the pandemic, our new issue insured par sold was 73% more than in the first half of 2019.

In the second quarter, Assured Guaranty continue to lead the bond insurance market with approximately 52% of primary market insured par sold. We guaranteed 292 transactions for a total of $5.5 billion in insured par sold. We also continue to see heightened demand for our insurance on larger transactions for high demand, typically singles interest from institutional investors.

During the first half of 2021, Assured Guaranty selectively insured 21 transactions of $100 million or more in insured par, 13 of which were sold in the second quarter. We also continue to add value on AA credits during the second quarter, ensuring $809 million of par sold on 29 transactions assigned AA underlying ratings by at least one of the two leading rating agencies, bringing our first half production in this category to $2.3 billion on 56 deal. Additionally, we guaranteed $3.9 billion of taxable par sold, which was about two-thirds of the par sold with insurance in that portion of the market.

US public finance PVP totaled $29 million in the second quarter, which was exceeded by the $43 million we produced in international infrastructure finance where we executed a variety of transactions. Among those -- among these were index-linked transactions in the UK, including a well received GBP327 million, 18.5-year bond issue for Queen's Alexandra Hospital in Portsmouth, and to secondary market transaction providing projections on bonds held by institutions.

In Spain, Assured Guaranty Europe closed our fifth transaction in two years in the Spanish renewable industry. Just EUR125 million, 17-year fixed rate bond issue refinanced 18 season solar plants spread across a number of provinces. And all the facilities benefit from the Spanish electricity payments that subsidize a predetermined level of return. These issues were privately placed, but an application for listing has been submitted to the Frankfurt Stock Exchange.

In structured finance, we produced $9 million of PVP in the second quarter, primarily from an insurance securitization and a whole business securitization. We have a nice pipeline of structured finance transactions that we consider highly likely to close. For our insurance segment as a whole, second quarter new business production offset amortization and other reductions of the insured portfolio, resulting in growth in net par outstanding for the fifth consecutive quarter. Total net par outstanding has increased by $0.5 billion from March 31st to June 30th, continuing to increase the par amount of our insured portfolio supports our predictable base of future earnings.

As I noted on our last call, the below-investment grade portion of our insured portfolio is down to 3% of insured par outstanding. Additionally, more than 57% of net par exposure was classified as single A or higher. We are very comfortable with the credit quality and diversification of our insured portfolio and believe further fiscal stimulus and improved economic conditions are likely to strengthen it further.

Our heightened surveillance activity after the COVID-19 pandemic struck has been fully reflected in our internal credit ratings and the loss projections we apply to those to our exposures. We have probably we have paid only relatively small first time insurance claims we believe are due at least in part the credit stress arising specifically from COVID-19. We continue to project nearly full reimbursement of these relatively small claims.

We had no net economic loss development of public finance during the second quarter. And overall, we actually had a net economic benefit of $20 million. Regarding our most significant below investment grade exposure, Puerto Rico and its public corporations, we view recent and continuing development is positive for both the Commonwealth and its creditors. As I discussed on our last earnings call, we and other creditors now consensual agreements in place with the Puerto Rico Oversight Board that covers 94% of our net par outstanding of Assured Guaranty's Puerto Rico exposures, and almost all of the rest of those exposures are current on their debt service payments. The Oversight Board has also announced that additional creditors have signed on to certain of these agreements, including the official committee of unsecured creditors and the additional model-lines [Phonetic]. The Oversight Board has voiced optimism that some of these agreements could be finalized as early as at the end of this year. Meanwhile, the Island's economic condition continues to improve with increased economic activity in revenues and it remains eligible for billions more in federal aid on top of the funds it's already received.

Last month, S&P Global Ratings affirms our insurance companies AA stable outlook financial strength ratings and noted that in relation to our Puerto Rico exposure, its capital adequacy analysis, including near term loss assumption, NAV, and a view of claims beyond 2024. After performing its rigorous capital adequacy analysis of our business, S&P stated that Assured Guaranty has excellent capital and earnings with a meaningful capital adequacy buffer at the current AA rated. It also noted our very strong business risk and financial risk profiles, as well as our well-defined diverse underwriting strategy.

