Ambac Financial Group, Inc.
One State Street Plaza
New York, NY 10004
212.668.0340
News Release
For Immediate Release
Investor/Media Contact: Peter R. Poillon
(212) 208-3333
ppoillon@ambac.com
Web site: www.ambac.com
AMBAC FINANCIAL GROUP, INC. ANNOUNCES
SECOND QUARTER NET INCOME OF $119.8 MILLION, UP 11%
Second Quarter Operating Earnings Per Diluted Share(1) of $1.12 up 14%,
Core Earnings Per Diluted Share(1) Up 15%
Second Quarter Adjusted Gross Premiums Written(2)Decrease 10%
NEW YORK, July 17, 2002—Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced second quarter 2002 net income of $119.8 million or $1.09 per diluted share. This represents an 11% increase from second quarter 2001 net income of $107.6 million and a 10% increase in net income per diluted share from $0.99 per diluted share in the second quarter of 2001.
Commenting on the results, Ambac Chairman and CEO Phillip B. Lassiter noted, “Business activity was vibrant across our markets in the second quarter. Domestic public finance was the standout in terms of premiums booked. International business closed slowed from a year ago but is not indicative of our strong pipeline, particularly in Europe. The overall outlook for the balance of the year remains decidedly upbeat.”
Earnings Per Diluted Share
In addition to net income, Ambac currently presents operating earnings and core earnings, as discussed in Footnote 1. These measures are not substitutes for net income computed in accordance with accounting principles generally accepted in the United States of America (GAAP). They are useful for analysis in that they eliminate certain items, such as realized and unrealized gains and losses, the effect of refundings and calls and certain non-recurring items, to highlight the more consistent elements of earnings. Although these measures are appropriate and
Ambac Second Quarter 2002 Earnings/2
useful for the analysis of the business, starting in the third quarter of 2002, Ambac will eliminate the reporting of operating earnings and will change its definition of core earnings in order to establish consistency in reporting in the marketplace. The new definition will conform to Standard and Poor’s Ratings Services’ (“S&P”) recommendations to all public companies. See “Changes in Measures of Corporate Earnings” below for more detail.
For the second quarter of 2002, operating earnings were $122.3 million, up 15% from $106.8 million in operating earnings for the second quarter of 2001. Core earnings for the second quarter of 2002 were $115.9 million, an increase of 15% from $100.7 million in core earnings for the second quarter of 2001.
The following table shows net income, operating earnings and core earnings, all per diluted share:
Table I
Second Quarter | Six Months | |||||||||||||||||
2002 | 2001 | % Change | 2002 | 2001 | % Change | |||||||||||||
| Net income per diluted share | $ | 1.09 | $ | 0.99 | +10 | % | $ | 2.17 | $ | 1.88 | +15 | % | ||||||
| Operating earnings per diluted share | $ | 1.12 | $ | 0.98 | +14 | % | $ | 2.21 | $ | 1.90 | +16 | % | ||||||
| Core earnings per diluted share | $ | 1.06 | $ | 0.92 | +15 | % | $ | 2.12 | $ | 1.81 | +17 | % | ||||||
Revenues
Total revenues in the second quarter of 2002, excluding net gains and losses on investment securities and structured credit derivatives, were $206.5 million, an increase of 16% from $178.2 million in revenues for the second quarter of 2001.
Highlights
| • | Adjusted gross premiums written(2) in the second quarter of 2002 were $276.7 million, down 10% from a very strong second quarter of 2001 of $307.8 million. A strong flow of business in public finance and structured finance was offset by a decline in transactions closed in international finance. |
In public finance, Ambac benefited from the significant increase in new issuance of municipal bonds. Ambac saw healthy writings of transportation, tax-backed and student loans transactions and more complex structured transactions, particularly in the housing sector. Structured finance growth during the quarter was led by strong asset-backed, collateralized debt obligations and investor-owned utilities activity, partially offset by a
Ambac Second Quarter 2002 Earnings/3
decline in consumer mortgage-backed business. In international finance, deal activity was strong in the asset-backed markets in Japan and the UK but slow in UK infrastructure transactions. Several international transactions are in process and expected to close by year end.
A breakdown of adjusted gross premiums written by market sector is included below as Table II.
