LOS ANGELES — After posting a profit for the fourth quarter of 2012, Assured Guaranty Ltd. announced Thursday morning that it plans to start wrapping municipal deals later this year with recently acquired Municipal and Infrastructure Assurance Corporation.
Assured acquired MIAC last year from Radian Asset Assurance Inc. and has renamed it Municipal Assurance Corp. The company was already licensed to provide financial guaranty insurance and reinsurance in 38 jurisdictions including the District of Columbia.
Dominic Frederico, president and chief executive officer of Assured, said the new muni-only insurer will complement Assured's existing brands and generate additional penetration in the market and better competitive positioning.
MAC will be owned and funded by Assured subsidiaries Assured Guaranty Municipal Corp. and Assured Guaranty Corp., with an initial capital target for the company of $800 million.
"We hope to begin writing new policies sometime toward the middle to latter middle of the year, based on finalizing ratings for the company and approving transactions so it's properly leveraged," Frederico said during a Thursday morning conference call with investors.
Assured plans to get at least two ratings from credit rating agencies for the new company, which was first announced after Moody's Investors Service downgraded the insurance financial strength rating of AGM to A2 from Aa3 in January.
Assured said it is also continuing efforts to bring on one or two additional ratings for its existing companies and hopes to accomplish that sometime this year.
The news followed Assured's earnings report for the fourth quarter of 2012, released late Wednesday. The company posted a 7% increase in operating income from the same period last year, ending Dec. 31 at $184 million, or $0.95 per diluted share.
Assured attributed the improvement primarily to higher terminations of structured finance exposures, and refundings of public finance exposures.
For the third year in a row, the company ended the entire fiscal year with an operating income in excess of $500 million. This year, total income was $535 million, compared to $601 million the year before.
Assured Guaranty uses financial measures which don't comply with generally accepted accounting principles, but are standard measures in the bond insurance business.
"The decrease in operating income for FY 2012 compared with FY 2011 was due primarily to the increase in loss expense on Greek sovereign exposures," the company said in a statement, adding that it no longer has exposure to Greek sovereign debt.
Net income for the quarter totaled $74 million, or $0.38 per diluted share, compared to last year's net loss of $84 million during the fourth quarter. This change was a result of the non-economic net unrealized fair value changes, which are expected to reverse by contract maturity, the company said.
"In a difficult operating environment, we created shareholder value through our successful execution of strategic objectives including new direct business production, assumed reinsurance, reassumption of ceded business, R&W recoveries, insurance terminations and purchases of our insured securities for loss mitigation," Frederico said. "In addition, in February 2012 we doubled our quarterly dividend to $0.09 per share and further raised it to $0.10 per share in the first quarter of 2013, a total increase of 122% in the last 12 months."
Assured's present value of new business production during the fourth quarter totaled $69 million, down from $88 million in 2011. Gross par of insurance written was down around 28.6% from the fourth quarter in 2011, but was up 25% from the previous quarter in 2012.
Assured said the decline in PVP mainly reflects the low interest rate environment, tight credit spreads, and the ratings uncertainty last year following Moody's Investors Service's placement of the company's financial guaranty operating subsidiaries on review for downgrade.
"Despite the challenging interest rate and market environment, the company maintained average new business credit ratings in the single-A category," Assured said. "In addition, premium rates in fourth quarter 2012 and FY 2012 for public finance were consistent by sector with rates in fourth quarter 2011 and FY 2011."
BTIG analyst Mark Palmer said that while PVP figures for the fourth quarter aren't huge, they're viewed as encouraging, given the challenging circumstances under which they were achieved.
"And while many investors in AGO were attracted to the name by the company's strong capital return prospects and the over $1 billion in potential [representations and warranties] recoveries that provides another driver of shareholder value, the new business generated during 4Q12 despite severe headwinds should provide a glimpse of what could happen if and when interest rates finally rise a new muni-only entity is established," he said in a research note Thursday morning.
Assured's shares rose .6% on Wednesday to close at $18.44.