Assured Guaranty's first-quarter profit surged 277 percent, driven by last year's acquisition of Financial Security Assurance Holdings Ltd.

The Bermuda-based bond insurer said last night that net income for the first three months of this year was $322 million, compared to $85.5 million in the same period of last year.

Net income per share was $1.69, up 82 percent on the 93 cents per share in first quarter of 2009.

Assured said net income benefited from $230.8 million of after-tax non-credit impairment unrealised fair value gains on credit derivatives ($1.21 per share).

Operating income for the quarter was $89.6 million, a 41 percent increase from $63.4 million for the prior-year first quarter.

Assured acquired Financial Security Assurance Holdings Ltd. on July 1 last year. The unit has now been renamed Assured Guaranty Municipal Holdings Inc. (AGMH).

"We recorded positive operating earnings this quarter, despite continued losses primarily related to the insured residential mortgage-backed (RMBS) portfolio," said Dominic Frederico, president and chief executive officer of Assured Guaranty Ltd.

"Our embedded earnings power derived from the AGMH acquisition combined with the existing earnings models of Assured Guaranty Corp. and Assured Guaranty Re provides us with substantial financial stability, which is critical to our ongoing business."

He added: "With regard to the additional mortgage losses, early-stage delinquencies showed some signs of improvement. However, we decided to extend the conditional default rate for another three months until we see more sustained improvement in RMBS performance.

"We have also intensified our loss mitigation efforts, which we see as both strategically important and as a further opportunity to lower our loss costs and enhance earnings."