Turning to our Asset Management segment. Assets under management reached $17.6 billion as of June 30th. During the first six months, we increased fee earning AUM from 75% of total AUM to 93%. The issuance in the shallow market continue to be strong in the second quarter, reflecting robust demand for CLO securities and plentiful loan supply for collateral. During the quarter, we execute our third CLO of the year, which issued approximately 40% of its equity to four different third-party investors. We also opened additional CLO warehouses and now have two warehouses in the United States and one in Europe.

[Indecipherable] healthcare exposure performed well with continued revenue and earnings growth related to the portfolio of private investment exposures. The asset-based portfolio continues to perform well, as asset credit quality has improved due to the economic reopening at third fiscal stimulus. Prospects for the rest of this year look good across both of our business segments. Economic growth has been impressive since vaccinations have allowed more public activity. However, investors will soon not forget how the virus came without warning to disrupt all aspects of life. And we believe the pandemic may prove to be a watershed event that favorably changes how the market perceives the value of financial guaranty insurance.

Some of the kind of sources of economic uncertainty on spread -- the spread of the Delta variant, extreme weather events and potentially volatile political polarization. We have the financial strength insured portfolio diversification, underwriting and surveillance capabilities and risk management discipline to safeguard our ability to protect investors and to create value for shareholders. In an uncertain world, many investors will demand the extra security of our financial guaranty.

On a final note, we continued our capital management program and made some beneficial changes to our capital structure. To give you details on those changes and other performance data, I will now turn the call over to Rob.

Robert A. Bailenson -- Chief Financial Officer

Thank you, Dominic, and good morning to everyone on the call. Picking up from Dominic's last point, I am pleased to report we had a very successful debt issuance in May, raising $500 million in the form of 10-year notes at an attractive rate of 3.15%. In July, we used $200 million of those proceeds to redeem AGMH debt, including $100 million of notes due in 2101 at 6 7/8% and $100 million of notes due in 2102 at 6.25%. The addition of $300 million in debt, after taking into consideration the July redemptions resulted in incremental annual debt service of only $2.6 million. The remaining proceeds will be used in the pursuit of our key business strategies, including share repurchases.

Demonstrating the success to-date of the share repurchase program, I'm happy to report that our book value metrics reached record highs on a per share basis, and that our adjusted operating income per share increased to $1.59 in the second quarter of 2021 from $1.36 in the second quarter 2020. Total adjusted operating income was $120 million in the second quarter of 2021, compared with $119 million in the second quarter of 2020.

Turning to our core business results. The Insurance segment generated adjusted operating income of $152 million in the second quarter of 2021, compared with $154 million in the second quarter of 2020. Strong investment results from our alternative investment strategies signed with the lower loss expense on Puerto Rico, substantially offset the decline in premium accelerations due to refunding. And the prior year commutation gain that did not recur in 2021.

Total income from the Insurance segment investment portfolio, which includes net investment income from its fixed maturity portfolio and equity in earnings from alternative investments such as the AssuredIM Funds increased by $11 million or 10%. Our fixed maturity and short-term investments account for the largest portion of the portfolio, generating net investment income of $71 million in the second quarter of 2021, compared with $82 million in the second quarter of 2020. The decrease in net investment income was primarily due to lower average balances, which declined primarily due to dividends paid by the insurance subsidiaries that were then used for AGL share repurchases and lower reinvestment yields on short-term investments.

Since the establishment of AssuredIM, the insurance subsidiaries have invested $366 million in AssuredIM Funds, which now have a net asset value of $433 million. Equity in earnings of AssuredIM Funds generated a gain of $37 million in the second quarter of 2021, compared with $26 million in the second quarter of 2020. The healthcare and CLO funds were the largest components of these gains. Our various other third-party managed alternative investments generated gains of $11 million in the second quarter of 2021.

As a reminder, equity in earnings of investees is a function of mark-to-market movements attributable to the AssuredIM Funds and other alternative investments. It is more volatile than the net investment income on the fixed maturity portfolio and will fluctuate from period-to-period. As we shift fixed maturity assets into these alternative investments, net investment income from fixed maturity securities may decline. However, over the long term, we expect the enhanced returns on the alternative investment portfolio to be over 10%, which exceeds the expected returns on the fixed maturity portfolio.

