Assured profit falls on hurricane damage in Puerto Rico
Assured Guaranty Ltd., the largest municipal bond insurer, said its third-quarter profit fell by 57% due to an increase in loss reserves for Puerto Rico hurricane damage.
Net income fell to $208 million, or $1.72 a share, in the third quarter, from $479 million, or $3.60 a share a year earlier, according to a Thursday press release. Operating income reported on an non-generally accepted accounting principle basis dropped to $156 million or $1.29 a share, for the quarter, from $497 million, or $3.74 a share.
The insurer cited an "economic development" amounting to a loss of $204 million primarily related to Puerto Rico, which sustained major damage during Hurricane Maria. This was partially offset by a $19 million benefit in United States residential mortgage-backed securities that was mainly attributable to the improvement in the performance of the underlying collateral. The economic loss development attributable to the increase in discount rates was a benefit of $6 million for third quarter 2017.
“Assured Guaranty does have to consider the short- and long-term economic impacts of natural disasters on municipalities whose bonds we insure," said Dominic Frederico, president and CEO of Assured on a conference call with investors Friday morning. "In the past, we have paid hurricane-related claims that provided liquidity when, for example, technical or communications obstacles prevented a municipality from funding a payment. Those claim payments were ultimately reimbursed by the obligors. To date, we have had no claims in Florida, Texas or California based on their natural catastrophes, which has historically been our experience. Puerto Rico, of course, is a special case.”
Frederico said a number of Puerto Rico’s obligors were already in default when Hurricanes Irma and Maria hit, and some had already sought bankruptcy-like protection under Title III of PROMESA.. Given the suffering Puerto Ricans have endured and continue to endure, he said, restoring water and power, among other things, are the most immediate and pressing concerns.
“While we continue to be confident that all of our various legal rights are valid and enforceable against Puerto Rico, its Oversight Board and certain of its public corporations, we have withdrawn two of our lawsuits for now," Frederico said. "One challenged the use of the Oversight Board’s fiscal plan, and the other challenged the failure of PREPA, the electric power authority, to apply pledged revenues to the payment of its bonds. Although we expect to be successful in these cases, there is no reason for any party to expend resources litigating them until the Oversight Board indicates its new plans in the aftermath of the storm and service is restored to all customers of PREPA.”
Assured said it again set records for shareholders' equity per share, non-GAAP operating shareholders' equity per share and non-GAAP adjusted book value per share at $58.32, $55.87 and $74.78, respectively.
Other highlights from the quarter include approval by the board of directors of an incremental $300 million share repurchase authorization. Share repurchases totaled $80 million, or 1.8 million shares, in the third quarter.
“Assured Guaranty delivered a solid performance during the third quarter,” Frederico said. “We continued to lead the new issue U.S. municipal bond insurance market in both par and transactions insured. We successfully executed our alternative strategies by completing important investment and commutation transactions, and we continued to repurchase shares for capital management purposes. Our shareholders’ equity, non-GAAP operating shareholders’ equity and non-GAAP adjusted book value all set per-share records.”