FSA Holdings' adjusted book value grew more than 19% in 1995; Annual PV premium originated up 34%; 1995 earnings were $55.0 million.NEW YORK--(BUSINESS WIRE)--Jan. 24, 1996--Financial Security Assurance Holdings Ltd. (FSA FSA Financial Services Authority FSA Food Standards Agency (UK) FSA Farm Service Agency (USDA) FSA Financial Services Agency (Japan) Holdings, or the Company), the holding company for bond insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. Financial Security Assurance Inc. (FSA), today announced that, in the twelve months ended December December: see month. 31, 1995, its adjusted book value rose $4.76 per share to $31.16, reflecting 19.4% growth since year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. 1994 when dividends are included. FSA management views adjusted book value per share (book value plus the after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. present value of all deferred premium income, less deferred expenses) as an appropriate proxy for the intrinsic value Intrinsic Value 1. The value of a company or an asset based on an underlying perception of the value. 2. For call options, this is the difference between the underlying stock's price and the strike price. of the Company. During the same period, book value rose $3.75 per share to $24.67, or, with dividends, 19.6% higher than at year-end 1994. The present value (PV) of gross premiums originated during 1995 totaled $139.1 million, a 34.4% increase over 1994. Robert Robert, Henry Martyn 1837-1923. American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. P. Cochran, president and chief executive officer of FSA, said, "In 1995, FSA became a bigger, better, stronger company. We turned in our finest performance ever in asset-backed finance; we dramatically increased our presence in the municipal bond market; and we positioned our investment portfolio to benefit from higher valuations in the bond market." Major factors behind the growth in adjusted book value were strong origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real activity, growth in the valuation of FSA's investment portfolio and the merger of Capital Guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant. Corporation with an FSA Holdings subsidiary. Net income for the fourth quarter of 1995 was $18.5 million, or $0.72 per share, before a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. after-tax charge of $10.0 million. The one-time charge reflected an increase to the Company's general reserve, consistent with FSA's established reserving methodology, to provide for the Capital Guaranty insured portfolio acquired in the merger. Capital Guaranty did not maintain a general reserve. Reported net income for the fourth quarter was $8.5 million, or $0.33 per share, compared with $7.7 million, or $0.29 per share, for the same period in 1994. For the year, net income was $55.0 million, or $2.13 per share, compared with $60.4 million, or $2.32 per share in 1994. Both the quarter and the year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. earnings results were also affected by higher regular additions to the Company's general loss reserve and by an increase in the effective tax rate on investment income caused by a repositioning repositioning Laparoscopic surgery The changing of a Pt's position during a procedure to improve access or visualization of the operative field, which may be linked to complications, as it changes anatomic planes of operation. Cf Laparoscopic surgery. of the Company's investment portfolio. MERGER WITH CAPITAL GUARANTY On December 20, 1995, Capital Guaranty Corporation merged with a subsidiary of FSA Holdings. In connection with the merger, Capital Guaranty's operating subsidiary An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. , Capital Guaranty Insurance Company changed its name to Financial Security Assurance of Maryland Maryland (mâr`ələnd), one of the Middle Atlantic states of the United States. It is bounded by Delaware and the Atlantic Ocean (E), the District of Columbia (S), Virginia and West Virginia (S, W), and Pennsylvania (N). and became a subsidiary of Financial Security Assurance Inc. The merger provided for each Capital Guaranty Corporation share to be exchanged for 0.6716 share of FSA Holdings stock and cash of $5.69. FSA Holdings issued in the aggregate 6,051,661 common shares. The aggregate cash consideration was $51.3 million, or approximately 25% of the total merger consideration. The transaction had a value of approximately $203.3 million. "Our merger has positioned us for increased municipal market share and expanded the pool of FSA-insured municipal bonds in the market. The increased volume of FSA-insured bonds results in better liquidity for those bonds, which in turn should