Another driver of the quarter-over-quarter variance is the decline in loss expense, which was a benefit of $12 million in the second quarter of 2021, compared with a loss of $39 million in the second quarter 2020. The driver of loss expense in net economic loss development, which was a benefit of $20 million in the second quarter 2021 and mainly consists of $28 million benefit in US RMBS exposures, which benefited from higher excess spread, improved recoveries on charged off loans and improved performance on certain transactions.

The economic development attributable to changes in discount rates for all transactions was a loss of $15 million for the second quarter of 2021. In the prior year, second quarter economic development was primarily attributable to Puerto Rico exposures.

In terms of premiums, scheduled net earned premiums were consistent relative to second quarter of 2020, as new business production substantially offset the decline in earnings on structured finance transactions. Accelerations due to refundings and terminations were down to $15 million in second quarter of 2021, compared with $32 million in the second quarter of 2020, driving the overall decline in net earned premiums from $125 million in the second quarter of 2020 to $106 million in the second quarter of 2021.

In the Asset Management segment, we have continued to make great progress in advancing our strategic goals. This quarter, we increased fee earning CLO AUM through the issuance of $400 million in new CLOs and the sale of CLO equity from legacy funds, which reduced the amount of rebate fees. Since the end of 2019, we have sold substantially all of the CLO equity and legacy funds, which helped increased fee earning CLO AUM from $3.4 billion at the end of 2019 to $14 billion as of June 30, 2021. As of June 30, 2021, 96% of CLO AUM is now fee earning compared to 83% as of last quarter.

We also continue to liquidate assets in the wind-down funds and now have $1.2 billion in AUM, which represents a 79% decline since the BlueMountain acquisition. In addition, using AssuredIM's investment management expertise, we've expanded investment strategies in the Insurance segment and to-date, we have recorded strong mark-to-market results on the fund established by AssuredIM.

The Asset Management segment adjusted operating loss was $2 million in the second quarter 2021, compared to $9 million in the second quarter of 2020. Asset management revenues increased 62% in the second quarter of 2021, compared with second quarter 2020, due mainly to the increase in fee earning AUM, as well as the recovery of deferred CLO fees. The COVID-19 pandemic and downgrades in loan markets had triggered over collateralization provisions in CLOs in the second and third quarters of 2020, resulting in the deferral of CLO management fees. However, as of June 30, 2021, there were no CLOs triggering over collateralization provisions, and therefore, no CLO fees are being deferred. The increase in management fees from CLOs and opportunity of liquid strategies more than offset the decline in fees from our wind-down funds, as our core strategies continue to increase our topline.

The Corporate division mainly consists of interest expense on the US holding company's debt, as well as corporate expenses and Board of Directors' fees. The loss for the Corporate division of $34 million in second quarter of 2021 was higher than the loss of $26 million in the second quarter 2020, mainly due to higher interest expense from the new debt issuance and higher state and local taxes.

In the third quarter, the redemption of AGMH debt, which -- AGMH debt will result in the acceleration of the unamortized discount of $66 million or $52 million after tax. That will be recorded as a loss on extinguishment of debt. This loss represents the difference between the amount paid to redeem the debt and the carrying value of the debt, which includes the unamortized fair value adjustments that were recorded upon acquisition of AGMH in 2009. Prior to the redemption, this discount was being accreted into interest expense over the next eight years, which represented the remaining contractual life of the debt.

The overall effective tax rate on adjusted operating income fluctuates from period-to-period, based on the proportion of income in different tax jurisdictions. In second quarter 2021, the effective tax rate was 18.7% compared with 14.2% in the second quarter of 2020.

As an update to our recent share repurchase activity, in the second quarter of 2021, we repurchased 1.9 million shares for $88 million, at an average price of $46.63 per share. Subsequent to the quarter close, we have continued the program and repurchased an additional 1.2 million shares for $58 million. Since the beginning of our repurchase program in January 2013, we have returned $3.9 billion to shareholders under this program, resulting in a 65% reduction in total shares outstanding.

