KBW Conference September 4, 2007. Forward-Looking Statements.
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September 4, 2007
This presentation contains statements that may be considered “forward looking statements”. These statements are based on our current expectations and current views of the economic and operating environment and are not guarantees of future performance. A number of risks and uncertainties, including economic and competitive conditions, could cause our actual results to differ materially from those projected in forward-looking statements. Among the factors that could cause actual results to differ materially are (i) changes in general economic conditions, including inflation, foreign currency exchange rates, interest rates and other factors; (ii) decreased demand for our reinsurance products; (iii) the loss of significant customers with whom we have a concentration of our reinsurance in force; (iv) legislative and regulatory developments; (v) changes in regulation or tax laws applicable to us, our subsidiaries or customers; (vi) a downgrade in financial strength ratings of RAM Re by Standard & Poor's or Moody's; (vii) more severe losses or more frequent losses associated with our products; (viii) losses on credit derivatives; (ix) changes in our accounting policies and procedures that impact the Company's reported financial results; and (x) other risks and uncertainties that have not been identified at this time. See our annual report on Form 10-K filed with the SEC and available on our website for more risk factors that could affect our forward looking statements. The Company undertakes no obligation to revise or update any forward-looking statement to reflect changes in conditions, events, or expectations, except as required by law.
President & Chief Executive Officer
Investment grade obligations and low loss ratios
Provide meaningful capacity
Claims-paying resources of $978 million
Rated AAA by S&P and Aa3 by Moody’s
Only independent AAA rated reinsurer, providing customers 100% capital relief
Proven financial performance since Bermuda formation in 1998 and IPO in 2006Company Overview
Financial Guaranty Reinsurer of Choice
Only reinsurer with treaties with 6 of 7 AAA primaries
Financial guaranty insurance: a value-added product
Uninterrupted net income growth over ten years at annualized rate of 9.6%; annualized growth in par insured of 11.7%; loss ratios averaged 10.4%
Source: Association of Financial Guaranty Insurers
Growth in Premiums Earned ($mm)
Growth in Par Outstanding ($bn)
Avg. Annual Growth 2001-2006 = 20%
Avg. Annual Growth 2001-2006 = 31%
Source: Company filings.
Since 1998 RAM incurred credit losses total $22.5MM
Focus on managing concentration limits
Smaller concentrations of Sub-prime RMBS than the Primaries
BOND INSURANCE COMPOSITE *
RAM RE’S IN-FORCE PORTFOLIO
The shadow rating mix of RAM Re’s portfolio is comparable to the average mix for large primary insurers
*Average breakdown for Ambac, FGIC, FSA and MBIA.
Source: Company flings and websites.
BY GEOGRAPHIC DISPERSION
Total Par Outstanding = $34.9 billion
Report sub performing deals
Remediate sub performing transactions
Report to reinsurers
Monthly: Transactions ceded
Quarterly: Portfolio data
Currently: Unusual transaction developments
Focus on sub performing transactions and sectors in consultation with primaries
Calculate probable and estimable losses based on primaries’ input
Monitor portfolio based on current informationRisk Management: Surveillance
Efficient and up to date surveillance process leveraging significant
primary company resources
Probable near term reduction in structured finance volume
Expected cyclical increase in premium rates and volume barring recession
Large competitors focused on other areas
Excess capital position with generally lower concentrations
Treaties require primaries to cede all qualifying business
Treaties and capital in place
More revenues per unit of capital
Increase market position to increase operating leverageWell Positioned For Improved Market
Chief Financial Officer
($ in millions)
Balance sheet is clean, simple and solid…providing visibility and driving future operating revenues
Statutory capital $415
SAP unearned premiums 252
PV net installment premiums 130
SAP loss & LAE reserves 1
Soft capital facilities 180
133:1 (AAA primaries range from 125:1 to 218:1, averaging 158:1)
56:1 (AAA primaries range from 60:1 to 98:1, averaging 78:1)
($ in millions except per share amounts)
Book Value at 6/30/07
Per share: $14.49
+ Unearned Premiums net of prepaid reinsurance premium
+ NPV of Installment Premiums
= Estimated Intrinsic Value or ABV
Per Share: $24.74
Estimated intrinsic value or adjusted book value is 1.7X book
($ in millions)
Our expanding market position is evidenced by strong growthin operating revenues, operating income and net income
* Operating revenues is a non-GAAP measure equal to the sum of earned premiums and net investment income.
** Operating income is a non-GAAP measure equal to net income less the sum of (a) realized investment gains/(losses) and (b) unrealized gains/(losses) on credit derivatives.
A further sign of our growth and ramp up also illustrates an attractive business characteristic: cash flow from operations exceeds net income on a consistent basis. 2001-06 cumulative cash flow from operations is 1.8X cumulative net income.
Continued Progress in Achieving Operating Leverage
* Major primaries are Ambac, FSA and MBIA and used to represent operating leverage of mature Financial Guaranty companies (source: company filings and web sites)
1Operating return is constructed as the sum of (a) investment income/average equity plus (b) earned premium*(1 minus combined ratio) divided by average equity over rolling four quarters.
Unique franchisepositioned for growth
This presentation includes non-GAAP measures that are believed to be useful supplements for evaluating various aspects of the company. Such non-GAAP measures should not be viewed as a substitute for GAAP financial measures and non-GAAP measures as presented and defined herein may differ from such measures as presented and defined by other financial guaranty industry participants.
Operating revenues is defined to be the sum of earned premiums plus investment income and differs from total revenues in that it excludes realized investment gains or losses and unrealized gains or losses on credit derivatives. We believe operating revenues provides a more meaningful view of core business revenues because realized investment gains or losses and unrealized gains or losses on credit derivatives are primarily reflective of changes in interest rates and spreads over which the company has no control.
Operating income is defined as net income less the sum of (a) realized investment gains or losses, and (b) unrealized gains or losses on credit derivatives.
The net present value of installment premiums is the discounted value of estimated future premiums on in-force business written on an installment basis. Actual future premiums may differ from estimates due to factors the including, among others, amortizations, pre-payments or defaults.
Estimated intrinsic value or Adjusted Book Value is defined as shareholders’ equity (book value) plus unearned premium reserve (deferred premium revenues) net of deferred acquisition costs plus the net present value of estimated future installment premiums net of estimated acquisition expenses minus unrealized investment gains/(losses).