HAMILTON, Bermuda, Sep 17, 2009 (BUSINESS WIRE) -- RAM Holdings Ltd. (BSX:RAMR) (Pink Sheets:RAMR) ("RAM" or the "Company") today reported second quarter 2009 net loss available to common shareholders of $4.6 million, or net loss of $0.17 per diluted share. This compares to a net income of $126.3 million, or net income of $4.63 per diluted share, for the second quarter 2008.
Commutation in 2009
As previously announced, on April 7, 2009, RAM Reinsurance Company Ltd. ("RAM Re") entered into a commutation agreement (the "Ambac Commutation Agreement") with Ambac Assurance Corporation 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, 2009) 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, 2009.
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.
Summary of Operating Results
Net loss was $4.6 million for the quarter ended June 30, 2009.
Earned premiums in the quarter of $6.5 million were 67% 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% 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, 2009.
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, 2009.
Net investment income for the second quarter 2009 was $3.5 million, 58% 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% to 3.7%.
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, 2009, 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) %. 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%. 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%, 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.
Balance Sheet
Total assets of $467.7 million at June 30, 2009, were $106.6 million, or 19%, below the level at December 31, 2008, this decrease is primarily related to the reduction in invested assets on payment for the commutation with Ambac. Shareholders' equity of $34.2 million was $55.2 million, or 62%, below the level at December 31, 2008, primarily due to the cumulative effect of adopting FAS 163 of $(43.8) million. Book value per share was $1.30, a decrease of 60% from year-end 2008. Operating book value and adjusted operating book value per share, each of which are non-GAAP financial measures, were $3.87 and $8.94 at June 30, 2009, a decrease of 15% and a decrease of 13%, respectively, from year-end 2008.
S&P Rating Actions
On Aug. 31, 2009, Standard & Poor's Ratings Services lowered its counterparty credit, financial strength, and financial enhancement ratings on RAM Re to 'BB' from 'BBB-' and its rating on RAM Re's preference stock to 'C' from 'CC'. At the same time, Standard & Poor's lowered its senior unsecured debt rating on RAM to 'B' from 'BB-'. In addition, Standard & Poor's removed the ratings on both of RAM and RAM Re from CreditWatch with negative implications and assigned a negative outlook. Subsequently, Standard & Poor's withdrew the ratings at the Company's request.
Common Stock Repurchase
On May 19, 2009 the Company announced its intention to repurchase up to 930,000 of its issued and outstanding common shares. The Company completed this share repurchase plan on June 9, 2009 having repurchased the maximum 930,000 allowed for $295,836.
Forward-Looking Statements
This release contains statements that may be considered "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current views of the economic and operating environment and are not guarantees of future performance. A number of risks and uncertainties, including economic competitive conditions, could cause actual results to differ materially from those projected in forward-looking statements. Our actual results could differ materially from those expressed or implied in the forward-looking statements. Among the factors that could cause actual results to differ materially are: (i) our ability to execute our business strategy; (ii) changes in general economic conditions, including inflation, foreign currency exchange rates, interest rates and other factors; (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 or our customers; (vi) more severe losses or more frequent losses associated with our products; (vii) losses on credit derivatives; (viii) changes in our accounting policies and procedures that impact RAM's reported financial results; and (ix) other risks and uncertainties that have not been identified at this time. RAM undertakes no obligation to revise or update any forward-looking statement to reflect changes in conditions, events, or expectations, except as required by law.
Explanation of Non-GAAP Financial Measures
RAM believes that the following non-GAAP financial measures included in this release serve to supplement GAAP information and are meaningful to investors.
Operating Book Value per share and Adjusted Operating Book Value per share: RAM believes the presentation of operating and adjusted operating book value per share to be useful because it gives a measure of the value of RAM, excluding non-operating items of unrealized gains and losses on: (a) other financial instruments and (b) credit derivatives. We derive operating book value by beginning with GAAP book value and adding back (i) the fair value of other financial instruments; and (ii) the derivative asset or liability excluding the impact of credit impairments. Adjusted operating book value per share begins with operating book value as calculated above and then adding or subtracting the value of:
a. GAAP unearned premium reserves (on policies classified as financial guarantee);
b. Deferred acquisition costs;
c. Unearned premiums reserves and the present value of estimated future installment premiums net of ceding commissions on credit derivative policies (discounted at 1.65% at June 30, 2009, and 3.00% at December 31, 2008);
d. Unrealized appreciation or depreciation of investments; and
e. Noncontrolling interest in subsidiary.
