Assured Guaranty Ltd. Announces Reclassification in Conformance with New Industry Accounting Presentation for Credit Default Swap Contracts.Reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. Does Not Change Net Income or Shareholders' Equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. HAMILTON, Bermuda -- Assured Guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant. Ltd. (NYSE NYSE See: New York Stock Exchange :AGO)("Assured" or the "Company") today announced that effective the quarter ended March 31, 2008, it will reclassify Verb 1. reclassify - classify anew, change the previous classification; "The zoologists had to reclassify the mollusks after they found new species" class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you the revenues and expenses under U.S. Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("US GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ") associated with financial guaranty contracts that the Company's financial guaranty subsidiaries write in the form of credit default swap Credit Default Swap A swap designed to transfer the credit exposure of fixed income products between parties. Notes: The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product. ("CDS") contracts. This reclassification is being adopted by Assured after agreement with the member companies of the Association of Financial Guaranty Insurers in consultation with the staffs of the Office of the Chief Accountant and the Division of Corporate Finance of the Securities and Exchange Commission. The new presentation does not change the Company's net income or shareholders' equity, although it does change the presentation of revenues, expenses, assets and liabilities. "The new accounting presentation for CDS contracts is being implemented in order to increase the comparability of our US GAAP financial statements with other financial guaranty companies that have CDS contracts," stated Robert Mills, Chief Financial Officer of Assured Guaranty Ltd. "However, we intend to provide in our financial supplements the necessary details for investors and analysts to be able to evaluate on the same basis these two types of contracts that have different accounting rules." Assured's CDS contracts provide for credit protection against payment default and have substantially the same terms and conditions as its financial guaranty insurance contracts. Under US GAAP, however, CDS contracts are subject to derivative accounting rules and financial guaranty policies are subject to insurance accounting rules. CDS contracts are recorded at fair value under derivative accounting rules, even though Assured's CDS contracts are not subject to margin or collateral calls due to changes in market value and are held to maturity. The net unrealized gain Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. or loss due to a CDS contract being marked to fair value will amortize to zero as the contract approaches its maturity date, unless there is a payment default on the security guaranteed by the contract. The reclassification being adopted by the financial guaranty industry affects specific revenue, expense and balance sheet lines for CDS contracts, but will not change the amount of net income, shareholders' equity or operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , a non-US GAAP financial measure, that Assured reported under its prior financial statement presentation. However, the amount of net earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. , total revenues, loss and loss adjustment expenses, total expenses and unrealized gains or losses on derivatives will change, as will the formula that the Company uses to calculate loss, expense and combined ratios. In order to assist investors and analysts in understanding the impact of the reclassification on the Company's first quarter 2008 results, Assured today released two tables (Tables I and II located at the end of this press release) that show: the consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. and income statement presented in its fourth quarter 2007 earnings press release; the income statement and balance sheet entries that the reclassification generates; and the resulting reclassified balance sheet and income statement for 2007. The impact of the Company's reclassification on its income statement as presented in its Fourth Quarter 2007 earnings press release is summarized on Table I. As shown in the table, CDS revenues will be reclassified from "net earned premiums" to "realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. and other settlements on credit derivatives Credit Derivative Privately held negotiable bilateral contracts that allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private ." Loss and loss adjustment expenses and recoveries that were previously included in "loss and loss adjustment expenses (recoveries)" will be reclassified to "realized gains and other settlements on credit derivatives," as well. Portfolio and case loss and loss adjustment expenses will be reclassified from "loss and loss adjustment expenses (recoveries)" and will be included in "unrealized gains (losses) on credit derivatives," which previously included only unrealized mark to market gains or losses on the Company's contracts written in CDS form. The impact of the reclassification on the Company's balance sheet is summarized in Table II. All CDS-related balances that are now included in "unearned premium reserves," "reserves for losses and loss adjustment expenses," "prepaid reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. premiums," "premiums receivable" and "reinsurance balances payable" will be reclassified to either "credit derivative liability" or "credit derivative asset," depending on the net position of the CDS contract at each balance sheet date. In addition, the Company has posted on the Financial Information page of the Investor Information section of its website at www.assuredguaranty.com/investor/ltd/financial.aspx selected pages from its Fourth Quarter 2007 Financial Supplement that have been revised to show the new accounting presentation. These pages show the effects of the reclassification on the following pages: Selected Financial Highlights, Consolidated Income Statement consolidated income statement An income statement that combines the income statements of two or more organizations. As with other consolidated statements, a consolidated income statement eliminates any funds owed to or due from firms within the same group. , Consolidated Balance Sheet, Segment Consolidation, Financial Guaranty Direct Segment, Financial Guaranty Reinsurance Segment and Endnotes Related to Non-GAAP Financial Measures. The Company has provided this information in order to assist analysts and investors in comparing the Company's new accounting presentation to the accounting presentation used prior to first quarter 2008. As previously announced, Assured will release its first quarter 2008 financial results after 5:00 pm ET on May 8, 2008 and management will host a conference call at 7:30 am ET May 9, 2008 to discuss financial results, market conditions and business outlook. Information on this call can be found on the Company's website at www.assuredguaranty.com. Assured Guaranty Ltd. is a publicly-traded Bermuda-based holding company. Its operating subsidiaries provide credit enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing products to the U.S. and international public finance, structured finance and mortgage markets. More information on the Company and its subsidiaries can be found at www.assuredguaranty.com. Explanation of Non-GAAP Financial Measures: Operating income, which is a non-GAAP financial measure, is defined as net income (loss) excluding i) after-tax realized gains (losses) on investments and ii) after-tax unrealized gains (losses) on credit derivatives, other than the Company's net estimate of after-tax incurred case and portfolio loss and loss adjustment expense reserves for credit derivatives. Management believes that operating income is a useful measure for management, investors and analysts because the presentation of operating income enhances the understanding of Assured's results of operations by highlighting the underlying profitability of Assured's business. Net realized gains (losses) on investments and net unrealized gains (losses) on credit derivatives, other than the portion attributable to the Company's net estimate of incurred case and portfolio loss and loss adjustment expense reserves for credit derivatives, are excluded because the amount of both of these gains (losses) is heavily influenced by, and fluctuates, in part, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. market interest rates, credit spreads and other factors that management cannot control or predict. This measure should not be viewed as substitute for net income (loss) determined in accordance with GAAP. [TABLE OMITTED] [TABLE OMITTED] Cautionary Statement Regarding Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. : Any forward-looking statements made in this press release reflect the Company's current views with respect to future events and financial performance and are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. For example, the Company's forward looking statements could be affected by many events. These events include a significant reduction in the amount of reinsurance ceded by one or more of our principal ceding cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. companies, rating agency action such as a ratings downgrade, difficulties with the execution of the Company's business strategy, contract cancellations, developments or volatility in the world's financial and capital markets, more severe or frequent losses associated with products affecting the adequacy of the Company's loss reserves, changes in regulation or tax laws, governmental actions, natural catastrophes, the Company's dependence on customers, decreased demand or increased competition, loss of key personnel, technological developments, the effects of mergers, acquisitions and divestitures, changes in accounting policies or practices, changes in general economic conditions, other risks and uncertainties that have not been identified at this time, management's response to these factors, and other risk factors identified in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. |
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