Table II
Adjusted Gross Premiums Written
$-millions | Second Quarter | Six Months | ||||||||||||||
2002 | 2001 | % Change | 2002 | 2001 | % Change | |||||||||||
| Public Finance | $ | 135.4 | $ | 126.2 | +7% | $ | 209.0 | $ | 170.0 | +23% | ||||||
| Structured Finance | 101.8 | 98.9 | +3% | 180.9 | 161.2 | +12% | ||||||||||
| International | 39.5 | 82.7 | -52% | 98.7 | 134.3 | -27% | ||||||||||
| Total | $ | 276.7 | $ | 307.8 | -10% | $ | 488.6 | $ | 465.5 | +5% | ||||||
| • | Net premiums written in the second quarter of 2002 of $171.0 million were 20% lower than net premiums written of $212.9 million in the same period of 2001. Gross premiums written for the second quarter of 2002 were offset by $24.7 million in ceded premiums. In the second quarter of 2001, ceded premiums were $23.8 million. |
Net premiums written for the six months of 2002 of $300.8 million were 3% lower than net premiums written of $309.9 million in the same period of 2001.
| • | Net premiums earned and other credit enhancement fees for the second quarter of 2002 were $120.2 million, which represented a 22% increase from the $98.4 million earned in the second quarter of 2001. Net premiums earned increased for all market segments. Public finance earned premium growth resulted from increased activity in that market over the past several quarters, enhanced by the company’s continued focus on structured municipal obligations – a growing market that exhibits solid pricing and risk adjusted returns. Earned premium growth for structured finance continues to be driven by strong writings in consumer asset backed transactions and CDO’s. The growth was partially offset by the continued high level of pay-downs of the existing mortgage-backed book. International net earned premium and other credit enhancement fee growth also accelerated during the quarter, primarily as a result of strong activity in Japan and UK asset-backed transactions over the past few quarters. |
Net premiums earned include accelerated premiums, which result from refundings and calls recognized during the quarter.Accelerated premiums were $11.2 million in the second
Ambac Second Quarter 2002 Earnings/4
quarter of 2002 (which had a net income per diluted share effect of $0.06), up 6% from $10.6 million ($0.06 per diluted share) in accelerated premiums in the second quarter of 2001.
Net premiums earned and other credit enhancement fees for the six months of 2002 were $230.1 million, which represented a 22% increase from the $188.2 million earned in the first half of 2001. Accelerated premiums were $18.5 million for the first half 2002 (which had a net income per diluted share effect of $0.09), up 11% from $16.7 million ($0.09 per diluted share) in accelerated premiums for the first half of 2001.
A breakdown of net premiums earned and other credit enhancement fees by market sector is included below as Table III. Normal net premiums earned exclude accelerated premiums that result from refundings and calls.
Table III
Net Premiums Earned and Other Credit Enhancement Fees
$-millions | Second Quarter | Six Months | ||||||||||||||
2002 | 2001 | % Change | 2002 | 2001 | % Change | |||||||||||
| Public Finance | $ | 38.2 | $ | 33.7 | +13% | $ | 75.2 | $ | 66.4 | +13% | ||||||
| Structured Finance | 43.3 | 36.6 | +18% | 84.7 | 71.2 | +19% | ||||||||||
| International | 27.5 | 17.5 | +57% | 51.7 | 33.9 | +53% | ||||||||||
| Total Normal Premiums/Fees | 109.0 | 87.8 | +24% | 211.6 | 171.5 | +23% | ||||||||||
| Accelerated Premiums | 11.2 | 10.6 | +6% | 18.5 | 16.7 | +11% | ||||||||||
| Total | $ | 120.2 | $ | 98.4 | +22% | $ | 230.1 | $ | 188.2 | +22% | ||||||
| • | Net investment income for the second quarter of 2002 was $73.6 million, representing an increase of 13% from $65.1 million in the comparable period of 2001. This increase was due primarily to the growth in the investment portfolio from ongoing operations, partially offset by a lower reinvestment rate stemming from the current interest rate environment. Investment income was also positively impacted by the proceeds from Ambac’s $200 million debt offering in October 2001. |
Net investment income for the six months of 2002 was $146.1 million, representing an increase of 13% from $129.5 million in the comparable period of 2001.
| • | Financial services revenues, excluding gains and losses, were $11.0 million in the second quarter of 2002, down 7% from $11.8 million in revenues for the second quarter of 2001. |
Ambac Second Quarter 2002 Earnings/5
Financial services revenues include revenues from swaps, investment agreements and money management. While investment agreement revenues grew on improved interest spreads and higher volume, money management revenues were relatively flat during the quarter and swap revenues declined. The decline in swap revenue during the second quarter resulted primarily from a revenue adjustment of $3.8 million on a transaction executed in early 2000 and terminated this quarter. Excluding the swap revenue adjustment, financial services revenues would have grown 25%, quarter on quarter.
