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KBW Conference September 4, 2007. Forward-Looking Statements.

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Kbw conference september 4 2007

KBW Conference

September 4, 2007

Forward looking statements
Forward-Looking Statements

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.

Vern endo

Vern Endo

President & Chief Executive Officer

Company overview

Dedicated to financial guaranty reinsurance

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 2006

Company Overview

Financial Guaranty Reinsurer of Choice

Only reinsurer with treaties with 6 of 7 AAA primaries

Financial guaranty product overview
Financial Guaranty Product Overview

Financial guaranty insurance: a value-added product

  • Ensures timely payment

    • Municipal and asset-backed securities

  • Benefits issuers

    • Lower borrowing costs

    • Enhanced marketability

  • Benefits fixed income investors

    • Protection from loss

    • Enhanced liquidity

    • Market price stability


Primary Clients

Consistent growth profitability
Consistent Growth & Profitability

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

Achievements since 06 ipo
Achievements Since ’06 IPO

  • New treaties with FGIC and Assured Guaranty

  • Grew market share from 15% to 18%

  • 15%+ growth in insured portfolio

  • Substantially improved capital position

    • Issued redeemable preferred at year end ‘06

    • Statutory capital increased by 41% in 2006

  • Maintained low expense base

Continued top line growth
Continued Top-Line Growth

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.

Efficient and unique business model
Efficient and Unique Business Model


Business Model

Primary reinsurer relationship
Primary Reinsurer Relationship

  • Fundamentally based on remote loss underwriting standard confirmed independently by rating agencies

  • Reinsurance used to manage single risks and concentrations

    • No viable alternative to cede single risk

  • Aligned interests

    • Primaries retain pro rata exposure on individual transactions 8 to 10 times greater

    • Reinsurer downgrades can cause primaries significant disruption

      Since 1998 RAM incurred credit losses total $22.5MM

Risk management quota share treaties
Risk Management: Quota Share Treaties

  • Pro rata risk sharing most effective approach to achieving portfolio diversification

  • Allocate capacity to individual treaties based on customer assessment

  • Basic principle: Establish larger single cession limits for lower risk sectors and higher rated transactions

  • Vigilantly monitor monthly cessions and use exclusion list process to manage insured portfolio concentration limits

Focus on managing concentration limits

Selected portfolio concentrations
Selected Portfolio Concentrations

  • All data reported at 6/30/07, with RAM reporting on a one-quarter lag. CDOs represent CDOs with significant RMBS.

  • Includes Ambac, FGIC, FSA, MBIA and SCA (Source: Company filings and websites where available, based on RAM estimates).

  • Percentage of CDO par outstanding with significant RMBS.

Smaller concentrations of Sub-prime RMBS than the Primaries

Insured portfolio mirrors that of primaries
Insured Portfolio Mirrors That of Primaries



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.

Diversified insured portfolio
Diversified Insured Portfolio



Total Par Outstanding = $34.9 billion

Risk management surveillance

Monitor individual transactions

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 information

Risk Management: Surveillance

Efficient and up to date surveillance process leveraging significant

primary company resources


Well positioned for improved market

Sub-prime not expected to threaten ratings stability

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 leverage

Well Positioned For Improved Market



Richard lutenski

Richard Lutenski

Chief Financial Officer

Summary gaap balance sheet
Summary GAAP Balance Sheet

($ in millions)

Balance sheet is clean, simple and solid…providing visibility and driving future operating revenues

Capital resources
Capital Resources

  • Total claims paying resources ($ millions)

    Statutory capital $415

    SAP unearned premiums 252

    PV net installment premiums 130

    SAP loss & LAE reserves 1

    Soft capital facilities 180

    Total $978

  • Capital Ratio (debt service outstanding/statutory capital)

    133:1 (AAA primaries range from 125:1 to 218:1, averaging 158:1)

  • Claims Paying Ratio (debt service outstanding/claim resources)

    56:1 (AAA primaries range from 60:1 to 98:1, averaging 78:1)

  • Ample capital adequacy clearance relative to rating under S&P and Moody’s capital adequacy models

An estimate of intrinsic value
An Estimate of Intrinsic Value

($ 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

  • Deferred Acquisition Costs

  • Estimated Acquisition on Future Installment Premiums

  • unrealized gains (losses)

    = Estimated Intrinsic Value or ABV

    Per Share: $24.74

    Estimated intrinsic value or adjusted book value is 1.7X book

Historical financial results
Historical Financial Results

($ 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.

Historical financial results1
Historical Financial Results

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.

First half 2007 financial summary
First Half 2007 Financial Summary

  • Total revenues increased by 34% over 2006

    • Earned premiums up 25% – driven by growing in-force business

    • Investment income up 44% – driven by growth in invested assets and increase in book yield

  • Total expenses up by 46% relative to six months of 2006

    • Higher acquisition follows earned premiums, 2006 included large negative incurred loss, 2007 includes preference share dividends

  • Net income increased by 25% to $23.4 million

    • Net income is reflective of growth and progress, but the level of net income is somewhat higher than a normalized level would be due to favorable loss activity that resulted in a benefit (a negative incurred loss)

  • Cash flow from operations reached $49.7 million, nearly double the level for first half of 2006

Bridge to improving roe
Bridge to Improving ROE

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)

Operating performance
Operating Performance

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.


  • Pure play AAA rated reinsurer in AAA industry

  • Bermuda based platform

  • Reinsurer of choice: Treaties with six of seven AAA primaries

  • Capital resources in place both to support AAA rating and to maximize spread widening opportunities

  • Risk management model based on

    • Remote loss underwriting

    • Aligned interests with primaries

    • Quota share treaties to diversify risks

    • Leveraging primary company resources

Unique franchisepositioned for growth

Appendix explanation of non gaap measures
Appendix Explanation of Non-GAAP Measures

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).