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KBW Conference
September 4, 2007
2
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
President & Chief Executive Officer
4
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
Financial Guaranty Reinsurer of Choice
Only reinsurer with treaties with 6 of 7 AAA primaries
5
Financial Guaranty Product Overview
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
Financial guaranty insurance: a value-added product
Characteristics Primary Clients
6
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%
Financial Guaranty Industry Growth & Stability(Net Income $ in millions, Par Insured $ in billions)
0
500
1,000
1,500
2,000
$2,500
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Ne
t In
co
me
& P
ar
Ins
ure
d
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Lo
ss
Ra
tio
Net IncomePar InsuredLoss Ratio
Source: Association of Financial Guaranty Insurers
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Achievements Since ’06 IPO
New treaties with FGIC and Assured Guaranty
Grew market share from 15% to 18%
15%+ growth in insured portfolio
Substantially improved capital position
Issued redeemable preferred at year end ‘06
Statutory capital increased by 41% in 2006
Maintained low expense base
8
Source: Company filings.
Continued Top-Line Growth
Growth in Par Outstanding ($bn) Growth in Premiums Earned ($mm)
$12.9
$17.6
$25.5
$34.7
$42.6
$48.8
$0
$10
$20
$30
$40
$50
2001 2002 2003 2004 2005 2006
$12.8
$15.9
$19.8
$22.2
$27.1
$31.1
$0
$5
$10
$15
$20
$25
$30
$35
2001 2002 2003 2004 2005 2006
Avg. Annual G
rowth 2001-2006 = 20%
Avg. Annual G
rowth 2001-2006 = 31%
9
Efficient and Unique Business Model
Business Model
Reinsurance Focus Not competing with customers
AAA rating Provide customers 100% S&P capital relief
Bermuda Domicile Tax advantage offsets ceding commission
Meaningful capacity $978M claims paying ability
Treaty based business production Risk diversification
Cost efficiency
Implication
10
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
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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
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Selected Portfolio Concentrations
2005 – 2007 Vintage (1) RAMPrimaries(2
)
US Sub-prime RMBS 0.4% 0.9%
High Grade ABS CDOs 1.7% 3.5%
Mezzanine ABS CDOs 0.0% 0.4%
Sub-prime RMBS in ABS CDOs (3) 18% 35%
CDO Collateral (3) 20% 22%
(1) All data reported at 6/30/07, with RAM reporting on a one-quarter lag. CDOs represent CDOs with significant RMBS.
(2) Includes Ambac, FGIC, FSA, MBIA and SCA (Source: Company filings and websites where available, based on RAM estimates).
(3) Percentage of CDO par outstanding with significant RMBS.
Smaller concentrations of Sub-prime RMBS than the Primaries
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Insured Portfolio Mirrors That of Primaries
RAM RE’S IN-FORCE PORTFOLIO
BOND INSURANCE COMPOSITE *
*Average breakdown for Ambac, FGIC, FSA and MBIA.Source: Company flings and websites.
The shadow rating mix of RAM Re’s portfolio is comparable to the average mix for large primary insurers
AAA22%
AA26%A
30%
BBB21%
Below BBB1% AAA
20%
AA26%A
37%
BBB16%
Below BBB1%
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Diversified Insured Portfolio
International23%
California8%
New York6%
Florida3%
Other States29%
Multi-State25%
Texas3%
Illinois3%
Total Par Outstanding = $34.9 billion
BY GEOGRAPHIC DISPERSION
BY PRODUCT
International23%
U.S. Structured
25%
U.S. Municipal
52%
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Risk Management: Surveillance
Monitor individual transactions
Report sub performing deals
Remediate sub performing transactions
Report to reinsurers
Monthly: Transactions ceded
Quarterly: Portfolio data
Currently: Unusual transaction developments
Focus on sub performing transactions and sectors in consultation with primaries
Calculate probable and estimable losses based on primaries’ input
Monitor portfolio based on current information
Efficient and up to date surveillance process leveraging significant primary company resources
Primaries
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Well Positioned For Improved Market
Sub-prime not expected to threaten ratings stability
Probable near term reduction in structured finance volume
Expected cyclical increase in premium rates and volume barring recession
Large competitors focused on other areas
Excess capital position with generally lower concentrations
Treaties require primaries to cede all qualifying business
Treaties and capital in place
More revenues per unit of capital
Increase market position to increase operating leverage
Market Environment Strategy/Position
Richard Lutenski
Chief Financial Officer
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Balance sheet is clean, simple and solid…providing visibility and driving future operating revenues
($ millions) 6/30/07 12/31/06Assets Cash and investments $652 $620 Deferred acquisition costs 81 74 Receivables and other 19 18 Total assets $752 $712
Liabilities Unearned premiums $218 $194 Losses and LAE 16 15 Long-term debt 40 40 Redeemable preferred 75 75 Other 8 9 Total liabilities $357 $333
Shareholders' equity $395 $379
Summary GAAP Balance Sheet ($ in
millions)
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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
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An Estimate of Intrinsic Value
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
$395
216
184
81
55
(14)
$673
($ in millions except per share amounts)
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Historical Financial Results
* 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.
($ in millions)
Our expanding market position is evidenced by strong growth
in operating revenues, operating income and net incomeAverage % Growth Well Above 20%
0
10
20
30
40
50
60
70
80
2002 2003 2004 2005 2006
$ m
illi
on
s
operating revenues
operating income
net income
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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.
0
10
20
30
40
50
60
2001 2002 2003 2004 2005 2006
Net Income and Cash Flow$ millions
net income
operating cash flow
23
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
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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)
2002 2003 2004 2005 2006 RAM 9.9% 10.6% 11.6% 13.4% 13.8% Five Year Average for 3 major primaries 14.9%
As investments leverage grows, ROE rises unless portfolio yield declinesInvested assets/average equity
2002 2003 2004 2005 2006 RAM 129% 135% 137% 148% 164% Five Year Average for 3 major primaries 173%
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Operating Performance
1 Operating 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.
RAM Operating1 Return ComponentsRolling Four Quarters
0%
2%
4%
6%
8%
10%
12%
14%
50%
55%
60%
65%
70%
75%inv. Income/equity
(premium*margin)/equity
total expense ratio
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Summary
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 franchise positioned for growth
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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).