Assured Guaranty’s recent settlement with Bank of America allowed it to post much higher operating earnings in the first quarter compared with 2010, but actual business production fell about a third.

New business production in the public finance market fell 54% for the Bermuda-based company to $34 million as its two bond insurance platforms struggled to find bonds to wrap in a market where issuance fell 55%.

“This quarter’s new business production was lower than we like but is a reasonable result given the reduction in issuance in the municipal market,” said Assured chief executive Dominic Frederico.

Frederico said the company’s insured penetration rate actually jumped from 2.7% in January to 6.7% in March, a significant increase in light of the uncertainty created by Standard & Poor’s late January proposal to revise their bond insurance ratings criteria, which threatens to cut Assured’s rating a full category to the single-A range.

“Smaller and lower-rated issuers continue to rely on our guaranty for market access,” said Frederico, noting his company wrapped 13% of issues under $25 million and 12% of all issues rated single-A.

Assured’s net income fell 61% from the first quarter of 2010 to $125.4 million.

Despite the struggle to guarantee new bonds, Assured’s operating earnings — a measure of accounting that does not adhere to generally accepted accounting principles but which attempts to capture future income earnings minus future liabilities — jumped 125% in the quarter to $248.9 million.

The jump was largely the result of the company’s more optimistic assessment on how much it will retrieve in mortgage putbacks from financial institutions that, it argues, failed to live up to underwriting standards.

Assured captured $1.1 billion from B of A in an April 14 agreement — the biggest settlement to date for a municipal bond insurer since the housing collapse.

“Reaching an agreement with Bank of America was a major accomplishment and a significant contributor to our financial results for the quarter,” Frederico said. “This agreement, accomplished without litigation, confirms our loan-by-loan approach to our [representations and warranty] claims and allows us to focus more intently on others who have not fulfilled their contractual obligations.”

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