RAM Holdings Ltd. Announces Third Quarter 2009 Net Income Available to Common Shareholders of $31.1 Million

HAMILTON, Bermuda--(BUSINESS WIRE)--

RAM Holdings Ltd. RAMR (Pink Sheets: RAMR)(FREE stock trend analysis) (“RAM” or the “Company”) today reported third quarter 2009 net income available to common shareholders of $31.1 million, or net income of $1.18 per diluted share. This compares to a net loss of $40.4 million, or net loss of $1.48 per diluted share, for the third quarter 2008.

Summary of Operating Results

Net income was $31.1 million for the quarter ended September 30, 2009.

Earned premiums in the quarter of $7.7 million were 63% lower than the $20.7 million earned in the third quarter of 2008. By eliminating accelerated premiums from refundings of $4.5 million from total earned premiums, normal earned premiums in the third quarter 2009 were $3.2 million, 74% lower than the comparative 2008 period, which included accelerated premiums from refundings of $8.2 million. The decline in the third 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 the new accounting for Financial Guarantee Insurance Contracts (“ASC 944-20”) on January 1, 2009.

Net change in fair value of credit derivatives totaled a gain of $26.3 million in the third quarter 2009, which was $27.5 million above the $1.2 million loss in the third quarter of 2008. Net change in fair value of credit derivatives for the third quarters of 2009 and 2008 were comprised of $25.2 million and $66.3 million of unrealized gains on derivatives, respectively, and $1.1 million and $(67.5) million of realized gains (losses), respectively. Gross unrealized losses on credit derivative policies decreased in the third quarter 2009 primarily due to the narrowing of credit spreads in the market. Gross unrealized losses on credit derivatives are offset by the adjustment for RAM's own non-performance risk in accordance with fair value accounting standards. The effect of this adjustment for RAM’s own non-performance risk was a reduction in RAM's derivative liability of approximately $190.0 million at September 30, 2009.

Net investment income for the third quarter 2009 was $3.4 million, 52% below the $7.1 million recorded in the third quarter of 2008. The decrease in investment income in the third quarter 2009 was primarily the result of a decrease in cash and invested assets due to payments on commutations in 2008 and 2009 totaling $350.8 million, along with a decrease in the book yield on the invested assets from 4.7% to 3.7%.

Net realized gains on investments for the third quarter 2009 were $0.2 million compared to the $3.6 million realized gains for the same period in 2008. Realized gains were offset by other-than-temporary impairment losses for the third quarter of 2009 of $0.1 million compared to $8.6 million for the comparable 2008 period.

Losses and loss adjustment expenses were $(0.6) million in the third quarter 2009, contributing to a loss ratio of (8.2)%. The negative incurred losses were primarily the result of increased benefit recognized in the third quarter of 2009 for expected repurchases of defaulted mortgage loans by sellers and originators in RMBS transactions due to breaches of representations and warranties regarding the characteristics of the loans. In comparison, there were $50.0 million of incurred losses in the comparable 2008 period.

Acquisition expenses were $3.5 million in the third quarter of 2009 compared to $8.3 million for the comparable 2008 period. The decrease in acquisition expenses in the third quarter 2009 as compared to the comparable 2008 period was primarily due to (i) the decrease in earned premiums in the period offset slightly by (ii) an increase in ceding commissions payable and earned since RAM's ratings downgrades during 2008 and 2009. Third quarter 2009 operating expenses of $3.1 million were $1.4 million, or 31%, below the level in the third quarter of 2008. The decrease in operating expenses for 2009 as compared to 2008 was primarily due to the reduced operating costs associated with the withdrawal of our ratings and cancellation of our soft capital facilities.

Balance Sheet

Total assets of $472.0 million at September 30, 2009, were $102.3 million, or 18%, below the level at December 31, 2008. This decrease was primarily related to the reduction in invested assets on payment for the commutation with Ambac. Shareholders' equity of $75.1 million was $14.3 million, or 16%, below the level at December 31, 2008, primarily due to the cumulative effect of adopting ASC 944-20 of $(43.8) million offset by net income earned in the current year. Book value per share was $2.85, a decrease of 13% from year-end 2008. Operating book value and adjusted operating book value per share, each of which are non-GAAP financial measures, were $4.52 and $8.96, respectively, at September 30, 2009, a decrease of 1% and a decrease of 13%, respectively, from year-end 2008.

