Assured Guaranty (AGO) posted $85.5m in first-quarter earnings, compared with the $169.2m loss in the year-ago quarter. A $66.9m improvement in pre-tax underwriting results and a significant improvement in after-tax unrealized losses on credit derivatives drove the year-over-year disparity, company officials said in the earnings statement. The company's Q109 operating income was $63.4m, from the $6.2m seen last year. Assured saw $17.1m lost on investments from $0.4m gained in the year-ago quarter, and $39.1m gained on credit derivatives from $175.8m lost in Q108. The company incurred $1m in losses on credit derivatives for Q109, reflecting additional reserves on US residential mortgage-backed securities (RMBS) contracts written in credit derivative form, compared with a year-ago loss of $3.2m. Q109 pre-tax loss and loss adjustment expenses of $79.8m included $44.4m for US RMBS exposures in the financial guaranty segments -- including $18.7m in losses related to home-equity-line-of-credit exposures -- and $30m in loss reserves in the mortgage guaranty segment. Fitch Ratings cut Assured's ratings to double-A from triple-A as the monoline continues to face negative credit migration within its combined insured portfolio, though primarily related to structured finance. "We regret...Fitch downgraded Assured's debt and financial strength ratings based on their more pessimistic outlook for our residential mortgage-backed and trust preferred securities," CEO Dominic Frederico said in the quarterly earnings report. "We believe their actions were premature as the Fitch model, like those of other rating agencies, is extremely sensitive to slight changes in assumptions." "We are experiencing a very volatile real estate and mortgage market and we believe that their analysis would benefit from more seasoning," Frederico added, "given the wide difference between actual experience and their projections and the potential benefit of the federal government's economic stimulus and mortgage programs." Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.