Assured Guaranty Ltd. reported late Monday better operating income in the first six months of 2011 than the same period in 2010. Not a bad start, considering 2010 turned out to be a record year for company earnings.
The bond insurance holding company posted operating income of $136.3 million late Monday, bringing the six month total for 2011 to $385.2 million, a 35.3% increase over the same period in 2010. Also, operating shareholders’ equity per share increased 7.4%.
Operating income and operating shareholders’ equity are financial measures which don’t comply with generally accepted accounting principles, but are standard measures in the bond insurance business.
Net income fell $57.7 million in the second-quarter, compared with a gain of $203.5 million in the same quarter last year. But $70 million of those losses were from credit derivatives which the non-GAAP measures strip out.
“I am pleased with the progress we made in the second quarter,” said Dominic Frederico, president and chief executive of Assured.
Assured’s present value production from its public finance business was 34.8% higher in second quarter 2011 than in first quarter 2011. Compared with the second quarter of 2010, however, PVP was down 42.3% to $51.9 million. Most of those numbers can be explained by muni market volume, which hit a historic high last year before entering a prolonged hangover this year.
“Assured Guaranty’s market penetration remained relatively stable,” the earnings statement noted, adding that it wrapped 6% of new volume in the second quarter, compared with 7% of in the same period a year ago.
By new issue transactions, it wrapped 12.1% of transactions in second-quarter 2011, versus 12.9% of transactions in the same quarter one year ago.
“We view this level of activity as a good result given the continued uncertainty caused by Standard & Poor’s Ratings Services’ proposed ratings criteria changes and the global economic pressures experienced by the capital markets,” Frederico said. “While most of our recent new business originations have been in the municipal market, we are seeing growing opportunities in the international and structured finance markets.”
A key ingredient to the quarter was higher recoveries for breaches of representations and warranties, namely the $1.6 billion agreement reached in April with Bank of America Merrill Lynch. The recoveries stem from mortgages packaged by the bank and wrapped by Assured in the years leading up to the credit crisis. The recovery was an out-of-court settlement.
Assured’s second-quarter operating income compares unfavorably with the $172 million of operating income in the second quarter of 2010, as well as with the first-quarter of this year. The company attributed this to lower net earned premiums coupled with changes in risk-free rates used to discount expected losses. On the plus side was higher net investment income and a lower effective tax rate.
A conference call to discuss earnings with investors takes place Tuesday morning at 7:30 am Eastern Time.
Stock in the company fell 14.3% Monday to $10.35, its lowest closing price since May 2009.
