Assured Guaranty Ltd., the largest municipal bond insurer, said its fourth-quarter profit fell on lower earnings from bond refunding and a one-time effect of the new tax law, even as the company's share value surged to record levels.
Net income fell to $52 million, or $0.44 a share, for the quarter and to $730 million or $5.96 per share for fiscal year 2017, from $197 million for the quarter ended Dec. 31 and $881 million for fiscal 2016, according to a press release on Feb. 22.
“We continued to strengthen the enterprise in 2017 through our strategies of new business production, efficient capital management, alternative strategies including acquisitions and commutations, and determined loss mitigation,” said Dominic Frederico, president and CEO of Assured. "The intrinsic value of an Assured Guaranty common share reached new heights, reflected in record non-GAAP adjusted book value per share, which increased 17% during the year. Our U.S. public finance, international infrastructure and structured finance new business operations combined to produce more annual PVP than in any year since 2010."
The decrease in profit was primarily due to lower fair value gains, lower net earned premiums due mainly to lower refundings and terminations, the provisional tax expense related to the enactment of the Tax Act, offset in part, by lower loss and loss adjustment expenses.
Assured also said that loss and LAE were $34 million in fourth quarter 2017, compared with $112 million in fourth quarter 2016. The expense in fourth quarter 2017 was due mainly to the increase in loss reserves on Puerto Rico exposures, partially offset by a gain on the settlement of a breach of representations and warranties (R&W) claim.
The expense in fourth quarter 2016 was primarily related to an increase in Puerto Rico loss reserves and a reduction in excess spread on certain first-lien United States (U.S.) residential mortgage-backed securities exposures, which were partially offset by a benefit due to an increase in discount rates.
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 $58.95, $56.20 and $77.74, respectively.
The company repurchased or 1.9 million or $70 million in shares, in fourth quarter 2017, for a total of $501 million, or 12.7 million shares, in fiscal 2017. Gross written premium nearly doubled to $307 million in 2017 from $154 million in 2016, while present value of new business production increased by approximately 35% to $289 million in 2017 from $214 million in 2016.
“We accomplished this in a year of continued low interest rates, exceptionally tight credit spreads, and disturbing headlines about the plight of the Puerto Rican people and the illegal behavior of the Puerto Rico Government and Oversight Board,” Frederico said during the call with investors on Feb. 23. “Indications are that the Federal Reserve’s rate-setting committee will continue to raise short-term rates gradually, notwithstanding recent stock market volatility. This should eventually push up 6 long-term rates, which has historically led to wider credit spreads and greater demand for bond insurance. This may take time, however, to really experience the benefit of increased demand for insurance.”