RAM Holdings Ltd. Reports Third Quarter 2006 Earnings.HAMILTON, Bermuda -- RAM Holdings Ltd. (Nasdaq:RAMR) (RAM) today reported third quarter net income of $12.2 million, or $0.45 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, a 54% and 50% increase, respectively, compared to net income and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of in the third quarter of 2005 of $7.9 million and $0.30. Commenting on third quarter financial results, RAM's CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , Vernon Endo, noted, "We are quite pleased with our results, particularly given the overall lackluster lack·lus·ter adj. Lacking brightness, luster, or vitality; dull. See Synonyms at dull. Adj. 1. lackluster - lacking brilliance or vitality; "a dull lackluster life"; "a lusterless performance" financial 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. market, and they are generally consistent with our expectations. We note that a part of our very favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. quarter to quarter net income comparison is explained by a large amount of accelerated premiums from refundings, which contributed approximately $1.8 million to net income in the third quarter of 2006 compared to $0.5 million in 2005. In addition, we enjoyed a quarter in which we experienced virtually no incurred losses, the combined result of the absence of net case reserves activity coupled with a stable level of unallocated reserves. We are more than happy with these developments but, unfortunately, they are not a sustainable part of our business at these levels. "Even without these elements RAM's net income increased substantially over 2005. Our current earnings growth continues to be driven by increased investment income, a result of the growth in our invested assets and improvement in our book yield, as well as the growth in earned premium Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. . As we had anticipated and suggested within our second quarter earnings announcement, third quarter business production as measured by adjusted premiums written improved significantly compared to the first half of the year and through the first nine months of 2006 it is only slightly below 2005 levels." Net income for the first three quarters reached $31.0 million, or $1.16 per diluted share, more than double the respective levels for the comparable 2005 period, when the Company reported $14.5 million net income, or $0.56 per diluted share. Because of a number of unusual or non-recurring items in each period, a direct comparison of 2006 and 2005 year to date results is difficult. While net income and net income per diluted share are calculated in conformity with U.S. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ), RAM provides other information because Company management as well as many research analysts and investors evaluate financial performance on the basis of 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 , which excludes realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. or losses on investments and unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. or losses on credit derivatives Credit Derivative Privately held negotiable bilateral contracts that allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private (collectively termed "net security gains and losses"). Some research analysts and investors further evaluate earnings by excluding the net income impact of refundings (accelerated earnings) from operating earnings to produce what is referred to as "core" earnings. The following table provides third quarter and year to date comparisons of operating earnings and core earnings for 2006 and 2005: [TABLE OMITTED] As illustrated above, 2006 GAAP-basis net income per diluted share increased by 50% for the quarter and by over 100% compared to the first nine months of 2005; operating earnings increased by 45% and 70% for these respective periods; and core earnings per diluted share increased at lesser rates of 31% in the quarterly comparison and by 66% for the nine months of 2006 compared to 2005. Summary of Operating Results Net premiums written in the quarter totaled $23.1 million, 6% below the $24.6 million of net premiums written in the third quarter of 2005. For the first nine months, net premiums written of $55.1 million were at the same level as the 2005 period. Adjusted premiums written increased substantially to $37.3 million in the quarter, a level 50% above third quarter 2005 when adjusted premiums written totaled $24.8 million. Adjusted premiums written is a non-GAAP measure of business production which includes both upfront premiums written and the present value of future installment premiums for new business written in the quarter (note: present value of installment premiums is reported by RAM at a one-quarter lag). As a result of the large increase in adjusted premiums in the quarter relative to the first two quarters of 2006, year to date adjusted premiums are about 2% below the prior year's level. Premiums written by product line and adjusted premiums written are provided in the table below: [TABLE OMITTED] The growth achieved in adjusted premiums written during the third quarter relates to increased facultative facultative /fac·ul·ta·tive/ (fak´ul-ta?tiv) not obligatory; pertaining to the ability to adjust to particular circumstances or to assume a particular role. fac·ul·ta·tive adj. 1. volume for the quarter and higher premium rates in comparison to prior year third quarter. The overall decrease in year to date adjusted premiums primarily reflects a lower volume of assumed par and, to a lesser extent, an overall decline in average premium rates relative to the 2005 comparison period. However, because premium rates vary with the credit quality of the insured obligations it is not possible to offer more than a general view regarding premium rates without a detailed study of homogeneous exposures. Earned premiums in the quarter of $15.1 million are 35% greater than the $11.2 million level in the third quarter of 2005. Adjusted for accelerated premiums from refundings, which totaled $2.8 million in the quarter, earned premiums in third quarter of 2006 are 18% above 2005, which included $0.8 million in refundings. For the first nine months, earned premiums, including $5.4 million of premiums from refundings, of $37.4 million are up by 19% from 2005, and for the comparable nine month periods earned premiums, excluding accelerated premiums from both periods, are 10% greater in 2006. Net investment income for the third quarter of 2006 reached $6.1 million, or nearly 36% above the $4.5 million of net investment income recorded in the third quarter of 2005. For the first nine months of 2006, investment income of $17.3 million exceeded the comparable figure for 2005 by 34%. The increase in net investment income arises primarily from a larger investment portfolio and improved book yield relative to comparable 2005 periods. RAM recorded no realized net investment gain or loss activity in the quarter, compared to realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. on investments