mean tightened trading levels," said Mr. Cochran. "Another benefit of the merger," he added, "is that Capital Guaranty's underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. people in San Francisco San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden have joined FSA. They contribute exceptional marketing strength in the west, especially in the huge California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). market." NEW BUSINESS PRODUCTION In the fourth quarter of 1995, FSA (excluding Capital Guaranty) insured bonds Insured bond A municipal bond backed both by the credit of the municipal issuer and by commercial insurance policies. insured bond A municipal debt obligation for which interest and principal are guaranteed by a private insurance company. totaling $4.6 billion, a 52.1% increase over the same period in 1994. The fourth quarter asset-backed component rose 60.4% to $2.4 billion. For the year, FSA insured $15.2 billion of securities, a 52.6% increase, and the asset-backed portion was $9.8 billion, up 76.9%. For the year, FSA and Capital Guaranty, combined, insured bonds totaling $18.6 billion, of which $8.7 billion were municipal. In the municipal bond market, total-market new issuance was approximately $49.5 billion in the fourth quarter of 1995 and $156.2 billion for the year, representing an increase of 36% and a decline of 5% from the respective 1994 levels. Industry insured volume in the primary market was approximately $24.5 billion for the quarter, an increase over the $13.9 billion insured in 1994. For the year, insured volume was up approximately 11% to $68.1 billion. FSA insured $2.2 billion par of municipal bonds with closing dates in the fourth quarter of 1995, compared with $1.5 billion in the same period of 1994. Capital Guaranty insured $0.7 billion of municipal bonds in the fourth quarter, compared with $0.9 billion in the same period of 1994. For the year, FSA insured $5.4 billion of municipal bonds (21.9% more than in 1994), of which $3.4 billion were U.S. municipal new issues, representing approximately 5% of 1995 insured municipal new-issue volume. The remainder were secondary-market issues or were issued by non-U non-U adj. Chiefly British Not characteristic of the upper class, especially in language usage. [non- + U2. .S. municipalities or government entities. Capital Guaranty insured $3.3 billion of municipal bonds in 1995, including $2.9 billion of U.S. municipal new issues, representing approximately a 4% market share. The present value of gross premiums originated (which includes the present value of installment premiums) in the fourth quarter and full-year 1995 were $43.6 million and $139.1 million, respectively. The asset-backed portion of fourth quarter PV premiums grew 110.5% to $23.0 million, primarily because of higher volume. The municipal portion was $20.6 million in the fourth quarter of 1995. In fourth quarter 1994, FSA's municipal PV premium was $21.5 million. ANALYSIS OF NET INCOME Net income was reduced by the one-time charge associated with the increase to FSA's general reserve of $10.0 million, net of taxes, or $0.39 per share, provided by FSA in order to establish general reserves for the Capital Guaranty insured portfolio consistent with FSA's reserving methodology. Of the $8.5 million of net income for the fourth quarter, the contribution from refundings totaled $2.1 million, or $0.09 per share, and the contribution from capital gains was $2.5 million, or $0.10 per share. Fourth quarter operating net income (which excludes the impact of capital gains or losses capital gains or losses n. particularly when calculating the tax liability of an individual or business, this is the difference between the original cost plus the cost of capital improvements, excluding maintenance, called "basis" and the sales price. ) adjusted for the provision to the general reserve for Capital Guaranty, was $16.0 million, or $0.63 per share, in 1995 and $14.4 million, or $0.55 per share, in 1994. The increase in the quarter's operating net income relative to the prior year was due to an increase in the contribution from refundings of $0.06 per share, and a $0.02 per share increase in core net income. Full-year operating net income declined 4.1% to $60.3 million and operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before per share declined 3.0% to $2.34 when compared with 1994. The year-to-year reduction in operating net income was caused by lower contributions from refundings of $0.2 million and a decline in core net income. Fourth quarter core net income, which excludes refundings as well as realized capital gains or losses, was $13.9 million ($0.54 per share), 1.3% higher than in fourth quarter 1994, when core net income was $13.7 million ($0.52 per