Credit Impairments on Insured Credit Default Swap ("CDS") Contracts: Management measures and monitors credit impairments on RAM's credit derivatives, which are expected to be paid out over the term of the credit default swap policies. The credit impairments are a non-GAAP metric reported as management believes this information to be useful to analysts, rating agencies and investors to review the results of our entire portfolio of policies. Management considers our credit derivative policies as a normal extension of our financial guarantee business and reinsurance in substance.
RAM Holdings Ltd. is a Bermuda-based holding company. Its operating subsidiary, RAM Reinsurance Company Ltd., provides financial guaranty reinsurance for U.S. and international public finance and structured finance transactions. More information can be found at www.ramre.com.
RAM Holdings Ltd.
Consolidated Balance Sheets
(unaudited)
As at June 30, 2009 and December 31, 2008
(dollars in thousands)
June 30, 2009 December 31, 2008
Assets
Investments:
Fixed-maturity securities held as available for sale, at fair value
(Amortized Cost: $366,330 and $415,559) $ 365,170 $ 421,890
Cash and cash equivalents 2,639 8,763
Restricted cash 5,556 8,285
Accrued investment income 2,563 4,438
Reinsurance balances receivable, net 14,886 1,115
Recoverable on paid losses 4,381 1,797
Deferred policy acquisition costs 66,994 74,795
Prepaid reinsurance premiums 1,024 1,599
Deferred expenses 1,486 1,588
Prepaid expenses 1,880 377
Other financial instruments (at fair value) - 43,083
Other assets 1,157 6,552
Total Assets $ 467,736 $ 574,282
Liabilities and Equity
Liabilities:
Loss and loss expense reserve $ 56,649 $ 95,794
Unearned premiums 165,205 158,594
Reinsurance balances payable 6,345 24,621
Accounts payable and accrued liabilities 2,809 2,494
Long-term debt 35,000 40,000
Redeemable preferred shares: $1,000 par value; authorized shares - 75,000 75,000
75,000; issued and outstanding shares - 75,000
Accrued interest payable 619 693
Derivative liabilities 83,755 85,354
Other liabilities - 2,375
Total Liabilities 425,382 484,925
Shareholders' Equity:
Common stock: $0.10 par value; authorized shares - 90,000,000; 2,635 2,725
Issued and outstanding shares - 26,352,982 shares at June 30, 2009
and 27,251,595 at December 31, 2008
Additional paid-in capital 230,715 230,438
Accumulated other comprehensive (loss) income (1,160 ) 6,331
Retained (deficit) earnings (197,950 ) (150,137 )
Total Shareholders' Equity 34,240 89,357
Noncontrolling interest - Series B preferred shares of subsidiary 8,114 -
Total Equity 42,354 89,357
Total Liabilities and Equity $ 467,736 $ 574,282
RAM Holdings Ltd.
Consolidated Statements of
Operations
(unaudited)
For the three and six months ended June 30, 2009 and 2008
(dollars in thousands except share and per share amounts)
Three Months Ended June 30, Year-to-date June 30,
2009 2008 2009 2008
Revenues
Net premiums earned $ 6,512 $ 19,471 $ 15,717 $ 32,669
Change in fair value of credit derivatives
Realized gains and other settlements 1,103 2,712 1,995 5,326
Unrealized gains (losses) (10,506 ) 151,535 1,506 (14,849 )
Net change in fair value of credit derivatives (9,403 ) 154,247 3,501 (9,523 )
Net investment income 3,501 8,322 7,984 16,535
Net realized gains on investments 3,534 726 8,052 1,078
Total other-than-temporary impairment losses (885 ) (61 ) (4,938 ) (1,325 )
Portion of impairment losses recognized in other comprehensive 332 - 332 -
income (loss)
Net other-than-temporary impairment losses (recognized in earnings) (553 ) (61 ) (4,606 ) (1,325 )
Net unrealized (losses) gains on other financial instruments - 3,580 (1,197 ) 4,920
Foreign currency gains (losses) 1,227 (2 ) 172 (3 )
Net gains on extinguishment of debt 3,403 - 3,403 -
Total revenues 8,221 186,283 33,026 44,351
Expenses
Losses and loss adjustment expenses (3,534 ) 45,752 13,210 83,280
