Wachovia Asset Securitization Issuance Inactive
Filed: 27 Jun 03, 12:00am
FINANCIAL GUARANTY INSURANCE COMPANY
Interim Financial Statements
March 31, 2003
(Unaudited)
FINANCIAL GUARANTY INSURANCE COMPANY
Interim Financial Statements
March 31, 2003 and 2002
(Unaudited)
Table of Contents
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FINANCIAL GUARANTY INSURANCE COMPANY
Balance Sheets
March 31, 2003 and December 31, 2002
(Dollars in thousands)
March 31, December 31,
Assets 2003 2002
-------------------------------
(Unaudited)
Fixed maturity securities, available-for-sale, at fair value
(amortized cost of $2,729,952 in 2003 and $2,714,016 in 2002) $ 2,760,318 2,795,382
Preferred stock, available-for-sale, at fair value
(cost of $30,598 in 2003 and $30,598 in 2002) 30,506 30,090
Short-term investments, at cost, which approximates fair value 211,530 43,144
Cash 6,355 7,260
Accrued investment income 33,960 33,077
Receivable for securities sold 14,632 991
Reinsurance receivable 8,064 8,371
Deferred policy acquisition costs 73,050 71,350
Property, plant, and equipment net of accumulated
depreciation of $8,269 in 2003 and $8,266 in 2002 372 375
Prepaid reinsurance premiums 124,972 129,958
Prepaid expenses and other assets 7,563 7,799
-------------------------------
Total assets $ 3,271,322 3,127,797
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Liabilities and Stockholder's Equity
Liabilities:
Unearned premiums $ 693,178 683,532
Losses and loss adjustment expenses 44,571 47,868
Ceded reinsurance payable 511 2,239
Accounts payable and accrued expenses 17,632 11,858
Payable for securities purchased 107,078 5,333
Current federal income taxes payable 112,140 97,477
Deferred federal income taxes payable 74,595 90,595
-------------------------------
Total liabilities 1,049,705 938,902
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Stockholder's equity:
Common stock, par value $1,500 per share at March
31, 2003 and 2002:
authorized, issued, and outstanding 10,000 shares 15,000 15,000
Additional paid-in capital 383,511 383,511
Accumulated other comprehensive loss, net of tax 18,454 49,499
Retained earnings 1,804,652 1,740,885
-------------------------------
Total stockholder's equity 2,221,617 2,188,895
-------------------------------
Total liabilities and stockholder's equity $ 3,271,322 3,127,797
===============================
See accompanying notes to unaudited interim financial statements.
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FINANCIAL GUARANTY INSURANCE COMPANY
Statements of Income
March 31, 2003 and 2002
(Dollars in thousands)
Three months ended
March 31
---------------------------------
2003 2002
---------------------------------
(Unaudited)
Revenues:
Gross premiums written $48,458 37,812
Ceded premiums written 63 (1,664)
---------------------------------
Net premiums written 48,521 36,148
Increase in net unearned premiums (14,595) (9,570)
---------------------------------
Net premiums earned 33,926 26,578
Net investment income 29,851 28,862
Net realized gains 29,978 7,630
Other income -- 4,487
---------------------------------
Total revenues 93,755 67,557
---------------------------------
Expenses:
Losses and loss adjustment expenses (2,700) (4,959)
Policy acquisition cost deferred (5,977) (5,224)
Amortization of deferred policy acquisition costs 4,277 4,674
Other underwriting expenses 14,563 9,880
---------------------------------
Total expenses 10,163 4,371
---------------------------------
Income before provision for 83,592 63,186
federal income taxes
Provision for federal income taxes 19,825 15,349
---------------------------------
Net income $63,767 47,837
=================================
See accompanying notes to unaudited interim financial statements.
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FINANCIAL GUARANTY INSURANCE COMPANY
Statements of Cash Flows
March 31, 2003 and 2002
(Dollars in thousands)
Three months ended
March 31
-----------------------------------
2003 2002
-----------------------------------
(Unaudited)
Operating activities:
Net income $63,767 47,837
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for deferred income taxes 717 1,889
Amortization of fixed maturity securities 3,636 1,621
Policy acquisition costs deferred (5,977) (5,224)
Amortization of deferred policy acquisition costs 4,277 4,674
Depreciation of fixed assets 3 26
Change in reinsurance receivable 307 (46)
Change in prepaid reinsurance premiums 4,986 3,764
Change in accrued investment income and prepaid
expenses and other assets (647) 44
Change in unearned premiums 9,646 5,807
Change in losses and loss adjustment expense
reserves (3,297) (4,791)
Change in ceded reinsurance payable and accounts
payable and accrued expenses 4,046 (7,840)
Change in current federal income taxes payable 14,663 23,746
Net realized gains on investments (29,978) (7,630)
----------------------------------
Net cash provided by operating activities 66,149 63,877
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Investing activities:
Sales or maturities of fixed maturity securities 713,051 393,735
Purchases of fixed maturity securities (699,823) (449,616)
Net sales (purchases) of short-term investments (168,386) (33,551)
Net of receivable for securities sold and payable for
securities purchased 88,104 27,802
-----------------------------------
Net cash used in investing activities (67,054) (61,630)
-----------------------------------
Increase (decrease) in cash (905) 2,247
Cash at beginning of period 7,260 281
-----------------------------------
Cash at end of period $6,355 2,528
===================================
See accompanying notes to unaudited interim financial statements.
