Assured Guaranty Ltd. Reports Second Quarter 2005 Net Income of $66.8 Million

Dominic Frederico, President and Chief Executive Officer ofAssured Guaranty Ltd., commented, "During the quarter, our insurerfinancial strength ratings, a key element of our strategic objectives,were significantly enhanced. Standard and Poor's announced a Stableoutlook on their AAA rating and Fitch Ratings announced a new AAArating with a Stable outlook for Assured Guaranty Corp., our U.S.direct financial guaranty insurer. We continue to expand our financialguaranty direct platform, as well as receive a strong flow offacultative submissions in our Bermuda-based reinsurance company."
Analysis of Net Income
($ in millions)
%
2Q-05 2Q-04 Change
--------- --------- ---------
Net income $66.8 $43.1 55%
Less: After-tax realized gains on
investments 1.2 6.3 (81%)
Less: After-tax unrealized (losses)
gains on derivatives (9.7) 9.0 NMF
--------- ---------
Operating income $75.2 $27.9 170%


Weighted average shares outstanding (in
millions):
Basic 73.8 75.0 (2%)
Diluted 74.1 75.0 (1%)


Per Diluted Share

%
2Q-05 2Q-04 Change
--------- --------- ---------
Net income $0.90 $0.57 58%
Less: After-tax realized gains on
investments 0.02 0.08 (75%)
Less: After-tax unrealized (losses)
gains on derivatives (0.13) 0.12 NMF
--------- ---------
Operating income $1.02 $0.37 176%

To assist analysts and investors in evaluating the Company'sfinancial results, this press release references several non-GAAPfinancial measures. These non-GAAP financial measures are defined inthe "Explanation of Non-GAAP Financial Measures" section of this pressrelease. In each case, the most directly comparable GAAP financialmeasure is presented and a reconciliation of the non-GAAP financialmeasure and GAAP measure is provided. This presentation is consistentwith the way that Company management, analysts and investors evaluatethe Company's financial results and is comparable to the earnings pershare estimates published by analysts in their research reports on theCompany. The non-GAAP financial measures included in this pressrelease are: operating income, present value of financial guaranty andmortgage guaranty gross written premiums ("PVP"), net present value ofestimated future installment premiums in force and adjusted bookvalue.

Operating income, a non-GAAP financial measure, was $75.2 million,or $1.02 per diluted share, in the second quarter of 2005, an increaseof 170% from $27.9 million, or $0.37 per diluted share, in the secondquarter of 2004. Assured Guaranty's second quarter 2005 operatingincome included net after-tax income of $41.4 million, or $0.56 perdiluted share, related to the CFS-Related Securities Fraud Litigationsettlement ("CFS Settlement"), net after-tax income of $1.9 million,or $0.03 per diluted share, related to the novation of FinancialSecurity Assurance Inc.'s reinsurance book from Assured Guaranty Corp.("AGC") to Assured Guaranty Re Ltd. ("FSA Transaction"), and netafter-tax expenses of $1.3 million, or $0.02 per diluted share,related to AGC's $200 million contingent capital facility ("AGCContingent Capital Facility"). Assured Guaranty's second quarter 2004operating income included net after-tax expenses of $9.6 million, or$0.13 per diluted share, for IPO-related accelerated vesting andreplacement of stock rewards, and a net after-tax operating loss of$5.9 million, or $0.08 per diluted share, from our other segment,which consists of transactions and lines of business that we exited aspart of our IPO in April 2004 (together, the "IPO-relatedtransactions"), and after-tax operating income of $3.6 million, or$0.05 per diluted share for the commutation of a mortgage guarantyexcess of loss reinsurance transaction ("Mortgage GuarantyCommutation").
Income Statement Highlights:

Net Written Premiums by Segment
($ in millions)

%
2Q-05 2Q-04 Change
---------- --------- ----------
Financial guaranty direct $20.4 $17.3 18%
Mortgage guaranty 1.9 0.9 111%
Financial guaranty reinsurance 8.0 35.8 (78%)
---------- ---------
Total financial guaranty 30.2 54.0 (44%)
Other - (84.0) NMF
---------- ---------
Total $30.2 $(29.9) NMF