The cumulative effect of these repurchases was a benefit of approximately $32 in adjusted operating shareholders' equity per share and over $55 in adjusted book value per share, and help drive these metrics to new record highs of over $81 in adjusted operating shareholders' equity per share and over $119 in adjusted book value per share.

From a liquidity standpoint, the holding companies currently have cash and investments were approximately $356 million, of which $70 million resides in AGL. These funds are available for liquidity needs or for use in the pursuit of our strategic initiatives to either expand our business or repurchase shares to manage our capital.

Finally, earlier this week, consistent with our long-standing capital management goals, our Board of Directors approved an additional $350 million in share repurchase authorization. In total, as of today, we have $379 million in remaining share repurchase authorization.

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

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Christopher Testa from Royce Investment Partners. Please go ahead.

Christopher Testa -- Royce Investment Partners -- Analyst

Hi, good morning, guys. Thank you for taking my questions. Just wanted to touch a bit on the asset management side. So CLOs, it's great to hear about you're not tripping any junior row seats out. That's great news. My question is, how are you looking to compete on gathering more CLO assets and attracting investors, given the fierce competition among a lot of Tier 1 collateral managers? Do you think you're going to be able to gain market share, and if so, how do you expect to do that?

Dominic J. Frederico -- President and Chief Executive Officer

Well, I think, as a top 20 CLO manager, we have the network relationships and investor appeal allows us those opportunities, and as you can see the activity in the current year kind of supports that major player in that market standing. We think we have good experienced people that have great market recognition, and it's worked very, very well and we continue to think that we'll continue to run one of the leading CLO businesses in the marketplace.

Christopher Testa -- Royce Investment Partners -- Analyst

Got it. Okay. And I know you guys had mentioned getting more investment income doing less than fixed income and more into alternatives. Are the alternative pieces of the CLO equity that you're managing, or are they more along the lines of maybe double B or maybe single A debt within those structures?

Dominic J. Frederico -- President and Chief Executive Officer

Well, it really is a diversified portfolio of assets that are being managed by AssuredIM for Assured Guaranty's operating companies. So you're right. Some -- it is CLO equity. In the early days of the CLO crisis, we did take certain tranches of CLOs as just investments specifically some managed by us, some managed by third party that performed very, very well. And the remaining investments represent support of our existing strategies in healthcare and structured finance. So it's spread across the board. No one dominated. But where we are in CLO today is in the CLO equity side.

Christopher Testa -- Royce Investment Partners -- Analyst

Got it. And last one --

Robert A. Bailenson -- Chief Financial Officer

And those are -- just to be clear, those are also the equity layers of the CLOs that we manage.

Christopher Testa -- Royce Investment Partners -- Analyst

Got it. Okay. Yes. So those are strictly when you're buying equity. Those are all Assured Investment Management equity.

Robert A. Bailenson -- Chief Financial Officer

Yes.

Christopher Testa -- Royce Investment Partners -- Analyst

Okay.

Dominic J. Frederico -- President and Chief Executive Officer

[Indecipherable]

Christopher Testa -- Royce Investment Partners -- Analyst

Okay. And then, have you guys had -- I know you haven't made as many fee rebates, as you did with the legacy investments. Are you anticipating having to do fee rebates that that lower the traditional 50 bps of par in order to attract more AUM, or are you going to kind of hold steady there?

Dominic J. Frederico -- President and Chief Executive Officer

So on the legacy side, it's just the liquidation strategy through harvest period. At this point in time, we don't charge management fees on those as we now are in absolute harvesting. So there is no management fees. Therefore, there is no rebate. Obviously, we look to continue to grow the asset management business and part of the reason for the acquisition was to allow Assured to put its capital next to third-party capital to generate more management fees, and that's kind of the strategy. That's the goal. That's kind of how we're heading.

Christopher Testa -- Royce Investment Partners -- Analyst

Got it. Great. And last one for me and I'll hop back in the queue. Dominic, you had mentioned that something that's driving muni demand and I agree with you is that the fear of higher federal taxes, obviously, allows munis to sort of shield that. However, there is also been an issue with Biden and the rest of his cohorts in Congress getting through the tax increases. Has that sort of abated at all in terms of investors not being as concerned or are you still seeing the same strong muni demand from investors that were initially concerned about that?

