Enhance Financial Services Group this week reported a 63% dive in profits for the second quarter, reflecting a big hit from commercial real estate defaults that the company reinsured for Financial Security Assurance Inc.
Net income for the second quarter fell to $3.7 million from $9.9 million in the second quarter of 1992. Earnings per share were 20 cents, compared to 54 cents last year.
The dramatic decline, which contrasts with strong profit growth in the industry as a whole, results from an $8 million claim in the second quarter, which the company announced in June. The losses stem from three real estate deals that began to sour in 1991.
"As expected, Enhance Group did report a small operating profit, despite the magnitude of the incurred claims taken during the quarter," Wallace O. Sellers, president and chief executive officer of the company, said in a statement. "The restructuring on favorable terms of three transactions for which the claims were incurred allows us to put our problems with these transactions behind us."
For the first half of the year, net income was $16.1 million, compared to $18 million in the first six months of 1992. Sellers said premiums for the company's business lines other than reinsuring municipal and non-municipal securities accounted for $10.2 million of Enhance's $45 million of net premiums written in the first half.
Of the $29.5 million of net premiums written in the second quarter, 78% was attributable to reinsurance of municipal bonds, 3% to reinsurance of non-municipal obligations, and 19% to Enhance Group specialty activities.
The results were reported Wednesday evening after the close of the trading on the New York Stock Exchange. Enhance's stock closed up 7/8 point yesterday at 20 1/8.