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Assured Guaranty Earnings & Revs Top Ests in Q4

Zacks Equity Research

Assured Guaranty Ltd. (AGO) delivered operating net income of 73 cents per share in the fourth-quarter of 2013, surpassing the Zacks Consensus Estimate of 66 cents by 10.6%. However, earnings slid 23.2% from the prior-year quarter number.

The year-over-year decline was largely attributable to lower revenues. However, lower U.S. residential mortgage-backed securities (RMBS) loss expense limited the downside in the bottom line.

Including one-time items, net income of Assured Guaranty came in at $1.90 per share, significantly higher than 38 cents reported in the year-ago quarter. The surge was primarily due to Non-credit impairment unrealized fair value gains on credit derivatives compared with losses incurred in the prior-year quarter.

Operational Update

Assured Guaranty generated total revenue of $321 million in the fourth quarter, down 28.2% year over year due to significantly lower net earned premiums. The result, nevertheless, surpassed the Zacks Consensus Estimate of $276 million by 16.3%.

Net earned premiums of Assured Guaranty were $194 million, down 39.6% year over year, attributable to the lower scheduled amortization of the insurance portfolio, and lower refunds and terminations of policies.

Net investment income of Assured Guaranty increased 8.1% year over year to $107 million.

Assured Guaranty’s credit derivative revenues also declined 9.7% year over year to $28 million due to a decrease in structured finance book of the business’ net par outstanding.

Total expenses of Assured Guaranty fell by nearly 27.9% year over year to $142 million. The decline was primarily due to lower loss expense in the reported quarter.

Loss expense at Assured Guaranty plunged 47.2% year over year to $67 million, largely attributable to decline in U.S. residential mortgage-backed securities (RMBS) losses. However, higher U.S. public finance losses were a partial offset.

2013 Full-Year highlights

Assured Guaranty reported 2013 net operating earnings of $3.25 per share, up 15.7% year over year. The number also exceeded the Zacks Consensus Estimate of $3.18 by 2.2%. The improvement resulted from lower loss expense from U.S. RMBS and also lower losses incurred on Greek exposures.

Including one-time items, net income of the company was $4.30 per share, surging from 57 cents reported in 2012.

Revenues totaled $1.32 billion, down 19% year over year due to lower net earned premiums.

Financial Details

Assured Guaranty exited the quarter with $184 million in cash, increasing from $106 million as of the end of third-quarter 2013.

Operating shareholders’ equity as of 2013-end stood at $6.16 billion, up from $6.04 billon as of third-quarter end.

Long-term borrowings of Assured Guaranty were $816 million as of Dec 31, 2013, against $819 million as of Dec 31, 2012.

Share Repurchase Update

In 2013, Assured Guaranty bought back 12.5 million of its shares for $264 million under its $315 million share repurchase authorization. As of the end of 2013, the company had a share repurchase authorization of $400 million.

Zacks Rank

Assured Guaranty presently carries a Zacks Rank #3 (Hold). Some top-ranked stocks worth mentioning in the multi line insurance industry include AEGON N.V. (AEG), Old Republic International Corporation (ORI) and Kemper Corporation (KMPR). While AEGON and Old Republic both sport a Zacks Rank #1 (Strong Buy), Kemper carries a Zacks Rank #2 (Buy).

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