of $0.4 million in 2005's third quarter. During the first nine months, realized investment losses totaled about $0.8 million for 2006 compared to realized losses of $1.1 million in 2005. Unrealized losses Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. on credit derivatives in the third quarter and first three quarters of 2006 were not material. During the third quarter 2006, unrealized losses on credit derivatives were at level comparable to 2005, while during the first nine months of 2005 the Company recorded unrealized losses of $2.5 million due to a change in fair value estimates arising in part from a refinement to our fair value model in the second quarter of 2005. Incurred losses and loss adjustment expenses were negative by less than $0.1 million in the quarter, compared to incurred losses of $0.4 million during the third quarter of 2005. Both net case reserves and unallocated reserves were essentially unchanged during the quarter. For the first nine months, the Company's incurred losses were negative $3.1 million, primarily due to a $3.3 million net reduction in case reserves during the first half of the year and a large recovery related to a previously paid claim. Acquisition expenses of $5.4 million in the third quarter were 29% greater than in the comparable period of 2005, primarily relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the 35% increase in earned premiums noted above. The ratio of acquisition expenses to earned premium was 36% in the 2006 third quarter compared to 38% in 2005. The ratio of acquisition expenses to earned premiums for the first nine months is 36% which compares to 37% in 2005. 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. of $2.9 million in the third quarter are $0.8 million, or 38%, greater than in the 2005 third quarter. For the first nine months, operating expenses totaled $10.3 million, inclusive of inclusive of prep. Taking into consideration or account; including. $2.3 million of expenses associated with activities leading to the Company's IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. . Operating expenses in the nine months of 2005 were $9.4 million, including a non-recurring compensation-related expense of $2.5 million. Excluding this compensation expense from 2005 and the IPO transaction related expenses from 2006, operating expenses for the year to date 2006 are $8.0 million compared to $6.9 million in 2005, a 16% increase, and the ratio of operating expenses to earned premiums is 21% for 2006 compared to 22% for 2005. RAM's total expense ratio for the first nine months is 64%, for both 2006 and 2005. Interest expense of $0.7 million in the third quarter and $2.1 million for the first nine months is at the same level as in 2005 comparison periods. Balance Sheet Total assets of $613.7 million as of September 30, 2006 are 11% more than year-end 2005, reflecting cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses and IPO proceeds. Shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. of $368.9 million, including IPO proceeds of $16.6 million, is $46.2 million or 14% above the level at December 31, 2005. Book value per share at September 30, 2006 is $13.55 versus $12.47 at year-end 2005, an increase of just under 9%. Adjusted book value (ABV ABV Above ABV Alcohol By Volume ABV Abuja, Nigeria (airport code) ABV Assault Breacher Vehicle ABV Accredited Business Valuation specialist ABV Auxiliary Building Ventilation ABV Annual Buy Value ABV Air Bleed Valve ) per share, a non-GAAP measure, rose by about 9% from year-end 2005 to stand at $21.47 at September 30, 2006. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This release contains statements that may be considered "forward looking statements". These statements are based on current expectations and the current views of the economic and operating environment In computing, an operating environment is the environment in which users run programs, whether in a command line interface, such as in MS-DOS or the Unix shell, or in a graphical user interface, such as in the Macintosh operating system. 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) changes in general economic conditions, including inflation, foreign currency exchange rates, interest rates and other factors; (ii) decreased demand for our reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. 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 Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. 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 Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental that impact the Company's reported financial results; and (x) other risks and uncertainties that have not been identified at this time. 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. 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 earnings: The Company believes operating earnings is a useful measure because it measures income from operations, unaffected by the non-operating items of realized investment gains or losses and unrealized gains or losses on credit derivatives. Operating earnings is typically used by research analysts and rating agencies in their analysis of the Company. Core earnings: Core earnings is frequently derived by analysts to assess the Company's results exclusive of the earnings impact of accelerated premiums from refundings because refundings are episodic episodic sporadic; occurring in episodes. e. falling a paroxymal disorder described in Cavalier King Charles spaniels in which affected dogs, starting at an early age, experience episodes of extensor rigidity, possibly brought on by stress. e. and a less predictable component of earned premium and income. Adjusted Premiums Written: Adjusted premiums written are a meaningful measure of the value of insurance business assumed during a reporting period because they represent the present value of premiums collected and expected to be collected on business reinsured during the period. Thus, adjusted premiums written provide investors with a measure of new business activities in a period and allow for comparison of new business in other periods. This measure supplements premiums written and premiums earned, which include the value of premiums resulting from business reinsured in prior periods. Adjusted Book Value (ABV): The Company believes the presentation of adjusted book value, which includes items that are expected to be realized in future periods, provides additional information that is viewed as useful to investors and analysts in obtaining a measure of the value of the Company. The items that contribute to adjusted book value do not require additional future performance obligation by the Company and so ABV provides an indication of the Company's value in the absence of new business activity. ABV is not a substitute for GAAP book value but does provide additional information when viewed in conjunction with GAAP book value. RAM Holdings Ltd. is a Bermuda-based holding company. Its 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. 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. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion