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Assured Reports Fourth-Quarter Loss Citing Modeling Change

Assured Guaranty Ltd. (AGO), the bond insurer stripped of the industry’s last AAA ranking last year, reported a fourth quarter net loss of $157.5 million after it changed the way it estimates mortgage-backed security losses.

The net loss of 86 cents a share compares with profit of $216.7 million, or $1.27 a share, a year earlier, the Hamilton, Bermuda-based company said in a statement. In part this is due to changes in modeling assumptions for U.S. residential mortgage-backed notes and the weighting of potential outcomes used to calculate loss estimates, it said.

Loss and loss adjustment expenses on guarantees and losses from credit derivatives were $215.5 million, the insurer said. Operating income, which excludes items including unrealized market value gains or losses on credit derivatives, was $152.9 million, or 81 cents a share, compared with $156.4 million, or 92 cents, a year earlier. The average estimate in a Bloomberg survey was for 86 cents.

Assured, backed by billionaire Wilbur Ross, is the only company left offering municipal bond insurance after market leaders including MBIA Inc. (MBI) and Ambac Financial Group Inc. (ABKFQ) had their credit ratings slashed because of losses linked to home mortgages. Standard & Poor’s cut its financial strength and counterparty credit rating on Assured Guaranty Corp. and Assured Guaranty Municipal Corp. one level to AA+ on Oct. 25, citing “diminished demand for bond insurance.”

Subprime Bets

The AAA ratings previously held by Assured’s units were the last for any bond insurer. MBIA and Ambac lost their top-level ratings in 2008 amid a housing crisis that saddled insurers with losses on mortgage-related bets.

A new leverage test S&P is proposing to add to its ratings criteria would leave Assured units short of about $1.9 billion of capital needed to maintain a AA credit grade, the insurer estimated this month.

Assured Chief Executive Officer Dominic Frederico, who said the proposal was unfair and needed refinement, also criticized a planned change to S&P’s model for grading how a company would hold up during times of economic stress. The modifications could leave Assured between $1 billion and $1.5 billion short of the capital needed to maintain AA ratings, he said.

Assured climbed 6 cents to $15.38 in New York Stock Exchange composite trading. The shares have lost 13.1 percent this year.

(The company will hold a conference call Feb. 25 at 8:30 a.m. New York time to discuss fourth-quarter results.)

To contact the reporter on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net;

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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