Assured Guaranty post 1Q loss on increased credit losses

Operating earnings fell well short of analyst estimates despite a sharp increase in premium income, and the company's shares plunged 13 percent in electronic aftermarket trading.

The Bermuda-based firm, lauded in recent months for avoiding the risky mortgage-related business that crippled many of its competitors, succumbed to a sharp decline in the value of bonds it insures that are backed by home equity lines of credit.

Assured's loss reached $169.2 million, or $2.11 per share. A year earlier, the firm earned $39 million, or 57 cents per share.

Operating income dropped to $6.2 million, or 8 cents per share, from $46.1 million, or 67 cents, in the same period in 2007. Revenue rose 25 percent to $107.8 million.

Those results fell short of estimates on Wall Street, where analysts expected operating income of 65 cents per share and revenue of $112 million.

"We further downgraded some U.S. (residential mortgage backed securities) exposures, in particular those related to home equity lines of credit, which generated loss reserves that offset our operating income in the quarter," Chief Executive Dominic Frederico said in a statement.

The loss on credit derivatives reached $175.8 million, but was larger than the company had expected, according to William Blair analyst Mark Lane.

"They said worst-case would be $100 million in credit losses, so it's hard to get your arms around how much exposure is still out there," he said.

Frederico said the downgrades "reflect our uncertainty" about how bonds backed by home equity loans will perform.

Meanwhile, Assured continued to expand its market share, taking advantage of major stumbles by its competitors in this once-conservative industry, which used to insure only municipal bonds.

The firm's new business reached $276.6 million in the period, more than double the year-ago result. Premium income more than tripled.

Competitors such as MBIA Inc. and Ambac Financial got caught wrong-footed when they started insuring mortgage debt and riskier, more complex investments. The risk that those types of bonds will result in higher claims cost them top-notch credit ratings that are essential in the business.

Assured has been "gaining massive market share," Lane said, because it is one of only two bond insurers with 'AAA' ratings from all three major agencies.

Last month, billionaire investor Wilbur Ross bought shares worth $250 million in the company and promised to invest another $750 million more to finance its anticipated growth.

Ross, who was appointed to Assured Guaranty's board, at the time said he was "greatly impressed" by the "dramatic gains in market share" the company had earned.

In electronic aftermarket trading, Assured shares shed $3.34, or 13 percent, to $22.05 after closing Thursday at $25.39. In the past year, the stock has ranged from $13.34 to $31.