Assured Guaranty reports strong start to year

Assured Guaranty Ltd., the biggest municipal bond insurer, reported gains in first-quarter profit, boosted by the acquisition of MBIA UK Insurance Limited.

Net income rose to $317 million, or $2.49 a share, in the first quarter, from $59 million, or $0.43 a share a year earlier, according to a Thursday press release. Operating income climbed to $273 million or $2.14 a share, for the quarter, from $123 million, or $0.89 a share.

The acquisition of MBIA UK Insurance Limited resulted in a benefit to net income and operating income of $57 million, or $0.45 per share, at the acquisition date. The increase was primarily attributable to fair value gains on credit derivatives, the acquisition of MBIA UK Insurance Limited, and a commutation gain upon the resumption of previously ceded contracts, which is recorded in other income. Assured's stock gained 5.2% in midday trading Friday.

DON'T USE Frederico-Dominic-Assured-BL
Dominic Frederico, president and chief executive officer of Assured Guaranty Ltd., listens at the Bloomberg Link State and Municipal Finance Briefing forum at the Lighthouse International in New York, U.S., on Tuesday, March 22, 2011. Photographer: Jin Lee/Bloomberg *** Local Caption *** Dominic Frederico

“We have been the only guarantor to remain engaged in Europe, and that commitment has begun to produce meaningful returns,” Dominic Frederico, president and CEO of Assured, said Friday on a conference call with investors. “We are clearly seeing renewed demand for our guaranty in the U.K., which we attribute to greater market understanding of the value we have demonstrated, favorable interest rate conditions for refinancing infrastructure debt, and the benefits our guaranty provides for investors subject to Solvency II capital requirements.”

Assured said it once again set records for shareholders' equity per share, non-general accepted accounting principles operating shareholders' equity per share and non-GAAP adjusted book value per share at $53.95, $52.51 and $71.51, respectively.

Other highlights from the first quarter include a reported $216 million or 5.4 million in share repurchases. Gross written premiums and present value of new business production or the first quarter of 2017 were at their highest levels since 2010 at $111 million and $99 million, respectively.

“Importantly, we continued to see increased demand for Assured Guaranty’s insurance on larger municipal offerings,” Frederico said. “With an industry-leading $12 billion in claims-paying resources, we have unparalleled ability to insure larger transactions without any single transaction representing material exposure relative to our claims-paying resources. During the first quarter, we were selected to insure more than $100 million of par on each of five different public transactions. Now, we can’t predict the timing of deals of this size, but I can tell you we have already exceeded that number in the second quarter.”

Frederico said the use of Assured's municipal bond insurance on large deals is one sign of growing institutional appreciation of the benefits Assured offers. Another is the growth of its secondary market business.

“As more institutional investors recognized the value of our product over the last year, demand for our secondary market municipal bond insurance has grown significantly; the $711 million of secondary market par we insured in the first quarter of this year was nearly double our secondary market volume in the first quarter a year ago,” he said.

Assured reported that an economic loss development in first quarter of $47 million, primarily related to an increase in Puerto Rico expected losses, partially offset by a $53 million benefit attributable to the settlement of litigation associated with two structured finance transactions.

“Now to one of our favorite topics, Puerto Rico: There have been important developments since our last call. The best news is that, after agreeing to re-open negotiations over the Restructuring Support Agreement for [the Puerto Rico Electric Power Authority], we came away with a modified agreement that allows for full implementation, is fair to the various parties and shows the Puerto Rico government and the Oversight Board that the consensually negotiated RSA construct provided the best way forward for PREPA,” said Frederico.

Puerto Rico declared a form of bankruptcy on Wednesday, protection under Title III of PROMESA.

“We believe the Oversight Board appointed under the federal PROMESA legislation should facilitate execution of the modified RSA under Title VI of PROMESA. Unfortunately, neither Puerto Rico nor the board has shown a commitment to the law or to reaching other consensual agreements,” he said.

Assured filed an adversary complaint seeking a declaratory judgment that Puerto Rico’s certified Fiscal Plan violates various sections of PROMESA and the Contracts, Takings and Due Process Clauses of the U.S. Constitution.

The complaint also asks the court to enjoin the Commonwealth and the Oversight Board from taking any action based on the illegal Fiscal Plan. Assured feels as though among other things, the plan fails to meet the PROMESA requirement that it “respect the relative lawful priorities or lawful liens” established under the commonwealth’s constitution, laws and agreements. Specifically, the plan violates the Commonwealth’s Constitutional Debt Priority Provision, which provides that G.O. bonds have priority over all government expenses.

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