share). Full year 1995 core net income declined 4.2% versus the prior year's result to $53.7 million, or $2.08 per share. Full year core net income declined primarily because of higher additions to the company's general loss reserve and a higher effective tax rate on investment income. Fourth quarter net premiums earned rose 31.5% to $18.5 million due to the higher level of refundings and prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. in the fourth quarter of 1995 of $4.4 million, in comparison with $1.1 million in 1994. Refundings and prepayments contributed $2.1 million and $0.6 million to fourth quarter net income in the respective years. Net premiums earned for full-year 1995 were $69.3 million, a 5.5% increase from the $65.8 million earned in 1994. Refundings and prepayments contributed $6.6 million and $6.8 million to net income for 1995 and 1994, respectively. Net investment income for the fourth quarter of 1995 was $12.1 million, an increase of 2.5% over the result in 1994. Capital gains were $3.8 million in fourth quarter 1995, an increase of $14.1 million from the $10.3 million in capital losses recognized in the fourth quarter of 1994. Net investment income for 1995 was $49.0 million, up 5.1% when compared with the same period in 1994. Consistent with FSA's emphasis on total return rather than current income, the Company repositioned its portfolio, primarily during the first half of the year, through the sale of long-dated adj. 1. (Finance) of a gilt-edged security: having more than 15 years to run before redemption. Adj. 1. long-dated - of a gilt-edged security; having more than 15 years to run before redemption Britain, Great Britain, U.K. tax-exempt securities Tax-exempt security An obligation whose interest is tax-exempt, often called a municipal bond, offered by a country, state, town, or any political district. and purchase of shorter-dated taxable securities. As a result, the Company realized $5.1 million in capital gains for the year 1995, compared with $3.8 million of capital losses for 1994, and the Company's effective tax rate on investment income (excluding the effects of capital gains and losses) rose to 21.9% for 1995 from 14.4% for 1994. The after-tax total return for the investment portfolio during 1995 was 11.6%. Total policy acquisition and other operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. (total operating expenses) for fourth quarter 1995 were $8.0 million, up from $6.1 million in fourth quarter 1994. Total operating expenses for 1995 were higher than in the same period in 1994 due to higher amortization of deferred acquisition costs and increased accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. for performance plan payouts, which are based on the Company's growth in adjusted book value per share. Total operating expenses for 1995 were $30.6 million, up from $28.0 million for the same period in 1994. Fourth quarter core losses and loss adjustment expenses were $1.4 million in 1995 and $0.8 million in 1994, reflecting additions to the general reserve in both years. Full-year 1995 core losses and loss adjustment expenses were $6.3 million, compared with $3.0 million in 1994. In December, as discussed above, FSA recognized a one-time charge of $15.4 million to increase its general reserve to provide for the Capital Guaranty insured portfolio in a manner consistent with FSA's reserving methodology. Also in December, FSA reclassified $9.7 million from the general reserve to case reserves associated predominantly pre·dom·i·nant adj. 1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant. 2. with certain residential mortgage and timeshare A form of shared property ownership, commonly in vacation or recreation condominium property, in which rights vest in several owners to use property for a specified period each year. receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed transactions. At December 31, 1995, FSA's unallocated general reserve totaled $31.8 million. Financial Security Assurance Holdings Ltd., through its wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. , Financial Security Assurance Inc. (FSA), guarantees scheduled payments of principal and interest of municipal bonds and asset-backed securities Asset-backed security A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate. asset-backed security A debt security collateralized by specific assets. , including residential mortgage-backed securities Residential mortgage-backed securities (RMBS) are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed security which are backed by mortgages on residential rather than commercial real estate. . FSA's claims-paying ability is rated Triple-A by Moody's Investors Service Moody's Investors Service A leading global credit rating, research