This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Assured Guaranty Ltd. Reports Results For Second Quarter 2012

1. PVP is a non-GAAP financial measure. See the “Explanation of Non-GAAP Financial Measures” section of this press release.

Despite record-low bond yields on new issuances, direct U.S. public finance PVP and par written increased in second quarter 2012 compared with second quarter 2011. Penetration in the single-A target market was 29% of transactions sold and 10% of par. This is a strong result considering the low interest rate environment and continued uncertainty over the financial strength ratings of Assured Guaranty. Pricing varies due to the mix of business; however, premium rates in second quarter 2012 were consistent by sector with rates in second quarter 2011. The volume of structured finance business varies significantly from period to period and no new structured finance transactions were insured in second quarter 2012.

Second Quarter 2012 Operating Income Highlights

Table 3 highlights the components of Assured Guaranty’s operating income and provides reconciliations of reported GAAP net income to non-GAAP operating income.

Table 3: Reconciliation of GAAP Income as Reported
to Non-GAAP Operating Income Results

(amounts in millions, except per share amounts)

 
  Quarter Ended June 30, 2012   Quarter Ended June 30, 2011

GAAP

Income

Statement

As Reported

 

Less:

Operating

Income

Adjustments

 

Non-GAAP

Operating

Income

Results

GAAP

Income

Statement

As Reported

 

Less:

Operating

Income

Adjustments

 

Non-GAAP

Operating

Income

Results

Revenues:
Net earned premiums $ 219.3 $ (15.5 ) $ 234.8 $ 230.0 $ (18.3 ) $ 248.3
Net investment income 101.6 3.8 97.8 102.6 (0.4 ) 103.0
Net realized investment gains

(losses)

(3.1 ) (5.4 ) 2.3 (5.1 ) (5.1 )
Net change in fair value of

credit derivatives

260.7 226.5 34.2 (64.8 ) (113.2 ) 48.4
Fair value gains (losses) on

CCS

4.3 4.3 0.6 0.6
Fair value gains (losses) on FG VIEs 172.4 172.4 (174.3 ) (174.3 )
Other income   4.3     6.0     (1.7 )   27.3     29.9     (2.6 )
 
Total revenues 759.5 392.1 367.4 116.3 (280.8 ) 397.1
Expenses:
Loss expense:
Financial guaranty insurance 122.5 0.5 122.0 123.9 (16.9 ) 140.8
Credit derivatives 0.6 (0.6 ) 8.5 (8.5 )
Amortization of deferred acquisition costs 4.5 4.5 5.8 5.8
Interest expense 25.4 25.4 24.7 24.7
Other operating expenses   53.5         53.5     53.2         53.2  
 
Total expenses   205.9     1.1     204.8     207.6     (8.4 )   216.0  
Income (loss) before income

taxes

553.6 391.0 162.6 (91.3 ) (272.4 ) 181.1
Provision (benefit) for income

taxes

  177.1     128.5     48.6     (48.2 )   (85.9 )   37.7  
Income (loss) $ 376.5   $ 262.5   $ 114.0   $ (43.1 ) $ (186.5 ) $ 143.4  
 
Diluted shares 187.0 187.0 184.2 187.6
 
Earnings per diluted share $ 2.01 $ 0.61 $ (0.23 ) $ 0.76
 

Where significant changes occurred, components of second quarter 2012 operating income are compared with the same item in second quarter 2011.

  • Net earned premiums: Net earned premiums included in second quarter 2012 operating income were $234.8 million. The comparable second quarter 2011 net earned premiums were $248.3 million, which reflected a larger portfolio of in-force business at that time, particularly in the structured finance portfolio. Net earned premiums from refundings were $68.2 million in second quarter 2012, of which $22.0 million related to the termination of certain international infrastructure transactions. Refundings are generally higher in low interest rate environments as debt issuers refinance at more attractive rates, which results in the acceleration of premium earnings on insured transactions. Net earned premiums from refundings were $21.0 million in second quarter 2011.
  • Credit derivative revenues: Credit derivative revenues included in second quarter 2012 operating income were $34.2 million. The comparable second quarter 2011 credit derivative revenues were $48.4 million, which was based on a larger portfolio of structured finance business at that time and included $6.1 million in accelerations due to terminations in second quarter 2011.
  • Loss expense: The Company’s second quarter 2012 loss expense was $121.4 million ($97.1 million after tax, or $0.52 per diluted share), compared with $132.3 million ($90.2 million after tax, or $0.49 per diluted share) in second quarter 2011. The decrease was primarily due to lower loss expense in the U.S. residential mortgage-backed securities (“RMBS”) sector, offset in part by higher public finance and other structured finance loss expense. See also “Economic Loss Development.”
  • Income taxes: The second quarter 2012 effective tax rate on operating income was 29.9%, compared with 20.9% in second quarter 2011, due to higher operating losses in Assured Guaranty Re Ltd.

Economic Loss Development

Economic loss development, which measures (i) the change in total expected loss to be paid due to changes in assumptions based on observed market trends; (ii) changes in discount rates; (iii) accretion of discount on expected loss to be paid; and (iv) the effects of loss mitigation efforts, is the principal measure that Assured Guaranty uses to evaluate the loss experience in its insured portfolio. Expected loss to be paid includes all transactions insured by the Company, whether written in financial guaranty or credit derivative form, regardless of the accounting model prescribed under GAAP. Table 4 provides a roll forward of net expected loss to be paid.

Table 4: Roll Forward of Net Expected Loss to be Paid on
Insurance Contracts and Credit Derivatives

(amounts in millions)

 

Insurance Contracts

and Credit Derivatives

  Net Expected

Loss to be

Paid as of

March 31, 2012

 

Economic Loss

Development

During Second

Quarter 2012

 

Loss (Paid)

Recovered

Second Quarter

2012

 

Net Expected

Loss to be

Paid as of

June 30, 2012

Before R&W:
U.S. RMBS $ 2,124.4 $ 96.2 $ (296.4 ) $ 1,924.2
Other   689.6     44.6     (3.0 )   731.2  
Total before R&W 2,814.0 140.8 (299.4 ) 2,655.4
R&W for U.S. RMBS   (1,631.0 )   (45.6 )   223.0     (1,453.6 )
Total, net of R&W 1,183.0 95.2 (76.4 ) 1,201.8
Other   1.9     (6.0 )       (4.1 )
Total $ 1,184.9   $ 89.2   $ (76.4 ) $ 1,197.7  
 

Total economic loss development was $89.2 million ($73.2 million after tax) in second quarter 2012, which includes a $6.0 million estimated recovery on a legacy life reinsurance transaction and a $15.6 million gain on foreign exchange rate remeasurement. The single largest driver of the economic loss development in second quarter 2012 was the decline in the risk-free rates used to discount expected losses, which contributed approximately $63 million to the economic loss development in U.S. RMBS and other long-dated structured finance transactions. U.S. RMBS contributed $50.6 million to the total economic loss development in second quarter 2012, most of which related to declines in the risk free rates plus a $15.0 million reduction in representations and warranties (“R&W”) benefit on three transactions due to updated assumptions as to the likelihood and amount of estimated recoveries. U.S. public finance losses also increased in second quarter 2012, contributing $35.5 million in loss development.

4 of 12

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs