Dear Mr. Dominic Frederico and Assured Guaranty,
Please consider the benefits of acquiring RAM Holdings Ltd. With such an acquisition you would assume a $20B NPO insured portfolio- $15B of which is public finance risk. For assuming that exposure, Assured Guaranty would receive $125M in statutory capital and $360M in claims paying resources. Looking at GAAP numbers, Assured would receive approximately $125M in operating shareholder’s equity and $234M in adjusted book value. The market value of the investment portfolio to be acquired is over $320M.
Assured is in a unique position as it cedes approximately $15B of this exposure (and I believe an even greater percentage of the $5B structured finance risk). This transaction may likely be effected for $50-75M dollars given that the RAM Holdings market value has not exceed $25M for over two years. Such a bargain price is also likely to be achieved due to:
1) the state of the industry;
2) low investor interest in the industry;
3) the high cost structure of Ram Holdings due to lack of scale; and
4) 8 month lag in financial reporting (though a good idea can be surmised for the interim based on ceding portfolios, of which Assured is the largest;)
5) Unique position of Assured already assuming the tail risk for lion’s share of insured portfolio.
The economics of the transaction are clearly attractive. When considering the risk involved, Assured can essentially view the acquisition as 1) the assumption of a $5B portfolio, paired with 2) the cancellation of a reinsurance policy with a maximum benefit of $300M. Said another way, Assured is already exposed to a stop-loss on $15B of exposure after the first $300M of claims. Additionally, Ram Holdings could continue on as separate subsidiary, limiting Assured’s exposure to adverse developments of the portfolios ceded by FGIC and Syncora Guarantee.
The accounting of the transaction are clearly attractive. On the companies various balance sheets, the transaction would be accretive to the statutory capital positions, operating shareholder’s equity, and adjust book value of the company.
The acquisition would not be meaningless. If you subtract the assumed acquisition cost from the adjusted book value, the difference would be larger than the PVP of new business written in first six months of 2010.
Please consider the benefits of acquiring RAM Holdings Ltd. With such an acquisition you would assume a $20B NPO insured portfolio- $15B of which is public finance risk. For assuming that exposure, Assured Guaranty would receive $125M in statutory capital and $360M in claims paying resources. Looking at GAAP numbers, Assured would receive approximately $125M in operating shareholder’s equity and $234M in adjusted book value. The market value of the investment portfolio to be acquired is over $320M.
Assured is in a unique position as it cedes approximately $15B of this exposure (and I believe an even greater percentage of the $5B structured finance risk). This transaction may likely be effected for $50-75M dollars given that the RAM Holdings market value has not exceed $25M for over two years. Such a bargain price is also likely to be achieved due to:
1) the state of the industry;
2) low investor interest in the industry;
3) the high cost structure of Ram Holdings due to lack of scale; and
4) 8 month lag in financial reporting (though a good idea can be surmised for the interim based on ceding portfolios, of which Assured is the largest;)
5) Unique position of Assured already assuming the tail risk for lion’s share of insured portfolio.
The economics of the transaction are clearly attractive. When considering the risk involved, Assured can essentially view the acquisition as 1) the assumption of a $5B portfolio, paired with 2) the cancellation of a reinsurance policy with a maximum benefit of $300M. Said another way, Assured is already exposed to a stop-loss on $15B of exposure after the first $300M of claims. Additionally, Ram Holdings could continue on as separate subsidiary, limiting Assured’s exposure to adverse developments of the portfolios ceded by FGIC and Syncora Guarantee.
The accounting of the transaction are clearly attractive. On the companies various balance sheets, the transaction would be accretive to the statutory capital positions, operating shareholder’s equity, and adjust book value of the company.
The acquisition would not be meaningless. If you subtract the assumed acquisition cost from the adjusted book value, the difference would be larger than the PVP of new business written in first six months of 2010.
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