Dominic J. Frederico -- President and Chief Executive Officer

Well, I guess, the best surgeon [Phonetic] you can look at is the flow of funds in the mutual [Technical Issues] funds. I mean, the number today is just incredible. I think we're going to set a record for the year in terms of fund flows into tax exempt mutual funds. But the finding is, you bring up an interesting point or kind of contradiction in the market. So as much money that's coming [Technical Issues] of a tax increase. We're also seeing in the search for yield more investors interested in municipal taxable issues just to get yield. So you got the two kind of forces out there that seem to be enough to direction. Yeah, it seems to be driving significant demand in the market, which we then believe will help our penetration rate and the use of insurance going forward.

Operator

The next question comes from Tommy McJoynt from KBW. Please go ahead.

Tommy McJoynt -- KBW -- Analyst

Hey, good morning, guys. Thanks for taking my questions here.

Dominic J. Frederico -- President and Chief Executive Officer

Good morning.

Tommy McJoynt -- KBW -- Analyst

So, good to see the $500 million successful issuance. So thinking about that net $300 million of proceeds that you still have. Are you evaluating any targets for it in terms of acquisitions or anything? Or is the plan really to use a lot of that for to fund buybacks?

Dominic J. Frederico -- President and Chief Executive Officer

Tom, as you said, we continue to look at all the alternatives that are out there in the market for the investment of our money. Obviously, today, the capital management or the repurchasing of shares still represents the most accretive transaction we can do. So obviously, we pay a lot of attention to that. If we saw something that really piqued our interest that we felt would add true value long term of the company. Obviously, we look at that. But remember, on those sides, further what I will say acquisitions typically not very capital intensive. So at the end of the day, I think our strategy still sticks with capital management as a preeminent thing that we should be looking and trying to execute on behalf of the company and its shareholders.

Tommy McJoynt -- KBW -- Analyst

Okay. And so there is no restrictions on using the full $300 million share buyback?

Robert A. Bailenson -- Chief Financial Officer

No restriction.

Tommy McJoynt -- KBW -- Analyst

Okay, great. And then just going back to the acquisition side. When we think about previous acquisitions or reinsurance deals that you've done on some of the run-off books of business out there in the insurance sector, what's like the main valuation metrics that you guys look at, is it most appropriate to look at potential purchase price at some multiple loans [Phonetic], GAAP book value or statutory capital or net or earnings power? Just what do you kind of think about when you think about how much you pay for some of those assets out there?

Dominic J. Frederico -- President and Chief Executive Officer

It's all based on return on capital, return on the amount invested. And you pointed out a good point that we use reinsurance in a lot of cases, that actually allows us to really identify what portions of the portfolio that we like, which ones we think we can attractively price, and therefore absorbed into our risk portfolio. And of course, the risk that we're willing to accept. When you look at wholesale acquisitions, you really got to get comfortable with the entire portfolio. And if you think of what's out there today in terms of targets, those portfolios have shrunk pretty dramatically. Obviously, we look at them all the time. And I think for us reinsurance is good of a option of the transaction that gets most of the benefits of an acquisition without some of the baggage that comes along with it.

Tommy McJoynt -- KBW -- Analyst

Okay, that makes sense. And I guess just when you got comfortable around the reserve adequacy of potential targets, what's that process like?

Dominic J. Frederico -- President and Chief Executive Officer

Yeah. We individually reunderwrite every transaction. I mean, I think we can say that the company has demonstrated its credit capabilities and its credit analysis and its surveillance capabilities. So we take every credit through our process to make sure we're comfortable with the creditors, if there is a reserve, how I look at the reserves, what's the premium on the books, what's the discount rate relative to the capital that would allow us to allocate additional premium to the transaction to make sure we hit our return harder. So it's still gets back to that return on capital.

Tommy McJoynt -- KBW -- Analyst

Okay, thanks. And then just last one, what was the impact of the change in discount rate assumption on the loss analogy [Phonetic] regarding the Puerto Rico exposures and their potential recoveries?

Robert A. Bailenson -- Chief Financial Officer

We don't disclose what the discount is just to Puerto Rico. I mean, I said in my commentary, with a total effect of discount rates were, which is on that permitting was $15 million in the second quarter.

