"In the first quarter of 2013 we continued to pursue our plan to write new business in the short-tail, non-catastrophe property/casualty reinsurance markets. We believe this new business fits well with the long-tail run-off of the remaining financial guaranty portfolio. We intend to build our property/casualty book prudently as our subsidiary American Overseas Reinsurance Company Limited ("AORE") emerges from run-off."
Summary of Operating Results
The Company reported a net loss of $14.0 million for the quarter ended March 31, 2013.
Earned premiums in the first quarter 2013 of $6.8 million were 127% higher than the $3.0 million of earned premiums in the first quarter 2012. After eliminating property/casualty earned premiums of $3.2 million and accelerated premiums from refundings of $1.3 million, core financial guaranty earned premiums in the first quarter of 2013 were $2.3 million. This was consistent with the core financial guaranty earned premiums of $2.3 million for the comparable period of 2012 after eliminating the accelerated premiums from refundings of $0.7 million. There were no property/casualty earned premiums in the first quarter of 2012.Net change in fair value of credit derivatives totaled a loss of $17.8 million in the first quarter of 2013, compared to a $5.8 million loss in the first quarter of 2012. Net change in fair value of credit derivatives for the first quarters of 2013 and 2012 were comprised of $0.4 million and $0.6 million of realized gains, respectively, and $18.3 million and $6.3 million of unrealized losses, respectively, on derivatives. The net unrealized loss in the first quarter 2013 was primarily attributable to (i) a decrease in the adjustment for the Company's own non-performance risk of $31.9 million, and (ii) a decrease in gross unrealized losses on credit derivative policies of $13.6 million. The decrease in gross unrealized losses on credit derivative policies was primarily due to improvements in pricing across the majority of the Company's portfolio. In accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification 820 - "Fair Value Measurements and Disclosures" ("ASC 820"), the Company calculates an adjustment for its own non-performance risk. The effect of ASC 820 on the Company's derivative liabilities on its balance sheet was a reduction of approximately $37.9 million at March 31, 2013.