Net written premiums include the effect of the FSA Transaction inthe second quarter of 2005 and IPO-related transactions in the secondquarter of 2004. On a segment basis, net written premiums in thefinancial guaranty direct segment were $20.4 million, up 18% over theprior year period, principally due to the Company's U.S. publicfinance business. Mortgage guaranty net written premiums were $1.9million versus $0.9 million in the prior year period. Net writtenpremiums in the financial guaranty reinsurance segment were $8.0million, a decline of 78% over the prior year period, as net writtenpremiums in the 2005 reporting period were reduced by net premiumcessions of $18.4 million related to the FSA Transaction, as well aslower upfront premium volume compared to the prior year quarter.

The other segment, which includes businesses sold or discontinuedas part of our IPO, has not generated net written or earned premiumssince the second quarter of 2004. The $(84.0) million of net writtenpremiums in the second quarter of 2004 reflects the impact ofIPO-related transactions.
Net Earned Premiums by Segment
($ in millions)

%
2Q-05 2Q-04 Change
--------- --------- ---------
Financial guaranty direct $16.0 $16.1 (1%)
Mortgage guaranty 5.1 15.0 (66%)
Financial guaranty reinsurance 27.2 25.6 6%
--------- ---------
Total financial guaranty 48.3 56.7 (15%)
Other - (66.0) NMF
--------- ---------
Total $48.3 $(9.3) NMF

Consolidated net earned premium comparisons with the prior yearperiod are materially affected by the IPO-related transactions in theother segment in the second quarter of 2004. On a segment basis,financial guaranty direct net earned premiums were $16.0 million inthe second quarter of 2005 compared with $16.1 million in the secondquarter of 2004, which included $1.9 million of net earned premiumsfrom the Company's single name credit default swap business that wassold in the first quarter of 2005. Mortgage guaranty net earnedpremiums declined to $5.1 million in the second quarter of 2005 from$15.0 million in the second quarter of 2004 due to the run-off of theCompany's quota share mortgage guaranty reinsurance treaties and $8.8million of net earned premium in the second quarter of 2004 due to theMortgage Guaranty Commutation. Financial guaranty reinsurance netearned premiums including municipal bond refundings were $27.2million, up 6% over the second quarter of 2004. Municipal bondrefunding net earned premiums, which are included in the financialguaranty reinsurance segment, were $3.6 million ($0.02 per dilutedshare) in the current period compared with $4.4 million ($0.02 perdiluted share) in the second quarter of 2004.
Underwriting Results by Segment
($ in millions)

%
2Q-05 2Q-04 Change
--------- --------- ---------
Underwriting gain (loss):
Financial guaranty direct $1.1 $5.3 (79%)
Mortgage guaranty 3.1 11.2 (72%)
Financial guaranty reinsurance 73.8 14.6 405%
--------- ---------
Total financial guaranty 77.9 31.0 151%
Other - (8.8) NMF
--------- ---------
Total $77.9 $22.3 249%

Consolidated underwriting results were affected by the CFSSettlement in the second quarter of 2005 and by the impact ofIPO-related transactions in the other segment in the second quarter of2004. Assured Guaranty reported a consolidated underwriting gain of$77.9 million in the second quarter of 2005, including the $63.7million recovery from the CFS Settlement, compared to an underwritinggain of $22.3 million in the second quarter of 2004.

On a segment basis, the underwriting gain for the financialguaranty direct segment was $1.1 million in the second quarter of2005, down from $5.3 million in the second quarter of 2004, due to a$4.5 million case loss reserve established on a sub-prime mortgagetransaction in the second quarter of 2005. The mortgage guarantysegment's underwriting results declined 72% in the second quarter of2005 to $3.1 million from $11.2 million in the second quarter of 2004,which included a $5.5 million underwriting gain on the MortgageGuaranty Commutation.

