Assured’s Fourth-Quarter Earnings Surpass Forecasts

Assured Guaranty Ltd. posted record profits in 2009 as its fourth-quarter earnings handily beat estimates.

More than 98% of primary market insurance last year was written by ­Assured Guaranty Corp. or ­Assured Guaranty Municipal Corp., the ­company’s two insurance subsidiaries. That dominance allowed the company to post annual net income of $97.2 million, versus $68.9 million in 2008, a 41% increase, according to the company’s year-end financial supplement.

Net income in the fourth quarter was $216.7 million, compared with a loss of $243.8 million in the fourth quarter of 2008. Operating income in the quarter jumped to $155.9 million, way up from $3.5 million in the fourth quarter of 2008. For the same period, total revenue increased more than three and a half times to $457.2 million, beating analyst estimates of $422.9 million, according to a poll by Thomson Reuters.

The jump occurred despite incurring a $60.2 million loss on credit derivatives in the fourth quarter. While that is a reduction from the $142.2 million of similar losses in the third quarter, it is a substantial increase compared with the $24.8 million of similar losses recorded in the fourth quarter of 2008

“We recorded strong operating earnings for the year, despite losses in our residential mortgage-backed insured portfolio,” Dominic Frederico, Assured’s president and chief executive officer, said in an 8K filing to the Securities and Exchange Commission.

Frederico attributed much of the growth to the July 1 purchase of ­Financial Security Assurance Holdings from Belgian-bank Dexia SA, which the company renamed Assured Guaranty Municipal. Acquisition-related expenses were $12.1 million in the fourth quarter and $92.3 million for the year.

“Further, we achieved these results despite the ratings uncertainty that prevailed during much of 2009,” Frederico said in a conference call to investors Friday. “Our business began to rebound after Moody’s maintained our Aa3 rating based on the successful completion of our capital initiatives in early ­December.”

Through its two subsidiaries, the company guaranteed $6.7 billion of new municipal issuance last quarter, about 14% of the $47.1 billion it insured in the year, the supplement showed. About two-thirds of new issuance, both for the quarter and the year, were tax-backed or general obligation bonds, and the ­average rating for all credits was ­single-A.

Assured’s total exposure to U.S. public finance, including direct insurance and reinsurance, was $423.1 billion at the end of last year.

The average rating in Assured’s public finance portfolio is A-plus, by Assured’s internal measures. More than 40% of credit exposure is rated double-A or higher, while about half is in the single-A range. Only 9.4% is rated triple-B and 0.7% is below investment grade, the ­supplement showed.

Frederico told investors market ­appetite is growing and the company expects to increase its portfolio this year. In the first seven weeks of 2010, he noted the company’s municipal penetration rate was up to 10.3% of all tax-exempt volume.

Insurance in the taxable market, which is dominated by Build America Bonds, has been less successful. Since BABs were introduced to the market in April last year, only about 2.5% of the $78.1 billion issued to date have been insured, according to Thomson Reuters.

Both of Assured’s bond insurer subsidiaries are rated Aa3 with a negative outlook by Moody’s Investors Service and AAA with a negative outlook by Standard & Poor’s. Fitch Ratings withdrew its ratings on both companies at Assured’s request last Wednesday.

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