Financial services revenues,excluding gains and losses, were $27.6 million in the first half of 2002, up 5% from the $26.2 million of revenues in the first half of 2001.
Expenses
Highlights
| • | Financial guarantee expenses of $24.5 million for the second quarter of 2002 increased by 10% over the $22.2 million of expenses for the same quarter of 2001. This increase was primarily due to higher compensation costs and additions to the general loss provision. |
Financial guarantee expensesof $48.8 million for the first six months of 2002 increased by 12% over the $43.5 million of expenses for the same period of 2001.
| • | Financial services expenses for the second quarter of 2002 of $5.7 million declined by 5% from $6.0 million in expenses for the second quarter of 2001. |
Financial services expenses for the first half of 2002 of $10.8 million decreased by 7% from $11.6 million in expenses for the first half of 2001.
Other Items
| • | Total net securities gains/(losses) for the second quarter of 2002 were ($4.5) million, consisting of net realized gains on investment securities of $3.5 million and net mark-to-market losses on credit derivatives of ($8.0) million. For the second quarter of 2001 net gains were $1.4 million, consisting of net realized gains on investment securities of $0.7 million and net mark-to-market gains on credit derivatives of $0.7 million. |
Total net securities gains/(losses)for the first half of 2002 were ($8.8) million, consisting of net realized gains on investment securities of $3.3 million and mark-to-market losses on credit derivatives of ($12.1) million. For the first half of 2001 net losses were ($3.2) million, primarily consisting of net realized losses on investment securities.
Ambac Second Quarter 2002 Earnings/6
| • | Interest expense for the second quarter of 2002 was $10.8 million, up 14% from $9.5 million for the second quarter of 2001. The increase is attributable to Ambac’s issuance of $200 million in 50-year debentures in October 2001. |
Balance Sheet
Highlights
| • | Total assets as of June 30, 2002 were $13.87 billion, up 13% from total assets of $12.27 billion at December 31, 2001. This increase was due primarily to cash generated from business written during the period and increased volume in the guaranteed investment contract business. As of June 30, 2002, stockholders’ equity was $3.36 billion, a 13% increase from year-end 2001 stockholders’ equity of $2.98 billion. The increase stemmed primarily from net income during the period. |
Changes in Measures of Corporate Earnings
Ambac also announced today that, starting with the third quarter 2002 earnings release, it will eliminate the reporting of operating earnings and will change its definition of core earnings. The definition of core earnings will comply with the S&P recommendations published in its report titled“Measures of Corporate Earnings” in May of this year. Core earnings will be defined as net income less the estimated effect of stock options if they were expensed, less the effect of certain other non-operating items as defined by S&P (“S&P core earnings”). In all future earnings releases, Ambac will report net income in conformity with GAAP and S&P core earnings. Commenting on Ambac’s decision to change reporting measures, Mr. Lassiter stated, “Ambac has a long history of high quality transparent financial reporting to the financial community. Although we believe our current pro-forma measures are very useful to investors, we will adopt S&P’s proposal for financial reporting because we believe improved consistency in financial reporting measures can serve as the foundation for providing useful comparative information.”
