Assured Guaranty Ltd.'s (AGO) third-quarter earnings soared as the bond insurer reported significant gains from the fair value of credit derivatives, though its operating profit fell. In the latest period, net change in the fair value of credit derivatives swung to gains of $1.16 billion from losses of $223.4 million a year earlier. In previous quarters recently, Assured Guaranty's unadjusted bottom lines have struggled, largely because of unfavorable swings in credit derivatives or consolidation of financial-guaranty variable interest, which is a way of reporting off-balance-sheet entities. Operationally, net premiums earned were down 27%, though net investment income increased 9.2%. For several quarters, earned premiums have been declining. Loss and loss adjustment expense nearly doubled. Assured Guaranty said operating income, which excludes some investment effects such as fair-value gains, fell to $38.3 million from $222.6 million a year earlier. Overall in the latest period, the company reported a profit of $761.2 million, or $4.13 a share, compared with $164.6 million, or 88 cents a share, a year earlier. Revenue nearly quadrupled to $1.35 billion from $347.5 million a year earlier. Reporting of the latest results dribbled in Monday as a filing to the Securities and Exchange Commission following two restatements of prior quarterly earnings. Assured Guaranty last month said it would need to restate financial results going back to the middle of 2009 after discovering an accounting error related to variable-interest entities. At the time, it predicted the restatements for the eight affected quarters would cut consolidated net income by about $34 million over that timespan. Through the financial crisis, Assured was the only legacy bond insurer to maintain a financial profile strong enough to continue selling insurance on public-finance debt. Its larger competitors' ratings were slashed to junk because of their exposure to mortgage securities. In September, Standard & Poor's Ratings Services said it was reviewing the ratings of Assured Guaranty's operating companies for a possible downgrade because of uncertainty about how management will deal with concentration risk. At the time, Assured Guaranty Chief Executive Dominic Frederico said that the ratings action was the result of S&P's new criteria for determining financial strength ratings. He also said that Assured, despite its continued objections to S&P's new criteria, would continue to implement strategies to satisfy the new requirements. S&P had predicted it would resolve its watch status by the end of November and indicated the ratings would likely stay in the upper half of the investment-grade scale. Shares closed Monday down 0.6% at $11.32 and weren't active after hours. Through the close, the stock has fallen 36% so far this year. -By Joan E. Solsman, Dow Jones Newswires; 212-416-2291; firstname.lastname@example.org
Hold your horses.....wait for the details. Obviously, the BOA settlement got booked in the 3Q because there is no way you can earn $4+/share on $211M net earned premiums. It looks like Revenue was about $311M instead of the $350M the street was expecting. I am still waiting for the details to be released (5p CST).