The underwriting gain for the financial guaranty reinsurancesegment in the second quarter of 2005 rose 405% to $73.8 million,including the $63.7 million loss recovery from the CFS Settlement. Thesegment's underwriting results in the second quarter of 2005 alsoincluded a $1.2 million case loss reserve on a manufactured housingtransaction and a $2.8 million underwriting loss on the FSATransaction.
Shareholders' Equity Highlights:
(amounts in millions except per share data)

As of
-------------------------
June 30, December 31,
2005 2004
------------ ------------
Book value $1,619.5 $1,527.6
Net UPR less DAC - after-tax(1) 304.2 268.6
Net present value of estimated
installment
premiums in-force - after-tax(2) 300.6 297.1
------------ ------------
Adjusted book value $2,224.3 $2,093.3
============ ============

Shares outstanding at the end of period (in
millions) 74.9 75.7


Book value per share outstanding:
Book value $21.63 $20.19
Net UPR less DAC - after-tax(1) 4.06 3.55
Net present value of estimated
installment
premiums in-force - after-tax(2) 4.01 3.93
------------ ------------
Adjusted book value $29.71 $27.67
============ ============

(1) Unearned premium reserve (UPR) less pre-paid reinsurance
premiums and deferred acquisition costs (DAC), all after-tax.
(2) Due to reporting lag by our ceding companies, the present value of
estimated installment premiums in force in our reinsurance segment
is reported on a one-quarter lag.

At June 30, 2005, the Company's book value per share was $21.63,an increase of 7% over the book value of $20.19 reported at December31, 2004 due to the increase in retained earnings since year end.Adjusted book value per share, a non-GAAP financial measure, was$29.71 at June 30, 2005, up 7% from December 31, 2004, reflecting thegrowth in net unearned premium reserves and net after-tax presentvalue of estimated installment premiums in force, a non-GAAP financialmeasure.
New Business Production:

Analysis of Present Value of Gross Written Premiums ("PVP")
($ in millions)

Three Months Ended
June 30,
---------------------
2005 2004
---------------------
Premium analysis:
Gross written premiums (GWP) analysis:
Present value of financial guaranty & mortgage
guaranty GWP (PVP) (1):
Financial guaranty direct $22.7 $14.4
Mortgage guaranty - -
Financial guaranty reinsurance 35.2 40.1
---------------------
Total PVP 57.9 54.4
Less: Installment premium PVP 38.3 31.6
---------------------
Upfront financial guaranty & mortgage
guaranty GWP 19.6 22.9
Less: Upfront premium due to healthcare
reassumption 18.4 -
Plus: Installment GWP 29.8 31.5
---------------------
Financial guaranty & mortgage guaranty GWP 31.0 54.4
Other segment GWP 9.5 10.0
---------------------
Total gross written premiums $40.5 $64.4
=====================

(1) Due to reporting lags by our ceding companies, PVP for installment
premiums from our financial guaranty reinsurance segment is
reported on a one-quarter lag.

New business production, as measured by PVP, a non-GAAP financialmeasure, rose to $57.9 million in the second quarter of 2005, up 6%from the $54.4 million written in the second quarter of 2004. Thefinancial guaranty direct segment generated $22.7 million of PVP, a58% increase over second quarter 2004 PVP of $14.4 million, andreflects the expansion of the Company's direct financial guarantybusiness. The number of transactions in the second quarter of 2005increased materially compared to the first quarter of 2005 and thesecond quarter of 2004, but did not include any deals with PVP inexcess of $5 million. The Company closed two deals in the firstquarter of 2005 and one deal in the fourth quarter of 2004 that hadPVP in excess of $5.0 million. The financial guaranty reinsurancesegment's second quarter 2005 PVP was $35.2 million, a decrease of 12%from the segment's second quarter 2004 PVP of $40.1 million. Thesecond quarter of 2004 included $12.0 million in PVP on tworeinsurance contracts that are no longer in force.