Annual General Meeting of Shareholders

RAM's 2009 Annual General Meeting of Shareholders was held on Thursday, December 17, 2009. The following proposals were approved by the shareholders at the meeting: (a) a proposal to make various amendments to RAM’s Bye-Laws, including to (i) reduce the required minimum number of directors from 11 to five and the maximum number of directors from 15 to 11; (ii) allow The PMI Group, Inc., PMI Mortgage Insurance Co. or any successor entity (collectively, “PMI”) to appoint a director to RAM's board of directors in the event that PMI cannot elect a director through cumulative voting due to a voting cutback provided PMI owns at least 8.3% of the then outstanding common shares; (iii) enable PMI to fill vacancies relating to the directors PMI was able to elect through cumulative voting as well as any replacements of those directors; and (iv) enable the PMI rights under the Bye-Laws to be assumed by any purchaser of a number of RAM shares held by PMI equal to at least the lesser of 5,270,034 or 20% of the then outstanding common shares, subject to limited exceptions; (b) a proposal to elect the directors of RAM; (c) a proposal to appoint PricewaterhouseCoopers as RAM’s independent auditors for 2009 and to authorize the directors of RAM to determine the independent auditors’ fee; (d) a proposal to reaffirm the power and authority of RAM's board of directors under the Bye-Laws to issue and allot any unissued shares of RAM; and (e) a proposal to direct RAM to act on various matters concerning its subsidiary, RAM Reinsurance Company Ltd. A copy of RAM's proxy statement relating to the meeting is available at http://www.ramre.com/ramre/ir/annrpt.asp.

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 or more frequent losses associated with our insured portfolio; (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 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 2.51% at September 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 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 September 30, 2009 and December 31, 2008
(dollars in thousands)
						Sept 30, 2009					Dec 31, 2008
Assets
	Investments:
		Fixed-maturity securities held as available for sale, at fair value
			(Amortized Cost: $354,073 and $415,559)				$	362,556				$	421,890
	Cash and cash equivalents							9,847					8,763
	Restricted cash							4,969					8,285
	Accrued investment income							2,470					4,438
	Reinsurance balances receivable, net							14,066					1,115
	Recoverable on paid losses							10,419					1,797
	Deferred policy acquisition costs							63,551					74,795
	Prepaid reinsurance premiums							1,004					1,599
	Deferred expenses							1,448					1,588
	Prepaid expenses							1,213					377
	Other financial instruments (at fair value)							-					43,083
	Other assets							502					6,552
		Total Assets					$	472,045				$	574,282
Liabilities and Equity
	Liabilities:
		Loss and loss expense reserve					$	54,021				$	95,794
		Unearned premiums						157,310					158,594
		Reinsurance balances payable						6,046					24,621
		Accounts payable and accrued liabilities						2,812					2,494
		Long-term debt						35,000					40,000
		Redeemable preference shares: $1,000 par value; authorized shares - 75,000; issued and outstanding shares - 75,000						75,000					75,000
		Accrued interest payable						-					693
		Derivative liabilities						58,662					85,354
		Other liabilities						-					2,375
			Total Liabilities					388,851					484,925
	Shareholders' Equity:
		Common stock: $0.10 par value; authorized shares - 90,000,000;						2,634					2,725
			Issued and outstanding shares - 26,340,174 shares at September 30, 2009 and 27,251,595 at December 31, 2008
		Additional paid-in capital						230,845					230,438
		Accumulated other comprehensive (loss) income						8,483					6,331
		Retained (deficit) earnings						(166,882	)				(150,137	)
		Total Shareholders' Equity						75,080					89,357
		Noncontrolling interest - Class B preference shares of subsidiary						8,114					-
			Total Equity					83,194					89,357
		Total Liabilities and Equity					$	472,045				$	574,282

