Assured Guaranty Reports Profit Gain

Assured Guaranty’s net income for the fourth quarter and 2014 rose as the bond insurer continued to rebuild market share.

Net income increased to $532 million, or $3.28 per share, for fourth quarter from $349 million, or $1.90 per share, in the fourth quarter 2013. Net income for 2014 jumped to $1.1 billion, or $6.26 per share, from $808 million, or $4.30 per share in 2013.

The year 2014 marked the 10th full year since the company’s initial public offering. Assured said its operating shareholders’ equity per share reached a new high at $37.48. President and chief executive officer Dominic Frederico said the company’s adjusted book value per share increased 8.2%, ending the year at $53.66. Operating income for the year slipped to $491 million on lower earned premiums and increased expenses for debt, taxes and one-time severance costs.

“We accomplished the four strategic objectives I listed during our earnings call a year ago,” Frederico said during a conference call. “Specifically, we further optimized our capital management, primarily by continuing our share repurchases; we increased new business production, with contributions from our U.S. public finance, international infrastructure and global structured finance businesses; we reached an agreement to acquire a legacy insurer - Radian Asset Assurance Incorporated - and further augmented our unearned premium reserve by reassuming previously ceded business; and we extracted value from our own insured portfolio through loss mitigation and alternative strategies.”

Frederico said Assured resolved a significant number of troubled exposures in its public finance insured portfolio, while Puerto Rico credits remain an area of concern, for which the company established additional reserves in the fourth quarter.

“Within our Puerto Rico exposures, the most vulnerable credit is the Puerto Rico Electric Power Authority, or PREPA, which is developing its restructuring plan,” he said. “Through a forbearance agreement, we and other creditors have agreed to allow PREPA time to develop a plan to restore its financial stability. Simultaneously, we are exploring possible ways to work with the Puerto Rico Highway and Transportation Authority.”

Frederico also said as Assured has continued to meet its operating objectives and build financial strength, rating agencies have begun to take notice. “S&P upgraded our operating subsidiaries’ ratings to AA from AA-minus and confirmed their stable outlook in March of 2014. Significantly, this was the first upgrade we have received since the start of the Great Recession. Additionally, in November, Kroll Bond Rating Agency initiated its coverage of AGM with a rating of AA+ stable, giving both AGM and MAC the highest rating assigned to any active bond insurer by a nationally recognized statistical rating organization,” he said.

Operating income fell to $81 million, or $0.50 per share, for fourth quarter 2014, from $134 million, or $0.73 per share, a year earlier. Operating income for 2014 dropped to $491 million, or $2.83 per share, from 2013 operating income of $609 million, or $3.25 per share.

“Compared to the fourth quarter of 2013, operating income was down due primarily to lower earned premiums and credit derivative revenues, and a higher effective tax rate,” said chief financial officer Robert Bailenson. “Interest expense was higher than fourth quarter 2013 due to the $500 million debt issuance last June. Operating expenses were also up slightly due to severance accruals as a result of a workforce reduction that will cut annual compensation expenses by approximately $9 million, beginning in the second quarter of 2015.”

Bailenson said the Radian acquisition will increase the company’s future premium earnings and boost the statutory capital position.

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