and risk analysis firm. Moody's Investors Service A leading firm engaged in credit rating, risk analysis, and research of fixed-income securities and their issuers. , Inc., Standard & Poor's Ratings Services Ratings Service A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. , Nippon Nippon (nĭp`ŏn, nĭpŏn`), name for Japan, derived from Dai Nippon, meaning Great Japan. The expression comes from the Chinese ideograph for the place where the sun comes from, or Land of the Rising Sun. Investors Service Inc. and Standard & Poor's (Australia Australia (ôstrāl`yə), smallest continent, between the Indian and Pacific oceans. With the island state of Tasmania to the south, the continent makes up the Commonwealth of Australia, a federal parliamentary state (2005 est. pop. ) Pty. Ltd. Headquartered in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , FSA has a western regional office in San Francisco; a U.K.-licensed subsidiary, Financial Security Assurance (U.K.) Limited, based in London; and representative offices in Madrid, Paris and Sydney. -0- FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
December 31, December 31,
ASSETS 1995 1994
Bonds, at market value (amortized cost of $1,027,414 and $674,610) $ 1,058,076 $ 641,211 Short-term investments 14,567 92,449 Cash equivalents 38,099 13,516
Total investments 1,110,742 747,176
Cash 1,118 2,742
Deferred acquisition costs 132,951 91,839
Prepaid reinsurance premiums 136,248 121,668
Reinsurance recoverable
on unpaid losses 61,532 55,491
Receivable for securities sold 2,326 17,592
Other assets 48,045 37,808
TOTAL ASSETS $ 1,492,962 $ 1,074,316
LIABILITIES AND SHAREHOLDERS' EQUITY Unearned premiums $ 466,597 $ 334,569 Losses and loss adjustment expenses 111,759 91,130 Deferred federal income taxes 41,936 9,391 Ceded reinsurance balances payable 13,664 5,676 Payable for securities purchased 9,516 56,112 Notes payable 30,000 Accrued expenses and other liabilities 41,543 32,002
TOTAL LIABILITIES 715,015 528,880
Preferred stock (3,000,000 shares authorized; 2,000,000 issued and outstanding; par value of $.01 per share) 20 20 Common stock (50,000,000 shares authorized; 32,276,301 and 26,224,640 issued; par value of $.01 per share) 323 262 Additional paid-in capital - preferred 680 680 Additional paid-in capital - common 696,253 544,266 Unrealized gain (loss) on investments (net of deferred income tax provision (benefit) of $10,731 and ($11,690)) 19,931 (21,709) Accumulated earnings 72,410 25,647 Deferred equity compensation 6,504 Less treasury stock at cost (774,276 and 182,562 shares held) (18,174) (3,730) TOTAL SHAREHOLDERS' EQUITY 777,947 545,436 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,492,962 $ 1,074,316 FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data)
Three Months Ended Year Ended
December 31 December 31
1995 1994 1995 1994
Revenues:
Net premiums written
(net of premiums ceded
of $9,752, $6,800,
$33,166 and $28,692) $22,659 $24,504 $77,576 $77,757
Decrease (increase) in
unearned premiums (4,149) (10,424) (8,229) (12,003)
Premiums earned (net
of premiums ceded of
$10,961, $7,066,
$37,981 and $35,051) 18,510 14,080 69,347 65,754
Net investment income 12,088 11,800 48,965 46,592
Net realized gains 3,787 (10,291) 5,120 (3,773)
Other income 1,136 230 3,841 777
TOTAL REVENUES 35,521 15,819 127,273 109,350 Expenses:
Losses and loss
adjustment expenses (net
of reinsurance
recoveries of $6,050,
$56,357, $9,101 and
$56,895):
Related to merger 15,400 -- 15,400 --
Other 1,436 754 6,258 3,024
Policy acquisition costs 4,475 2,762 16,888 15,057
Other operating expenses 3,572 3,349 13,685 12,979
TOTAL EXPENSES 24,883 6,865 52,231 31,060 INCOME BEFORE INCOME TAXES 10,638 8,954 75,042 78,290 Provision for income taxes 2,161 1,287 20,004 17,915
NET INCOME $ 8,477 $ 7,667 $ 55,038 $ 60,375
Weighted average
common shares
outstanding 25,610 26,145 25,797 26,070
Earnings per common
share $ 0.33 $ 0.29 $ 2.13 $ 2.32
FINANCIAL SECURITY ASSURANCE INC. AND SUBSIDIARIES Selected Statutory Data December 31, 1995 and December 31, 1994 (Dollars in thousands, except ratios)
December 31
1995 1994
Qualified statutory capital $644,653 $ 465,788
Unearned premium reserve 376,597 242,792
Loss and loss adjustment
expense reserves 18,429 14,712
Policyholders' capital
and reserves $ 1,039,679 $ 723,292
Net insurance in force $75,360,277 $45,824,572 Policyholders' leverage ratio (1) 117:1 98:1 (1) Policyholders' leverage ratio is net insurance in force divided by qualified statutory capital. CONTACT: Financial Security Assurance, New York PRESS RELATIONS: BETSY HALPERN, (212) 339-3424 or INVESTOR RELATIONS Investor relations The process by which the corporation communicates with its investors. , PETER HOEY, (212) 339-3483 |
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