Assured Guaranty earnings pinched by lower premium earnings
Bond insurer remains profitable, but faces a challenging environment
Bond insurer Assured Guaranty (AGO) experienced a 43% drop in second-quarter earnings on lower unrealized net fair value gains and declining income from insurance premiums.
As for what guarantee contracts are giving the firm trouble, the earnings report shows the company on the hook at least somewhat after Detroit's bankruptcy announcement. Not to mention the fact that residential mortgage-backed securities losses continue to haunt the insurer.
The company ended the quarter with a profit of $219 million, or $1.16 a share, down from $377 million, or $2.01 a share, in the second quarter.
Still, the firm bested analyst estimates, with the average analyst forecasting earnings as low as 63 cents a share, according to Yahoo! Finance data.
The firm’s CEO and President Dominic Frederico said the company is optimistic heading into a higher interest rate environment, and Assured is eager for the market to get to know more about its U.S. municipal insurance platform, Municipal Assurance Corp.
Still, he noted the environment is a challenging one.
The market couldn’t wait for Assured’s earnings, with the insurer not only exposed in the past to risky mortgage bonds, but also potentially on the line when cities like Detroit head into bankruptcy, threatening other bonds that Assured is known for guaranteeing.
The latest earnings show Assured reporting $87 million in total economic loss development in the second quarter due to higher U.S. public finance losses stemming from the insurer’s exposure to Detroit pension plans and other general obligation bonds.
Not to mention, the firm is still exposed to the mortgage space, with Assured noting that its higher U.S. RMBS losses were partially offset by an uptick in reps and warranties settlements with major banks that spawned some of the risky mortgage securitizations.