Assured Guaranty Ltd., the biggest municipal bond insurer,
Net income fell to $146 million, or $1.09 a share, in the second quarter this year, from $297 million, or $1.96 a share a year earlier, according to an Aug. 3 press release. Operating income fell to $139 million or $1.03 a share, for the quarter, from $278 million, or $1.83 a share.
The decline in profit was primarily due to the gains recognized upon the acquisition of Radian Asset Assurance Inc. in second quarter 2015. This was offset in part by lower loss and loss adjustment expenses in second quarter 2016 compared with second quarter 2015.
"Assured Guaranty had a solid second quarter," said Dominic Frederico, president and CEO. "We continued to build our financial strength, and furthered our strategic objectives on July 1 when we completed our acquisition of CIFG."
Assured's shareholders' equity per share, operating shareholders' equity per share and ABV per share all reached new highs for the second quarter in a row with $47.06, $45.26 and $61.86 respectively. Those figures were at $43.96, $43.11 and $61.18 at year-end 2015.
"S&P Global Ratings took note of our positive risk-adjusted pricing trend in its July 27th report affirming our AA financial strength ratings," Frederico said. "In the report, S&P said that none of the severe stress scenarios it applied to our Puerto Rico exposure reduced our 'very strong' capital adequacy score."
Assured held an
"This level of penetration was remarkable considering we saw the lowest interest rate environment in the history of the bond insurance industry," he said. "Before the second quarter began, we had never seen AAA 30-year muni rates below 2.47%, but during the quarter, rates descended well below that level, even before the global flight to quality caused by global events including the Brexit vote on June 23rd. By June 30th, rates were down to 2.02%. The next day they pierced the 2% level, and there is little evidence rates will approach historically normal levels this year, as some central banks continue to hold their rates near zero."
Frederico reiterated that in this kind of environment, all bond insurers see their pricing power constrained. He said Assured is committed to remain disciplined not only in credit selection but also in pricing, because poor pricing can lock in low returns for years to come. During the second quarter, the company continued to focus on transactions that not only met its underwriting standards, but also produced appropriate returns. Investors, as well as municipal issuers and their advisors, have a stake in the long-term viability of the insurer they use, and that means they understand it is necessary for their insurer to run a profitable business in order to remain financially strong.
"At about this time last year, we looked at the current pricing in the market and made a decision to more appropriately price our guaranty by raising our prices. That has clearly cost us some market share, but by comparing U.S. municipal transactions closed in the second quarters of 2016 and 2015, you can see that we generated 32% more present value premiums, or PVP, even though we guaranteed 22% less par," Frederico said.
