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Assured Guaranty Ltd. (AGO - Snapshot Report) delivered operating net income of 52 cents per share in the second quarter of 2013, lagging the Zacks Consensus Estimate of 59 cents. Earnings were 15% lower from 61 cents in the prior-year quarter.

The decline was largely attributable to lower net earned premiums. However, share buybacks limited the downside by 2 cents.
Including realized gains on investments of $2 million, non-credit impairment unrealized fair value gains on credit derivatives of $28 million, fair value losses on committed capital securities of $2 million, foreign exchange losses on re-measurement of premiums receivable and loss and loss adjustment expense reserves of $3 million and effect of consolidating financial guaranty variable interest entities of $96 million; net income of Assured Guaranty came in at $1.16 per share, down 42% year over year.

Behind the Headlines

Assured Guaranty generated total revenue of $309 million, down 15.8% year over year. Total revenue surpassed the Zacks Consensus Estimate of $291 million.

Net earned premiums were $178 million, down 24.2% year over year, attributable to the scheduled amortization of the insurance portfolio and lower premium accelerations.

Net investment income of Assured Guaranty declined 3.1% year over year to $94 million in the second quarter.

Credit derivative revenues improved 17.6% year over year to $40 million, largely driven by higher negotiated terminations, but partially offset by lower scheduled revenues.

Total expenses of Assured Guaranty were $170 million, down 17.1% year over year attributable to lower financial guaranty insurance expense and lower interest expense.

Loss expense decreased 17.5% year over year to $80 million, largely attributable to decline in U.S. residential mortgage-backed securities (RMBS) and other structured finance losses. However, higher public finance losses were a partial offset.

Total economic loss development was $79 million in the reported quarter, largely attributable to increase in U.S. public finance losses mainly due to exposure to Detroit pension obligation and general obligation bonds, along with higher U.S. RMBS losses. However, increase in projected representations and warranties (R&W) recoveries due to a settlement agreement, and the increase in risk free rates used for discounting was a partial offset.

Financial Details

Assured Guaranty exited the quarter with $143 million in cash, improving from $138 million at 2012 end.

Long term borrowings of Assured Guaranty decreased to $827 million at quarter end from $836 million at 2012 end.

Book value as of Jun 30, 2012 was $49.06, up 4% from $47.17 as of Dec 31, 2012.

Share Repurchase Update

Assured Guaranty spent $244 million to buy back 11.5 million shares during Mar 5, 2013 to Jun 30, 2013.

Performance of Other Multi-Line Insurers

Cigna Corp’s. (CI - Analyst Report) second-quarter 2013 net operating earnings of $1.78 per share outpaced the Zacks Consensus Estimate of $1.59 per share. Moreover, results surged nearly 19% year over year.

American International Group Inc. (AIG - Analyst Report) reported second-quarter 2013 operating earnings per share of $1.12, significantly beating the Zacks Consensus Estimate of 85 cents and the year-ago quarter figure of 96 cents per share.

FBL Financial Group Inc. (FFG - Snapshot Report) reported earnings of 98 cents per share in the second quarter of 2013. The results beat the Zacks Consensus of Estimate of 81 cents and was ahead of the year-ago figure of 72 cents.

Zacks Rank

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

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