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American Overseas Group Limited Message Board

  • girthner21 girthner21 Mar 18, 2011 12:24 AM Flag

    FGIC Annual Out

    FGIC's annual is out, anyone get a chance to look it over? I've not yet had time to look into it. The PR folks over there did confirm via email that the steering committee plan has been submitted to the NYID and pends approval.

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    • All the insurers report this annually. It is the ceded loss number produced by the primaries, not RAM. It is a statutory number not GAAP. It covers the entire ceded book.

      FGIC: $44,757 AGC: $2,903 AGM: -$5,157 SGI: $1,541 Sum: $44,044

      RAM's GAAP number of $52M in Q3 will likely be going up in Q4 due to FGIC's ugly Q4. I put together another model, though the annual reporting switch at year end giveth and taketh away good info.

      https://spreadsheets.google.com/ccc?key=0AlFMaAd3v9o0dGtoeFp3bGw3VmlBSXdQbWc1amowcFE&hl=en_GB#gid=4

      While CDS is not considered insurance in the US, CDS loss reserves are accounted for on the statutory, GAAP and above numbers.

    • The loss reserves stated by FGIC could have been reserves determined by FGIC, or RAM, or by both. We just don't know. And since RAM hired an accountant to obtain GAAP financials because GAAP info was no longer being provided by the primary, I would think that the accountant's opinion would weigh in on the decision.

      There is no reason to believe that the reserves cited by FGIC do not cover all reinsurance ceded by FGIC to RAM. If all insurance with FGIC and with AGO was commuted, would RAM have no remaining insurance obligations? I can't see anything that indicates this is not one of the possible outcomes; however, I don't see any firm indication that it is.

      I'm leaving open the possibility that the FGIC insurance will not be commuted. If FGIC remains in control of the administration of the RMBS insurance at the center of FGIC's financial problem, why would they commute? For the most part I believe these RMBS have seen their bottom, and we can't be sure that a significant portion will not be put back to the originators. Both will benefit RAM.

      Sean, one of the pieces of info that I didn't have was the general structure of a commutation. I appreciate the info that a commutation generally leaves behind ~20% of the unearned premiums and reserves. That seems quite reasonable.

      As mentioned above, one of the possible and quite likely outcomes is that RAM will no longer have any financial insurance obligations. Correct me if I'm wrong, but the swap insurance is not considered insurance by the regulators, thus RAM could soon find itself with the requisite financial strength and approval to both issue insurance and pay dividends.

    • FGIC labels the column as known case loss reserves.....would this mean RAM has reserved this amount for what they (RAM) thinks they could pay or is it the amount ceded by FGIC? RAM previously mentioned in their annual statement from last year that they had reserves 30% higher than the primaries expected ceded loss estimates. Translated, RAM's 53M reserve amount could be about 15M higher than actual ceded loss estimates from primaries. I could be totally wrong, but just a thought.

    • Are you comfortable with RAM having 0 reserves on ANY other exposure? Obviously there are significant losses associated with the remainder.

      In a commutation, RAM would probably get ~20% of the UPR and contingency reserves associated with the exposure, so maybe $8m of the $31m to keep.

    • According to the FGIC report, RAM has $44.7 million of loss reserves and $31.8 million of unearned premiums derived from the FGIC reinsurance. There's also an allowed offset of $13.5 million, but with no explanation.

      If RAM returns the full $76.6 million, and with the effects of the Assured Guaranty Corp. commutation taken into account, RAM's loss reserve would get very close to zero. Derivative liabilities would remain, but the total risk the company was holding would be substantially reduced.

      If it were not for the payment risk discount to the derivative liabilities, I believe that RAM could be absorbed by another company for at least $2.50 per share. That assumes liquidation of all preferred at par. Rather than a takeover once the insurance liabilities are resolved, perhaps RAM will begin paying a dividend.

 
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