January 8, 2009
Mr. James B. Rosenberg
Senior Assistant Chief Accountant
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street N.E.
Washington D.C. 20549
Re: | United America Indemnity, Ltd. Form 10-Q for the Quarterly Period Ended September 30, 2008 Filed: November 10, 2008 File #000-50511 |
Dear Mr. Rosenberg,
This letter is in response to the letter sent by the Securities and Exchange Commission (“SEC” or the “Commission”) dated December 12, 2008. For your convenience we have included your comments (in bold text) in this letter and have included our response immediately after each comment.
We acknowledge the following:
• | The Company is responsible for the adequacy and accuracy of the disclosure in the filing; |
• | Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
• | The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under federal securities laws of the United States. |
SEC Comment 1
Form 10-Q for the Quarterly period ended September 30, 2008
Notes to Consolidated Financial Statements
3. Investments, page 6
1. | Please revise your disclosure to discuss the amount of securities in your investment portfolio that are guaranteed by third parties along with the credit rating with and without the guarantee. Also disclose any significant concentration in a guarantor, both direct exposure (i.e. investments in a guarantor) and indirect exposure (i.e. investments guaranteed by a guarantor). |
In future filings, beginning with our December 31, 2008 Annual Report on Form 10-K, we will update our disclosure in footnote 3, which is the “Investments” footnote to our consolidated financial statements, as provided below. (We have used the information from our September 30, 2008 Quarterly Report on Form 10-Q for illustrative purposes.)
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As of September 30, 2008, the Company held insurance enhanced municipal bonds of approximately $152.5 million, which represented approximately 12.4% of the Company’s total invested assets. These securities had an average rating of “AA”. Approximately $52.7 million of these securities are pre-refunded with U.S. treasury securities meaning that funds have been set aside in escrow to satisfy the future interest and principal obligations of the bond. Of the remaining $99.8 million of insurance enhanced municipal bonds, $45.8 million would have carried a lower credit rating had they not been insured. The following table provides a breakdown of the ratings for these municipal bonds with and without insurance.
($ in millions)
Rating | Ratings With Insurance | Ratings Without Insurance | ||||||
AAA | $ | 34.5 | $ | — | ||||
AA | 7.3 | 16.6 | ||||||
A | 2.4 | 18.9 | ||||||
BBB | 1.6 | 2.6 | ||||||
Rating Not Available | 7.7 | |||||||
Total | $ | 45.8 | $ | 45.8 |
Exposure Net of | ||||||||||||
Pre-refunded | Pre-refunded | |||||||||||
Financial Guarantor | Total | Securities | Securities | |||||||||
Ambac Financial Group | $ | 31.2 | $ | 13.9 | $ | 17.3 | ||||||
Assured Guaranty Corp | 0.4 | — | 0.4 | |||||||||
Financial Guaranty Insurance Company | 22.0 | 6.7 | 15.3 | |||||||||
Financial Security Assurance, Inc. | 48.6 | 14.5 | 34.1 | |||||||||
Municipal Bond Insurance Association | 50.3 | 17.6 | 32.7 | |||||||||
Total | $ | 152.5 | $ | 52.7 | $ | 99.8 |
2. | Please revise your disclosure here or in your MD&A to include more information on how the information obtained from your outside investment managers is used in developing the fair value measurements in the consolidated financial statements. |
• | The number of quotes or prices you or your investment managers generally obtained per instrument, and if you obtained multiple quotes or prices, how you determined the ultimate value you used in your financial statements; |
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• | Whether, and if so, how and why, you adjusted quotes or prices you obtained from pricing services or from your outside investment managers; |
• | Whether the quotes you receive are binding or non-binding; and |
• | In addition to describing the validation process performed by your investment managers, discuss the procedures you performed to validate the prices you obtained to ensure the fair value determination is consistent with SFAS 157, Fair Value Measurements, and to ensure that you properly classified your assets and liabilities in the fair value hierarchy. |
• | Examining market value changes on an overall portfolio basis to determine if the market value reported by the Investment Manager appears reasonable. Duration of the portfolio and changes to benchmark yields are compared to the market value change reported by the Investment Manager to make this determination. The Company does not validate pricing at the individual security level. | ||
• | Reviewing periodic reports provided by the Investment Manager that provides information regarding rating changes and securities placed on watch. This procedure allows the Company to understand why a particular security’s market value may have changed. | ||
• | Understanding and periodically evaluating the various pricing methods and procedures used by our Investment Manager to ensure that investments are properly classified within the fair value hierarchy. |
Please contact us if you have additional questions or comments.
Respectfully,
Thomas McGeehan
Interim Chief Financial Officer
United America Indemnity, Ltd.
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