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Assured Guaranty Beats on Q3 Earnings and Revs

Zacks Equity Research

Assured Guaranty Ltd. (AGO) delivered operating net income of 64 cents per share in the third quarter of 2013, surpassing the Zacks Consensus Estimate of 61 cents by 4.9%. However, earnings slid 24.7% from the prior-year quarter number.

The decline was largely attributable to lower net earned premiums. However, share buybacks and lower loss expenses limited the downside in bottom line.

Including realized loses on investments of $3 million, non-credit impairment unrealized fair value gains on credit derivatives of $233 million, fair value gains on committed capital securities of $5 million, foreign exchange gains on re-measurement of premiums receivable and loss and loss adjustment expense (:LAE) reserves of $10 million and favorable effect of consolidating financial guaranty variable interest entities of $22 million, net income of Assured Guaranty came in at $2.09 per share surging from 73 cents in the year ago quarter.

Behind the Headlines

Assured Guaranty generated total revenues of $297 million, down 23.2% year over year. The result nevertheless, surpassed the Zacks Consensus Estimate of $290 million by 2.4%.

Net earned premiums were $173 million, down 27.6% year over year, attributable to the scheduled amortization of the insurance portfolio and lower premium accelerations.

Net investment income of Assured Guaranty declined approximately 1% year over year to $97 million.

Credit derivative revenues also declined 24.2% year over year to $25 million. The downside is attributable to decrease in structured finance book of business’ net par outstanding.

Total expenses of Assured Guaranty fell by nearly 22% year over year to $135 million. The decrease was primarily due to lower loss expense in the reported quarter.

Loss expense plunged 44% year over year to $56 million, largely attributable to decline in U.S. residential mortgage-backed securities (RMBS) losses. However, higher public finance losses were a partial offset.

Total economic loss development was at a favorable level of $7 million during the quarter. The results reflected increased R&W recoveries from U.S. RMBS transactions and better delinquency experience through special servicing arrangements on certain second lien U.S. RMBS transactions. However, the results were partially offset by loss development on certain first lien U.S. RMBS transactions and higher losses in U.S. public finance.

Financial Details

Assured Guaranty exited the quarter with $106 million in cash, declining 23.2% from $138 million at 2012-end.

The company’s total assets amounted to $16.35 billion as of Sep 30, decreasing 5.1% from the 2012 end-level.

Long term borrowings of Assured Guaranty trimmed 2% to $819 million at quarter-end from $836 million at 2012-end.

Share Repurchase Update

Till Nov 11, Assured Guaranty has bought back 12.5 million of its shares for $264 million under the $315 million share repurchase authorization. The remaining of the authorization was replaced by a new $400 million of share repurchase authorization by Assured Guaranty on Nov 11.

Performances of Other Multi-Line Insurers

American International Group Inc. (AIG) reported third-quarter 2013 operating earnings per share of 96 cents, comfortably beating the Zacks Consensus Estimate of 93 cents. However, results missed the year-ago quarter figure of 99 cents per share.

Assurant Inc.’s (AIZ) third quarter earnings came in at $1.71 per share, significantly ahead of the Zacks Consensus Estimate of $1.45 per share. Earnings also increased 10.3% year over year.

MetLife Inc. (MET) reported third-quarter 2013 operating earnings per share of $1.34, which missed the Zacks Consensus Estimate of $1.36. However, results were slightly ahead of the year-ago quarter’s earnings of $1.32 per share.

Zacks Rank

Assured Guaranty presently carries a Zacks Rank #3 (Hold).

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