Investor Conference Call: The Company will host a conference callfor investors at 8:30 a.m. Eastern Daylight Time (9:30 a.m. AtlanticDaylight Time) on Friday, August 5, 2005. The earnings conference callwill be available via live and archived webcast in the InvestorInformation section of the Company's website athttp://www.assuredguaranty.com or by dialing 1-800-901-5247 (in theU.S.) or 1-617-786-4501 (International), passcode 59514532. A replayof the call will be available through September 5, 2005. To listen tothe replay dial: 1-888-286-8010 (in the U.S.) or 1-617-801-6888(International), passcode 20152572.

Please refer to the Assured Guaranty Financial Supplement - June30, 2005, which is posted on the Company's website athttp://www.assuredguaranty.com/investor/supplement.html for moredetailed information on individual segment performance, together withadditional disclosure on our financial guaranty portfolio andinvestment portfolio.

Assured Guaranty Ltd. is a Bermuda-based holding company. Itsoperating subsidiaries provide credit enhancement products to the U.S.and international public finance, structured finance and mortgagemarkets. More information can be found at www.assuredguaranty.com.

Explanation of Non-GAAP Financial Measures:

The following section describes why the non-GAAP financialmeasures presented in this press release are useful for investors.

Operating income, which is a non-GAAP financial measure, isdefined as net income excluding after-tax realized gains (losses) oninvestments and after-tax unrealized gains (losses) on derivativefinancial instruments. We believe the presentation of operating incomeenhances the understanding of our results of operations byhighlighting the underlying profitability of our insurance business.We exclude net realized gains (losses) on investments and netunrealized gains (losses) on derivative financial instruments becausethe amount of these gains (losses) is heavily influenced by, andfluctuates in part according to, the market interest rates, creditspreads and other factors that management cannot control or predict.This measure should not be viewed as a substitute for net incomedetermined in accordance with GAAP.

Adjusted book value, which is a non-GAAP financial measure, isderived by beginning with shareholder's equity (book value) and addingor subtracting the after-tax value of: the financial guaranty andmortgage guaranty unearned premium reserve net of prepaid reinsurancepremiums and deferred acquisition costs and the present value ofestimated future installment premiums (discounted at 6%) net ofreinsurance. The adjustments described above will not be realizeduntil future periods and may differ materially from the amounts usedin determining adjusted book value. Management, investors and analystsuse the calculation of adjusted book value to evaluate the net presentvalue of the Company's in-force premium and capital base.

Present value of estimated installment premiums in-force, which isa non-GAAP financial measure, represents our estimated future premiumson our in-force book of installment premium business in our financialguaranty direct and financial guaranty reinsurance segments. Estimatedfuture premiums may change from period to period due to changes ininsured par outstanding due to actual prepayments or amortizationsdiffering from previous estimates or due to a change in futureestimates due to market conditions, interest rates or other factors.It is calculated net of reinsurance ceded and using a discount rate of6%. We believe present value of estimated installment premiums is auseful measure for management, equity analysts and investors, becauseit permits the evaluation of future estimated installment premiums,similar to the GAAP financial measure of unearned premium reserve.

PVP, which is a non-GAAP financial measure, represents grosspremiums and fees related to financial guaranty and mortgage guarantycontracts written in the current period, including upfront andinstallment premiums received on contracts written in the currentperiod and the present value of estimated future installment premiums,discounted at 6% per year. We use 6% as the present value discountbecause it is the approximate taxable equivalent yield on ourinvestment portfolio for the periods presented. We believe PVP is auseful measure for management, equity analysts and investors becauseit permits the evaluation of the value of new business production forAssured Guaranty by taking into account the value of installmentpremiums on new contracts underwritten in a reporting period, whichthe GAAP gross premiums written does not adequately measure.
Assured Guaranty Ltd.
Consolidated Income Statements

Three Months Ended
June 30,
-------------------------
2005 2004
-------------------------
(dollars in millions)
Revenues
Gross written premiums $40.5 $64.4
Net written premiums 30.2 (29.9)