Tommy McJoynt -- KBW -- Analyst

Okay. Got it. Thank you.

Operator

The next question comes from Michael Semple [Phonetic], Private Investor. Please go ahead.

Michael Semple -- Private Investor

Good morning, gentlemen. Couple of quick questions. As you highlighted the penetration rate of insured product in first quarter first half and how it's ticking up. So I think you said an 8.4% penetration rate. Can you remind us, again, it's maybe apples and oranges, but can you remind us of what the industry high mark penetration was, and say the last decades, again, understanding that dynamics that probably change the [Speech Overlap] from --

Dominic J. Frederico -- President and Chief Executive Officer

Sure. Let me dust off my old analysis. So in the old days, the market of insurers insured about 50% of all issues, but that included AAAs, AAs across the entire spectrum. Obviously, as we look at the market today, I still like that 50% rate, however, it's applied to a different universe. So today, we think because of the AA-rating of the insurance industries for financial guaranty. And our underwriting criteria or appetite relative to certain large exposure, certain lower rated issuers, we think the insurable market today compared to that market of the past is only 50%. So we think today based on ratings, credit, appetite, risk, tolerance, we can only ensure what we used to -- 50% what we used to insure. But I think on that 50% under a normalized interest rate environment, we can still get to 50% penetration. And if you look at our statistic A-rated issue not par, we insure over 50%, the industry insures typically over 50% of A-rated issuance. So I mean, you can get the 50% of the 50% insurable market for a 25% overall penetration rate. If you had normalized interest rate, as we all know, we do not live in an environment of a normalized interest rates. And when we will ever return there is anybody's best guess. Mine is horrible. So I've been wrong every year. So I'm not going to make another one. But you can keep a US 10-year treasury 1.25 or 1.5, whatever it is today. I mean, ultimately, without get to a normalized position, I think the upside in our penetration, therefore our premium is very dramatic, because remember, we also get paid on debt service, which is five times interest rate. So an interest rate increase not only generates potential opportunity for higher penetration, but it result in a greater premium calculation for the company as well.

Michael Semple -- Private Investor

Very good. Thank you for that. Switching gears to Puerto Rico. Could you just remind us again of the major legal milestones that lie ahead as we work toward, I guess, 2022 resolution to the entire mishmash? I'm aware of the November court case, though there are other consummation cases, but are there other legal milestones that we should be aware of as we move through the second half of the year here?

Dominic J. Frederico -- President and Chief Executive Officer

Yeah, you calling it a mishmash should being kind of view [Indecipherable] end of the day. So --

Michael Semple -- Private Investor

Well, we are in waking hours. So yes, watching my language.

Dominic J. Frederico -- President and Chief Executive Officer

Yeah. Exactly. We are on a PG rated channel. So at the end of the day, very everything that's left is really legal. So it's getting disclosures done, which we just did for the GO and Commonwealth debt sentence to the court for certification. And I think all of them are scheduled through the end of this year for GOs, PPAs, early next year for HTA and potentially PREPA. But once again, these are targeted, they are not absolute, they are not guaranteed, therefore, anything can happen. And as you can appreciate, a lot of natural things that have happened in Puerto Rico over time. But anywhere, we're still very optimistic that things are moving very well. The fact that we had these other creditors signed on to the GO, PPA deals, I think it's a good sign. It gets us above the level of necessary positive signers to get the deal done. So I think it's now more of a legal process and there is a calendar that takes us to basically mid-year next year.

Michael Semple -- Private Investor

Very good. Thank you gentlemen for your answers.

Dominic J. Frederico -- President and Chief Executive Officer

Thank you.

Robert A. Bailenson -- Chief Financial Officer

Thank you.

Operator

The next question comes from Ron Bobman from Capital Returns. Please go ahead.

Ronald Bobman -- Capital Returns Management LLC -- Analyst

Yes. Good morning, gentlemen.

Dominic J. Frederico -- President and Chief Executive Officer

Hi, Ron.

Ronald Bobman -- Capital Returns Management LLC -- Analyst

I had two sort of simple questions. Dominic, you mentioned the company's market share, I think one figure was 52% and the other one was 58%, I think depending upon sort of the time series. The balance of the insured market sort of who's making up the remaining 48% and 42%. Is that spread over a couple or multiple carriers, or is it concentrated across really just one-off carrier? How distributed is the balance of the insurance market?