Acquisition expenses 10,028 6,768 13,988 11,387
Operating expenses 4,891 3,997 10,107 8,705
Interest expense 619 3,506 1,301 4,188
Total expenses 12,004 60,023 38,606 107,560
Net (loss) income before noncontrolling interest $ (3,783 ) $ 126,260 $ (5,580 ) $ (63,209 )
Noncontrolling interest - dividends on preferred shares (785 ) - (922 ) -
Net (loss) income available to common shareholders $ (4,568 ) $ 126,260 $ (6,502 ) $ (63,209 )
Net (loss) income per common share:
Basic $ (0.17 ) $ 4.63 $ (0.24 ) $ (2.32 )
Diluted (0.17 ) 4.63 (0.24 ) (2.32 )
Weighted-average number of common shares outstanding:
Basic 26,952,060 27,250,453 27,106,964 27,246,885
Diluted 26,952,060 27,250,453 27,106,964 27,246,885
Reconciliation of net (loss) income to operating loss:
Three Months Ended June 30, Year-to-date June 30,
Operating Loss 2009 2008 2009 2008
Net (loss) income $ (4,568 ) $ 126,260 $ (6,502 ) $ (63,209 )
Less: Realized gains on investments and other-than-temporary (2,981 ) (665 ) (3,446 ) 247
impairment losses
Less: Unrealized (gains) losses on credit derivatives 10,506 (151,535 ) (1,506 ) 14,849
Add back: credit impairment on derivatives (4,701 ) (86,659 ) (8,096 ) (99,049 )
Less: Foreign currency (gains) losses (1,227 ) 2 (172 ) 3
Less: Other losses (gains) on debt and other financial instruments (3,403 ) (3,580 ) (2,206 ) (4,920 )
Operating Loss $ (6,374 ) $ (116,177 ) $ (21,928 ) $ (152,079 )
Net (loss) income per diluted share $ (0.17 ) $ 4.63 $ (0.24 ) $ (2.32 )
Less: Realized gains on investments and other-than-temporary (0.11 ) (0.02 ) (0.13 ) 0.01
impairment losses
Less: Unrealized (gains) losses on credit derivatives 0.39 (5.56 ) (0.06 ) 0.54
Add back: credit impairment on derivatives (0.17 ) (3.18 ) (0.30 ) (3.64 )
Less: Foreign currency (gains) losses (0.05 ) 0.00 (0.01 ) 0.00
Less: Other losses (gains) on debt and other financial instruments (0.13 ) (0.13 ) (0.09 ) (0.18 )
Operating loss per diluted share $ (0.24 ) $ (4.26 ) $ (0.83 ) $ (5.59 )
Reconciliation of book value to operating book value and
adjusted operating book value:
30-Jun-09 31-Dec-08
Shares outstanding 26,353 27,252
Shareholders' Equity (Book Value) 34,240 89,357
Derivative Liability (Asset) (3) 81,923 83,429
Add back credit impairments on derivatives (14,110 ) (6,014 )
Fair value of other financial instruments - (43,083 )
Operating book value 102,053 123,689
Operating book value per share 3.87 4.54
Noncontrolling interest 8,114 -
Unearned premiums (1) 167,209 160,519
Prepaid reinsurance premiums (1,024 ) (1,599 )
Deferred Acquisition Costs (66,994 ) (74,795 )
Present Value of Installment Premiums (2) 25,095 78,697
Unrealized Losses (Gains) on Investments 1,160 (6,331 )
Adjusted book value 235,613 280,180
Adjusted Operating Book Value Per Share $ 8.94 $ 10.28
(1) Includes unearned premium balances on credit derivative policies. In 2009 includes the present value of future installment premiums on financial guarantee policies
(2) Estimated present value of future installments, net of ceding commissions, on policies written in credit derivative form only in 2009 and on all policies (written in credit derivative or financial guarantee form) in 2008. At June 30, 2009 and December 31, 2008, the discount rate was 1.65% and 3.00%, respectively.
(3) Represents the unrealized gains/losses portion of the Derivative liability.
RAM has posted its second quarter 2009 financial results to its website at www.ramre.com under "Investor Information". If you are a shareholder of RAM Holdings Ltd. and wish to receive a hard copy of the financial statements by mail, please contact:
RAM Holdings Ltd. RAM Re House 46 Reid Street Hamilton Bermuda
Attention: Ted Gilpin Telephone: 441-298-2107 E-mail: tgilpin@ramre.bm
SOURCE: RAM Holdings Ltd.
RAM Holdings Ltd., Hamilton Ted Gilpin, 441-298-2107 tgilpin@ramre.bm
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