Bond insurer Assured Guaranty Ltd. reported a net loss per share despite mostly positive results for the fourth quarter of 2011.
Operating income for the quarter increased 13.6% from fourth-quarter 2010. The operating income was $173.5 million in the more recent quarter, or $0.95 per diluted share.
The improvement was mainly based on a 62% decrease in loss expenses, according to Mark Palmer, an analyst with BTIG. The losses were mainly from residential mortgage-backed securities that Assured Guaranty insures.
The $0.95 per share operating income was substantially better than the $0.69 expected by three analysts polled by Thomson Reuters.
Assured Guaranty also managed to do fairly well with attracting new business.
“In its principal target market, bond issues with single-A underlying credit quality, the company guaranteed … 12.9% of par sold in fourth quarter 2011, compared with 10.2% in fourth-quarter 2010,” the company reported.
This is an encouraging trend considering that Standard and Poor’s only released its new rating of Assured Guaranty on Nov. 30, Palmer said. S&P rates the credit AA-minus.
“Our near-record operating income results were impressive in 2011, a year marked by uncertainty about our ratings, persistent problems in the economy, a steep decline in municipal issuance, and delayed recovery in structured and international infrastructure finance markets,” said Dominic Frederico, Assured’s president and chief executive officer.
“In 2011 we strengthened our rating agency capital position, developed new business opportunities and mitigated a substantial amount of losses through our [rep and warrant] recoveries.”
Not all the numbers released Tuesday evening were positive.
The insurer reported a net loss of $83.6 million, or $0.46 per diluted share, in the fourth quarter of 2011. That was a 16.3% improvement from the $99.9 million net loss in the fourth quarter of 2010.
The net loss is not particularly significant, according to Rob Haines, senior insurance analyst at Credit Sights. It is more a paper loss than a real one, he said, adding that operating income is much more important.
The present value of new business production in fourth-quarter 2011 was $87.5 million, down 16.9% from the fourth quarter 2010. That was partly due to a 25% decline in long-term bond sales from the earlier quarter to the more recent one.
On an annual basis, the trends with operating and net income were reversed. For 2011 operating income at $604.4 million was down 9% from the figure for 2010. However, in 2011 net income jumped 36.3% compared to 2010 and totaled $775.6 million.
Assured Guaranty is the last remaining active insurer of municipal bonds. Whereas insurers backed 57% of the new-issue muni market in 2005, Assured, as the last remaining active insurer, guaranteed just 5.2% of the market in 2011.
The recent economic downturn pushed the other credit enhancers out of the business of insuring new bonds.
As of 12:06 p.m. on Wednesday, Eastern Time, Assured Guaranty’s stock was selling for $17.28, up 0.8% from Tuesday’s close and up 88.6% from its price of $9.16 in late October 2011.