RAM Holdings Ltd.
Consolidated Statements of Operations
(unaudited)
For the three and nine months ended September 30, 2009 and 2008
(dollars in thousands except share and per share amounts)
								Three Months Ended Sept 30,										Year-to-date Sept 30,
								2009					2008					2009					2008
		Revenues
			Net premiums earned						$	7,654				$	20,727				$	23,371				$	53,396
		Change in fair value of credit derivatives
			Realized gains (losses) and other settlements							1,124					(67,548	)				3,119					(62,222	)
			Unrealized gains (losses)							25,165					66,299					26,671					51,450
				Net change in fair value of credit derivatives						26,289					(1,249	)				29,790					(10,772	)
			Net investment income							3,354					7,137					11,338					23,671
			Net realized gains on investments							222					3,564					8,274					4,642
			Total other-than-temporary impairment losses							-					(8,561	)				(4,938	)				(9,886	)
			Portion of impairment losses recognized in other comprehensive income (loss)							(66	)				-					266					-
				Net other-than-temporary impairment losses (recognized in earnings)						(66	)				(8,561	)				(4,672	)				(9,886	)
			Net unrealized (losses) gains on other financial instruments							-					1,500					(1,197	)				6,420
			Foreign currency gains (losses)							245					(39	)				416					(41	)
			Net gains on extinguishment of debt							-					-					3,403					-
				Total revenues						37,698					23,079					70,723					67,430
		Expenses
			Losses and loss adjustment expenses							(630	)				50,011					12,579					133,291
			Acquisition expenses							3,536					8,277					17,524					19,664
			Operating expenses							3,139					4,540					13,246					13,246
			Interest expense							584					682					1,885					4,869
				Total expenses						6,629					63,510					45,234					171,070
	Net income (loss) before noncontrolling interest								$	31,069				$	(40,431	)			$	25,489				$	(103,640	)
	Noncontrolling interest - dividends on preference shares									-					-					(922	)				-
	Net income (loss) available to common shareholders								$	31,069				$	(40,431	)			$	24,567				$	(103,640	)
		Net income (loss) per common share:
		Basic							$	1.18				$	(1.48	)			$	0.92				$	(3.80	)
		Diluted								1.18					(1.48	)				0.92					(3.80	)
		Weighted-average number of common shares outstanding:
		Basic								26,340,327					27,251,466					26,848,610					27,248,423
		Diluted								26,340,327					27,251,466					26,848,610					27,248,423

Reconciliation of net income (loss) to operating loss:
							Three Months Ended Sept 30,										Year-to-date Sept 30,
Operating Income (Loss)							2009					2008					2009					2008
	Net income (loss)							$	31,069				$	(40,431	)			$	24,567				$	(103,640	)
	Less: Realized gains on investments and other-than-temporary impairment losses								(156	)				4,997					(3,602	)				5,244
	Less: Unrealized (gains) losses on credit derivatives								(25,165	)				(66,299	)				(26,671	)				(51,450	)
		Add back: credit impairment on derivatives							1,222					116,211					(6,874	)				17,162
	Less: Foreign currency (gains) losses								(245	)				39					(416	)				41
	Less: Other losses (gains) on debt and other financial instruments								-					(1,500	)				(2,206	)				(6,420	)
	Operating Income (Loss)							$	6,725				$	13,017				$	(15,202	)			$	(139,063	)
	Net income (loss) per diluted share							$	1.18				$	(1.48	)			$	0.92				$	(3.80	)
	Less: Realized gains on investments and other-than-temporary impairment losses								(0.01	)				0.18					(0.13	)				0.19
	Less: Unrealized (gains) losses on credit derivatives								(0.96	)				(2.43	)				(1.00	)				(1.89	)
		Add back: credit impairment on derivatives							0.05					4.26					(0.26	)				0.63
	Less: Foreign currency (gains) losses								(0.01	)				0.00					(0.02	)				0.00
	Less: Other losses (gains) on debt and other financial instruments								0.00					(0.06	)				(0.09	)				(0.24	)
	Operating income (loss) per diluted share							$	0.26				$	0.48				$	(0.58	)			$	(5.11	)

Reconciliation of book value to operating book value and adjusted operating book value:
							30-Sep-09			31-Dec-08
	Shares outstanding						26,340			27,252
	Shareholders' Equity (Book Value)						75,080			89,357
		Derivative Liability (Asset) (3)					56,830			83,429
				Add back credit impairments on derivatives			(12,888)			(6,014)
		Fair value of other financial instruments					-			(43,083)
	Operating book value						119,022			123,689
	Operating book value per share						4.52			4.54
		Noncontrolling interest					8,114			-
		Unearned premiums (1)					159,187			160,519
		Prepaid reinsurance premiums					(1,004)			(1,599)
		Deferred Acquisition Costs					(63,551)			(74,795)
		Present Value of Installment Premiums (2)					22,712			78,697
		Unrealized Losses (Gains) on Investments					(8,483)			(6,331)
	Adjusted book value						235,997			280,180
Adjusted Operating Book Value Per Share						$	8.96		$	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 September 30, 2009 and December 31, 2008, the discount rate was 2.51% and 3.00%, respectively.

(3) Represents the unrealized gains/losses portion of the Derivative liability.

RAM has posted its third 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