RAM Holdings Reports 2Q Net Loss

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Sep 23, 2009 (Close-Up Media via COMTEX) -- RAMR | Quote | Chart | News | PowerRating -- RAM Holdings has reported second quarter 2009 net loss available to common shareholders of $4.6 million, or net loss of $0.17 per diluted share.

In a release dated September 17, the company stated:

- This compares to a net income of $126.3 million, or net income of $4.63 per diluted share, for the second quarter 2008.

- As previously announced, on April 7, RAM Reinsurance Company (RAM Re) entered into a commutation agreement (the Ambac Commutation Agreement) with Ambac Assurance and its affiliate (Ambac). The Ambac Commutation Agreement provided, among other things, for RAM Re to pay a $97.0 million settlement payment and $1.3 million of claims payments, by means of a release to Ambac of securities in Ambac's trust account valued at $97.8 million and a cash payment of $0.5 million, to commute the entire $6.8 billion insured portfolio (as of March 31) assumed from Ambac, and for each party thereto to release the other party from all liabilities and obligations under all reinsurance agreements between the parties. The securities in the Ambac trust account and the cash payment were received by Ambac, and the releases set forth in the Ambac Commutation Agreement became effective, on April 8.

- The effect of the above transaction related to the Ambac Commutation Agreement, resulted in a gain to net income of $8.7 million for the second quarter of 2009.

- Net loss was $4.6 million for the quarter ended June 30.

- Earned premiums in the quarter of $6.5 million were 67 percent lower than the $19.5 million earned in the second quarter of 2008. By eliminating accelerated premiums from refundings of $3.5 million from total earned premiums, normal earned premiums in the second quarter 2009 were $3.0 million, 71 percent lower than the comparative 2008 period, which included accelerated premiums from refundings of $9.1 million. The decline in the second quarter 2009 earned premiums after refundings primarily reflects the reduction in ongoing earnings due to the commutation of treaties with three of our ceding companies during 2008 and 2009, along with the change in earnings following the adoption of FASB Statement No. 163 "Accounting for Financial Guarantee Insurance Contracts" ("FAS 163") on January 1.

- Net change in fair value of credit derivatives totaled a loss of $9.4 million in the second quarter 2009, which was $163.6 million less than the $154.2 million gain in the second quarter of 2008. Net change in fair value of credit derivatives for the second quarters of 2009 and 2008 were comprised of $(10.5) million and $151.5 million of unrealized (losses) gains on derivatives, respectively, and $1.1 million and $2.7 million of realized gains, respectively. The net unrealized loss in the second quarter 2009 was primarily attributable to the decrease in the adjustment for RAM's own non-performance risk in accordance with Statement of Financial Accounting Standard No. 157 "Fair Value Measurements" ("FAS 157"). Gross unrealized losses on credit derivative policies decreased in the second quarter 2009 primarily due to the narrowing of credit spreads in the market. The decreased gross unrealized losses on credit derivatives were offset by the decreased adjustment for RAM's own non-performance risk in accordance with FAS 157. The effect of the FAS 157 requirement was a reduction in RAM's derivative liability of approximately $234.4 million at June 30.

- Net investment income for the second quarter 2009 was $3.5 million, 58 percent below the $8.3 million recorded in the second quarter of 2008. The decrease in investment income in the second quarter 2009 is primarily the result of a decrease in cash and invested assets due to payments on commutations in 2008 and 2009 totaling $349.2 million, along with a decrease in the book yield on the invested assets from 4.9 percent to 3.7 percent.

Realized gains on investments for the second quarter 2009 were $3.5 million compared to the $0.7 million realized gains for the same period in 2008. Realized gains were offset by other-than-temporary impairment losses for the second quarter of 2009 of $0.6 million compared to $0.1 million for the comparable 2008 period. During the second quarter of 2009, the company implemented FASB FSP FAS 115-2 and FAS 124-2 "Recognition and Presentation of Other-Than-Temporary Impairments" ("FSP 115-2"). The implementation of FSP 115-2 resulted in the company increasing the amortized cost basis of certain debt securities by $2.7 million and recording a cumulative effect adjustment of $2.7 million to reduce its retained deficit and reduce accumulated other comprehensive income (loss), with no net effect on shareholders' equity.

- Foreign currency gains of $1.2 million for the second quarter of 2009, relate primarily to the revaluation of the company's net premiums receivable on installment policies established under FAS 163. On April 24, the company purchased $5.0 million of its $40.0 million unsecured senior notes (the "Notes") for $1.6 million, realizing a gain of $3.4 million. The Notes that were repurchased were cancelled immediately after such repurchase.

- Losses and loss adjustment expenses were $(3.5) million in the second quarter 2009, contributing to a loss ratio of (54) percent. The negative incurred losses are the result of the $8.7 million gain on the commutation with Ambac as discussed above. Excluding this gain the loss ratio would have been 80 percent. This loss ratio is the result of continued adverse developments on RAM's exposure to insured transactions with residential mortgage-backed security ("RMBS") exposures, particularly home equity lines of credit and Alt-A transactions for the 2005 - 2007 vintages. This compares to $45.8 million of incurred losses in the comparable 2008 period.

- Acquisition expenses were $10.0 million in the second quarter of 2009 compared to $6.8 million for the comparable 2008 period. The increase in acquisition expenses in the second quarter 2009 as compared to the comparable 2008 period was primarily due to (i) the write off of $4.7 million of DAC (Deferred Acquisition Costs) which is considered irrecoverable, (ii) an increase in the recognition of operating expense DAC of $1.9 million as compared to the same period in 2008 due to the commutation with Ambac, and (iii) the increase in ceding commissions payable and earned since RAM's rating downgrades during 2008 and 2009. Second quarter 2009 operating expenses of $4.9 million were $0.9 million, or 23 percent, above the level in the second quarter of 2008. The increase in operating expenses for 2009 as compared to 2008 is primarily due to the payment and accrual of redundancy costs for staff made redundant during the second quarter of 2009.

RAM Holdings is a Bermuda-based holding company. Its operating subsidiary, RAM Reinsurance Company, provides financial guaranty reinsurance for U.S. and international public finance and structured finance transactions.

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