Dominic J. Frederico -- President and Chief Executive Officer

It's one other carriers, a mutual company called Build America Mutual.

Ronald Bobman -- Capital Returns Management LLC -- Analyst

Okay. I familiar with them. Okay, thanks. And Rob, when you mentioned the refi of the two debt instruments. I think I misheard, but I can't imagine it's right. The second one, I thought I heard you say that retired debt instrument that was going to be due in 2102. I could have heard it wrong, but that just seems too far out there to be correct.

Robert A. Bailenson -- Chief Financial Officer

No, that is correct. Those were issued that were 100-year debt. And that product doesn't exist anymore. But this callable at par after five years. And we were able to take advantage of taking out high cost debt and maintain flexibility at the holding company.

Ronald Bobman -- Capital Returns Management LLC -- Analyst

Okay. Thanks guys. Best of luck. Hope goes well.

Dominic J. Frederico -- President and Chief Executive Officer

Thank you.

Operator

The next question comes from Geoffrey Dunn from Dowling & Partners. Please go ahead.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Thank you. Good morning.

Dominic J. Frederico -- President and Chief Executive Officer

Good morning.

Geoffrey Dunn -- Dowling & Partners -- Analyst

I had two questions. First, there was some noise in the news about Puerto Rico few weeks ago. Basically, I think it was the Commonwealth lawyers arguing for the pensioners and saying that, how do you issue new debt in these agreements with out support from Puerto Rico. So what is the reality of Puerto Rico sway here and the potential ability to derail the agreements?

Dominic J. Frederico -- President and Chief Executive Officer

Good question, and I'm not the attorney in the room, but I'll play one just for the sake of argument. So the issue with pensions really gets to two issues, right. The number one, does the Control Board have the authority to basically steamroll the legislature. It seems like they precinct that they do. I'm not the judge, so I can't tell you whether that's true or not. But it seems like they do. So I'd say, it's OK, you want to see the pensioners protected. We do have the authority or capability to do that. Good question. However, against that kind of backdrop, you got to remember in bankruptcy, there is a statement and the information that says all creditors of equal standing has to be treated equally. So to me, that's an impossible argument to say the pensioners of every other creditors taking an impairment, don't take an impairment. I don't know how long that would pass the muster of the review, and especially a challenge because it's black and white. You can't, you know, all creditors legal standing has to be treated fairly. How can you preserve one class, it's not even secured, and say they're going to get 100 cents on the dollar, you know, these other classes are going to take apparently. So although they rattle the saber and both of them are rattling saber. I'm not so sure if we drove it away. This is just positioning to try to reduce the amount of the discount.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay.

Dominic J. Frederico -- President and Chief Executive Officer

Thank you. Would that really answer, Geoff?

Geoffrey Dunn -- Dowling & Partners -- Analyst

Yeah, actually, I mean, directionally helps, but who knows until it's all finalized, right. The other question I had is on the future prospect for run-off book M&A. Puerto Rico is obviously put us on hold. But let's go forward to the scenario where the settlements are all done. Does Puerto Rico is still present an area of challenge given the CVI components of the settlements and a certain amount of that predicated on future speculation? Or is that something you think you can get comfortable with through the underwriting, including putting no value on those instruments on something you might acquire?

Dominic J. Frederico -- President and Chief Executive Officer

I think we can get very comfortable.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay. Perfect. Thank you.

Operator

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Robert Tucker for any closing remarks.

Robert Tucker -- Senior Managing Director, Investor Relations and Corporate Communications

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. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Robert Tucker -- Senior Managing Director, Investor Relations and Corporate Communications

Dominic J. Frederico -- President and Chief Executive Officer

Robert A. Bailenson -- Chief Financial Officer

Christopher Testa -- Royce Investment Partners -- Analyst

Tommy McJoynt -- KBW -- Analyst

Michael Semple -- Private Investor

Ronald Bobman -- Capital Returns Management LLC -- Analyst

Geoffrey Dunn -- Dowling & Partners -- Analyst

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