Assured Guaranty Posts Small Profit in First Quarter


Assured Guaranty Ltd. posted a small profit for the first quarter of 2012 and last week announced a deal with Deutsche Bank over soured mortgage backed securities.

The bond insurer during the quarter had an operating income of $71.2 million or 38 cents per share. This was a 59% decline from the fourth quarter result and a 71% decline from first quarter of 2011.

The biggest component of Assured’s $212 million in quarterly economic losses was $189 million from the guaranty of Greek sovereign debt. The guaranty was a legacy from Assured Guaranty’s acquisition of Financial Security Assurance in 2008. In the aftermath of this loss Assured has no exposure to European sovereign debt.

Assured announced that it had reached a deal with Deutsche Bank concerning residential mortgage backed securities. Assured had insured some of Deutsche Bank’s RMBS transactions and had issued credit default swaps on other such transactions. In recent years many of the transactions have soured with the real estate market downturn and Assured has had to pay. Claiming that the RMBS quality of the securities was misrepresented to it, Assured has sought reimbursement from several banks.

Deutsche Bank agreed to pay $165.6 million to Assured. It also promised to cover a portion of Assured’s future RMBS losses.

“With this agreement, we have now reached favorable settlements with respect to approximately 37% of the remaining par outstanding of our troubled obligations in Assured Guaranty’s legacy residential mortgage insured portfolio—a critical statistic relative to our capital adequacy or financial strength, which should have a significant positive impact for Moody’s and Standard Poor’s ratings evaluation,” said Dominic Frederico, Assured president.

In the quarter Assured also acquired $20.9 billion of par insured from Radian Asset Assurance and Tokio Marine, equal to 124% of 2011 production, Frederico said.

In the quarter gross par written went up 110.5% compared to Q1 of 2011. Partly this was due to Assured’s deal with Radian. Direct par written in public finance without Radian increased 37%.

Radian and Tokio Marine paid $210 million to Assured as part of the deals. This was equal to nearly 75% of revenues from new business in 2011.

Total present value of new business production went up 7% compared to Q1 of 2011.

Assured had a net loss for the quarter of $483 million, or $2.65 per share. Net loss is a Generally Accepted Accounting Principle measure, unlike operating income.

We tend to focus on operating income in understanding insurance company finances, said Mark Palmer, managing director and insurance industry analyst at BTIG LLC.

Assured insured 5% of the total par amount of municipal bonds issued nationally during the first quarter. This was roughly the same level it insured in all of 2011.

Frederico noted that Assured was operating in a challenging environment of low interest rates and tight rate spreads between lower and higher rated credits. “Despite these pressures we continue to maintain new-issue premium rates in line with those of a year ago, while improving the average credit quality of our new direct originations from A-minus to single-A flat.”

On March 20 Moody’s put Assured Guaranty (currently Aa3) on review for a downgrade. The market is focused on what a Moody’s downgrade would mean for Assured, Palmer said.

Assured’s stock opened at $13.10 per share Monday.


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