Net earned premiums 48.3 (9.3)

Net investment income 23.7 23.5
Other income (0.2) -
-------------------------
Total revenues $71.8 $14.2

Expenses
Loss and loss adjustment expenses (59.1) (60.0)
Profit commission expense 3.3 4.8
Acquisition costs 11.7 8.4
Other operating expenses 14.5 26.6
Other expenses 5.9 2.5
-------------------------
Total expenses $(23.7) $(17.6)

Income before provision for income taxes 95.5 31.8

Total provision for income taxes 20.3 3.9
-------------------------

Operating income $75.2 $27.9

After-tax net realized investment gains 1.2 6.3
After-tax unrealized (losses) gains on
derivative financial instruments (9.7) 9.0
-------------------------

Net income $66.8 $43.1
=========================


Assured Guaranty Ltd.
Consolidated Balance Sheets

As of:
-------------------------
June 30, December 31,
2005 2004
-------------------------
(dollars in millions)

Assets
Fixed maturity securities, at fair value $2,076.8 $1,965.1
Short-term investments, at cost which
approximates fair value 121.1 175.8
-------------------------
Total investments 2,197.9 2,140.9

Cash and cash equivalents 4.7 17.0
Accrued investment income 21.4 21.9
Deferred acquisition costs 188.2 186.4
Prepaid reinsurance premiums 13.8 15.2
Reinsurance recoverable on ceded losses 112.4 120.2
Loss recovery receivable 63.7 -
Premiums receivable 28.5 40.8
Goodwill 85.4 85.4
Unrealized gains on derivative financial
instruments 34.5 43.9
Other assets 21.0 22.3
-------------------------
Total assets $2,771.6 $2,694.0
=========================

Liabilities and shareholders' equity
Liabilities
Unearned premium reserves $530.2 $521.3
Reserves for losses and loss adjustment
expenses 206.4 226.5
Profit commissions payable 45.4 61.7
Reinsurance balances payable 21.9 25.1
Current income taxes 28.4 -
Deferred income taxes 18.2 40.1
Funds held by Company under reinsurance
contracts 53.8 50.8
Long-term debt 197.3 197.4
Other liabilities 50.5 43.7
-------------------------
Total liabilities 1,152.1 1,166.4

Shareholders' equity
Common stock 0.7 0.8
Treasury stock (7.9) (7.9)
Additional paid-in capital 884.4 894.2
Unearned stock grant compensation (10.1) (6.7)
Retained earnings 674.8 568.3
Accumulated other comprehensive income 77.5 79.0
-------------------------
Total shareholders' equity 1,619.5 1,527.6

-------------------------
Total liabilities and shareholders' equity $2,771.6 $2,694.0
=========================

Cautionary Statement Regarding Forward-Looking Statements:

Any forward-looking statements made in this press release reflectthe Company's current views with respect to future events andfinancial performance and are made pursuant to the safe harborprovisions of the Private Securities Litigation Reform Act of 1995.Such statements involve risks and uncertainties that may cause actualresults to differ materially from those set forth in these statements.For example, the Company's forward-looking statements, including itsstatements regarding PVP and present value of estimated installmentpremiums in force, could be affected by a significant reduction in theamount of reinsurance ceded by one or more of our principal cedingcompanies, rating agency action such as a ratings downgrade,difficulties with the execution of the Company's business strategy,contract cancellations, developments in the world's financial andcapital markets, more severe or frequent losses associated withproducts affecting the adequacy of the Company's loss reserve, changesin regulation or tax laws, the Company's dependence on customers,decreased demand or increased competition, loss of key personnel, theeffects of mergers, acquisitions and divestitures, changes inaccounting policies or practices, and changes in general economicconditions, as well as management's response to these factors, andother risk factors identified in the Company's filings with theSecurities and Exchange Commission. Readers are cautioned not to placeundue reliance on these forward-looking statements, which speak onlyas of the dates on which they are made. The Company undertakes noobligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events orotherwise.