Assured Guaranty Ltd. posted record quarterly operating income, bolstered by its $358 million settlement with UBS Real Estate Securities Inc.
Operating income jumped to $260 million, or $1.34 per share in the first quarter, from $71 million or $0.38 per share a year earlier, the insurance holding company said in its earnings report late Thursday.
The increase reflects a $71 million benefit attributable to the agreement with UBS and affiliates that resolves Assured’s claims related to certain mortgage-backed transactions, and higher premium accelerations, the company said.
“Our record-high operating income demonstrates the success of our loss mitigation strategies and effective portfolio management,” said Dominic Frederico, president and chief executive officer of Assured Guaranty. “Additionally, we continue to execute our capital management strategy and, as of May 6, had repurchased over 5.6 million shares.”
The $1.34 of operating income per share exceeded the Bloomberg consensus estimate among analysts of $0.70. It also exceeded BTIG’s $0.64 estimate.
Assured also gave investors a preview of what could become a “fairly remarkable” return of capital during the next couple of years, after it reported that it had moved forward with its share repurchase plan, BTIG analyst Mark Palmer said.
The company reported that it had used almost $114 million to repurchase 5.6 million of shares through May 6 at an average price of $20.29. The shares rose 0.55% Friday morning to $23.80.
The net loss for the first quarter narrowed to $144 million, or $0.74 per share, from a $483 million loss a year earlier.
Assured said the decrease in the net loss was also attributable to the UBS agreement, as well as the lower non-economic net unrealized fair value losses, which result primarily from to the narrowing of credit spreads of its insurance subsidiaries.
Public finance present value of new business production declined in the first quarter this year to $18 million. Assured attributed the decline to the low interest rate environment, tight credit spreads, and the uncertainty of the company’s financial strength rating following a downgrade from Moody’s Investors Service.
At the beginning of the year, Moody’s downgraded the insurance financial strength rating of Assured Guaranty Municipal Corp., which is responsible for most of its public finance business, to A2 from Aa3, and Assured Guaranty Corp. to A3 from Aa3.
“Despite the challenging interest rate and market environment, the company maintained average new business credit ratings in the single-A category,” the company said in a press release. “In addition, premium rates in first quarter 2013 for municipal bond insurance were consistent with 2012 rates.”
Net earned premiums for the company increased to $266 million in the first quarter from $211 in the same period last year.
In a conference call with investors Friday morning, Frederico said the company has made progress toward starting a new municipal-only insurer, Municipal Assurance Corp.
The company has met with insurance regulators, as well as rating agencies, and still expects to launch the unit in the second half of the year.