Bond insurance holding company Assured Guaranty Ltd. reported a 382% increase in third-quarter operating income Thursday, less than two weeks after being stripped of its triple-A rating.
Assured Guaranty Ltd. reported operating income of $222.8 million in the third quarter, which ended Sept. 30. That compares with $46.2 million during the same period of last year. Assured Guaranty Ltd. acquired Financial Security Assurance, since renamed Assured Guaranty Municipal Corp., in June 2009.
Third-quarter results were bolstered by a $55.8 million tax benefit and $51.3 million of acquisition-related expenses. With these items excluded, operating income in the quarter would have been $167 million, or 108% more than the $80.3 million in the third quarter of 2009.
"Our strong operating earnings this quarter continue to reflect the stable results of our credit portfolio and the earnings power of our franchise," said Dominic Frederico, president and chief executive officer of Assured Guaranty Ltd.
Shareholders' adjusted book value — a measure of accounting that does not adhere to generally accepted accounting principles but which attempts to capture future income earnings minus future liabilities — was $49.01 per share, up 1% from the start of the year.
Net income in the third quarter was $180.9 million, versus a net loss of $35 million for the same period a year ago.
Assured Guaranty Ltd.'s two insurer platforms, AGM and Assured Guaranty Corp., were each downgraded on Oct. 25 to AA-plus by Standard & Poor's. The platforms are the only remaining bond insurers continuing to write new insurance policies since their competitors collapsed during the credit crisis from insuring risky mortgage-related debt.
Frederico commented on the recent downgrade, calling the rating action "unwarranted" and raising questions about the transparency of Standard & Poor's rating methodology. Moody's Investors Service gives both insurer platforms an Aa3 rating — or two notches lower than Standard & Poor's AA-plus.
"We continue to request the establishment of a comprehensive regulator for the rating agencies to ensure a more stable and transparent business model and market for issuers and investors," Frederico said in the company's earnings statement.
The company's financial performance in the third quarter reflects reduced losses on credit derivatives, including mortgage-backed securities. Assured Guaranty Ltd. lost $15.4 million on credit derivatives in the third quarter, compared with $142.2 million in the third quarter of 2009, due to reduced losses from U.S. residential mortgage-backed securities.
The company has previously claimed some of the MBS it guaranteed were "plagued by rampant fraud and misrepresentations" and has been pursuing loan originators to buy them back.
Frederico said third-quarter earnings benefited from a significant increase in these mortgage loan repurchases. The company reached repurchase agreements on $111 million of defective or ineligible loans in the quarter.
In the first 10 months of the year, Assured wrapped about $23 billion of municipal debt, or 29% less than the same period a year ago, according to Thomson Reuters.
The total value of Assured's new business production in public finance for the third quarter was $84.5 million, a decline of 45% from the $154.9 million it recorded a year earlier.
Frederico said Assured has spent 2010 rebuilding its municipal bond insurance franchise. He noted that in the first three quarters, the company guaranteed close to 1,400 issues, "reflecting significant demand and franchise value for our guaranties."
He also said the recent downgrade to AA-plus has not affected current business.
"Since the S&P downgrade on October 25th, AGC and AGM have priced or closed as scheduled over 120 transactions with a par amount of $1.6 billion," the CEO said.