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FINANCIAL GUARANTY INSURANCE COMPANY
Notes to Unaudited Interim Financial Statements
March 31, 2003 and 2002
(1) | Basis of Presentation |
The interim financial statements of Financial Guaranty Insurance Company (the Company) in this report reflect all adjustments necessary, in the opinion of management, for a fair statement of (a) results of operations for the three months ended March 31, 2003 and 2002, (b) the financial position at March 31, 2003 and December 31, 2002, and (c) cash flows for the three months ended March 31, 2003 and 2002. |
These interim financial statements should be read in conjunction with the financial statements and related notes included in the 2002 audited financial statements. |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
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(2) | Statutory Accounting Practices |
The financial statements are prepared on the basis of GAAP, which differs in certain respects from accounting practices “prescribed or permitted” by the state insurance regulatory authorities. The Company’s statutory basis financial statements are prepared on the basis of accounting prescribed or permitted by the State of New York. A reconciliation of the Company’s net income and stockholder’s equity on a GAAP basis to the corresponding amounts on a statutory basis as of and for the three months ended March 31, 2003 and 2002 is as follows: |
Three months ended March 31
--------------------------------------------------------
2003 2002
---------------------------- --------------------------
Stockholder's Stockholder's
Net income equity Net income equity
--------------------------------------------------------
GAAP basis amount $63,767 2,224,789 47,837 2,049,629
Premium revenue recognition (858) (207,253) (393) (211,810)
Deferral of acquisition costs (1,700) (73,051) (550) (72,250)
Contingency reserve -- (1,089,306) -- (950,874)
Contingency reserve tax
deduction -- -- (5,000) 23,700
Nonadmitted assets -- (28,621) -- (412)
Case-basis loss reserves (327) 87 (38) (633)
Portfolio loss reserves (1,000) 20,000 -- --
Deferral of income taxes 715 94,268 1,889 76,533
Unrealized (gains) losses on
fixed maturity securities, net
of tax -- (18,996) -- 18,899
Recognition of profit commission 237 (7,393) (600) (8,820)
Unauthorized reinsurance -- (17) -- (16)
Allocation of tax benefits due to -- --
Parent's net operating loss
to the Company -- 11,385 -- 11,385
Contingency reserve tax
deduction -- 102,540 -- 95,008
--------------------------------------------------------
Statutory basis
amount $60,834 1,028,432 43,145 1,030,339
========================================================
(3) | Dividends |
Under New York Insurance Law, the Company may pay a dividend only from earned surplus subject to the following limitations: |
| • | Statutory surplus after dividends may not be less than the minimum required paid-in capital, which was $72.5 million in 2002. |
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| • | Dividends may not exceed the lesser of 10% of its surplus or 100% of adjusted net investment income, as defined therein, for the twelve month period ending on the preceding December 31, without the prior approval of the Superintendent of the New York State Insurance Department. |
The Company did not declare dividends during the first three months of 2003 and 2002, respectively. A dividend of $100 million was paid during the fourth quarter of 2002. During 2003, $97.8 million in dividends are available for payment without prior approval of the State of New York Insurance Department. |
(4) | Income Taxes |
The Company’s effective Federal corporate tax rate (19.9% and 24.3% for the three months ended March 31, 2003 and 2002, respectively) is less than the statutory corporate tax rate (35%) on income due to permanent differences between financial and taxable income, principally tax-exempt interest. |
(5) | Reinsurance |
Net premiums earned are shown net of ceded premiums earned $4.9 million and $5.4 million, respectively, for the three months ended March 31, 2003 and 2002. |
(6) | Comprehensive Income |
Comprehensive income encompasses all changes in stockholder’s equity (except those arising from transactions with the stockholder) and includes net income, net unrealized capital gains or losses on available-for-sale securities, net of taxes, and foreign currency translation adjustments, net of taxes. The following is a reconciliation of comprehensive income: |
Three months ended March 31
---------------------------
2003 2002
---------------------------
Net income $63,767 47,837
Other comprehensive income:
Change in unrealized investment gains (losses),
net of expense (benefit) of $(17,894) in 2003 and
$(2,161) in 2002 (33,232) (4,012)
Change in foreign exchange gains (losses),
net of expense (benefit) of $1,178 in 2003 and
$(576) in 2002 2,187 (1,070)
---------------------------
Comprehensive income $32,722 42,755
===========================
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FINANCIAL GUARANTY INSURANCE COMPANY
Notes to Unaudited Interim Financial Statements
March 31, 2003 and 2002
(7) | Issued But Not Implemented Accounting Pronouncements |
In January 2003, the FASB issued Financial Interpretation Number (FIN) 46,Consolidation of Variable Interest Entities,which the Company will adopt on July 1, 2003. FIN 46‘s consolidation criteria are based upon analysis of risks and rewards, not control, and represent a significant and complex modification of previous accounting principles. FIN 46 represents an accounting change not a change in the underlying economics associated with the transactions, which may be affected by the Interpretation. FIN 46 clarifies the consolidation criteria for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risk among parties involved. Variable interest entities that effectively disperse risks will not be consolidated. FIN 46 requires disclosures for entities that have either a primary or significant variable interest in a variable interest entity. |
As a part of its structured finance business, the Company insures debt obligations or certificates issued by special purposes entities. At March 31, 2003, the Company had approximately $1.4 billion of gross principal outstanding related to insurance contracts issued to commercial paper conduits - variable interest entities under FIN 46 - which the Company does not believe will require consolidation but which will require disclosure. With respect to the remainder of the structured finance transactions insured, the Company is continuing to evaluate the transactions, but does not currently believe any such transactions will require consolidation or disclosure under FIN 46. |
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