Assured Guaranty boosted by investments, tax benefit
Surety re/insurer Assured Guaranty rode improved investment income and the booking of a deferred tax benefit for the upcoming Bermuda corporation tax to record a fourfold increase in fourth quarter profits.
The Bermuda-based re/insurer said its quarterly net income rose to $376 million compared to a $94 million profit in the same period in 2022. For the year, the company had net income of $739 million compared to $124 million a year earlier.
Assured Guaranty said operating income for the insurance segment rose to $339 million from $66 million in the quarter.
The company said the tax benefit resulted from the plans to implement a corporate income tax in Bermuda in 2025, which affects the company’s Bermuda insurance subsidiaries.
“The new law allows an economic transition adjustment equal to the difference between the fair market value and the carrying value of assets and liabilities of each of the Company’s Bermuda insurance subsidiaries as of September 30, 2023,” the company said. “The ETA resulted in the establishment of a deferred tax asset of $189 million that was reported as a tax benefit in fourth quarter 2023 GAAP net income and adjusted operating income.
“The deferred tax asset is expected to be utilised over 10 to 15 years, depending on the nature of each component of the deferred tax asset, beginning in 2025.”
Assured Guaranty also benefited from improved investment markets in 2023, with net investment income rising to $97 million from $80 million in the quarter, while fair value gains on investments rose to $32 million from a loss of $4 million in the period.
For the year, the company recorded investment income of $370 million compared to $278 million, while fair value gains were $74 million compared to a loss of $34 million in 2022.
The company also recorded equity in the earnings of affiliate Sound Point of $82 million compared to a loss of $51 million in 2022. The Sound Point investment was sold in July 2023, resulting in a gain of $222 million on its sale along with the sale of subsidiary AssuredIM.
“Finishing with a strong fourth quarter, Assured Guaranty reported outstanding results for 2023,” said Dominic Frederico, president and CEO. “Our key per-share measures - GAAP shareholders’ equity, adjusted operating shareholders’ equity and adjusted book value - each ended the year at a record high. In terms of earnings, we produced more than six times 2022’s GAAP net income per share and more than two-and-a-half times that year’s adjusted operating income per share. Our share price rose by 20% during the year.
“2023 gross written premium and PVP (present value production) were $357 million and $404 million, respectively. Our diversified production strategy continued to demonstrate its value, as global structured finance produced 73% more GWP and more than double the PVP it wrote in 2022, reaching its highest annual direct GWP and PVP amounts in a decade; non-US public finance saw a 9% annual increase in GWP and a 22% increase in PVP; and while new issuance volume in the municipal bond market was relatively low, we led the industry in new-issue insured par sold with a 61% market share, and US public finance continued to produce more than half of both annual GWP and PVP.”
He added: “During 2023, we completed our strategic transaction with Sound Point and a separate transaction involving other AssuredIM assets, which resulted in pre-tax gains for the year of $222 million, net of expenses. The transaction with Sound Point furthers our asset management strategy, as we now own approximately 30% of the combined entity.
“Additionally, in the fourth quarter, enactment of a new Bermuda tax law resulted in the establishment of a deferred tax asset, and corresponding benefit to income of $189 million.”
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