The following table reconciles net income per diluted share to S&P core earnings per diluted share for the three and six-month periods ended June 30, 2002 and 2001:
Second Quarter | Six Months | |||||||||||||||||||
2002 | 2001 | % Change | 2002 | 2001 | % Change | |||||||||||||||
| Net Income per diluted share | $ | 1.09 | $ | 0.99 | +10% | $ | 2.17 | $ | 1.88 | +15% | ||||||||||
| Est. stock options expense | (0.03 | ) | (0.03 | ) | — | (0.06 | ) | (0.05 | ) | -20% | ||||||||||
| S&P core earnings | $ | 1.06 | $ | 0.96 | +10% | $ | 2.11 | $ | 1.83 | +15% | ||||||||||
Ambac Second Quarter 2002 Earnings/7
2002 Earnings Guidance
Ambac management reconfirms its previous top range of operating earnings guidance of $4.60 for 2002 while raising the bottom range from $4.50 to $4.54. Since Ambac will eliminate the reporting of operating earnings and change its definition of core earnings to conform to S&P’s definition of core earnings, Ambac’s guidance will change accordingly. This guidance will include year-to-date net realized gains or losses on investment securities and mark-to-market gains or losses on credit derivatives but will be exclusive of such future gains or losses. Management cannot forecast market factors such as interest rates and credit spreads with sufficient accuracy to make such forecast useful. As such, management currently anticipates S&P core earnings per diluted share for 2002 of $4.36—$4.42.
Increased Cash Dividend Declared
At its July 2002 Board meeting, the Board of Directors of Ambac Financial Group Inc. approved an 11% increase in the regular quarterly cash dividend from $0.09 to $0.10 per share of common stock. The dividend is payable on September 4, 2002 to stockholders of record on August 12, 2002. Ambac has declared an increased cash dividend in every year since going public in 1991.
Forward-Looking Statements
This release, in particular the Chairman’s remarks and the section titled “2002 Operating Earnings Guidance”, contains statements about our future results that may be considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment. We caution you that these statements are not guarantees of future performance. They involve a number of risks and uncertainties that are difficult to predict. 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 (1) changes in the economic, credit, or interest rate environment in the United States and abroad; (2) the level of activity within the national and worldwide debt markets; (3) competitive conditions and pricing levels; (4) legislative and regulatory developments; (5) changes in tax laws; (6) the policies and actions of the United States and other governments; and (7) other risks and uncertainties that have not been identified at this time. We undertake no obligation to publicly correct or update any forward-looking statement if we later become aware that it is not likely to be achieved.
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Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac’s principal operating subsidiary, Ambac Assurance Corporation, a leading guarantor of public finance and structured finance obligations, has earned triple-A ratings, the highest ratings available from Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services, Fitch, Inc. and Rating and Investment Information, Inc. Ambac
Ambac Second Quarter 2002 Earnings/8
Financial Group, Inc. common stock is listed on the New York Stock Exchange (ticker symbol ABK).
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Footnotes
| (1) | Core earnings, S&P core earnings (as newly defined above) and operating earnings are not substitutes for net income computed in accordance with accounting principles generally accepted in the United States of America (GAAP), but are important measures used by management, equity analysts and investors to measure Ambac’s financial results. The Company defines operating earnings as net income, less the effect of realized and unrealized gains and losses and certain non-recurring items. Core earnings, as currently reported, which Ambac provides as analytical data, is defined as operating earnings less net insurance premiums earned from refundings and calls. The definitions of operating earnings and core earnings used by Ambac may differ from definitions of operating earnings and core earnings used by other public holding companies of financial guarantors. |
| (2) | Adjusted gross premiums written, which is not promulgated under GAAP, is used by management, equity analysts and investors to measure Ambac’s financial results. Adjusted gross premiums written, which Ambac reports as analytical data, are defined as gross (direct and assumed) up-front premiums written plus the present value of estimated installment premiums written on insurance policies and structured credit derivatives issued in the period. The definition of adjusted gross premiums written used by Ambac may differ from definitions of adjusted gross premiums written used by other public holding companies of financial guarantors. |
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Periods Ended June 30, 2002 and 2001
(Dollars in Thousands Except Share Data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
| Revenues: | ||||||||||||||||
| Financial Guarantee: | ||||||||||||||||
| Gross premiums written | $ | 195,683 | $ | 236,668 | $ | 345,044 | $ | 346,335 | ||||||||
| Ceded premiums written | (24,705 | ) | (23,767 | ) | (44,254 | ) | (36,468 | ) | ||||||||
| Net premiums written | $ | 170,978 | $ | 212,901 | $ | 300,790 | $ | 309,867 | ||||||||
| Net premiums earned | $ | 113,630 | $ | 93,412 | $ | 217,284 | $ | 178,528 | ||||||||
| Other credit enhancement fees | 6,576 | 4,995 | 12,864 | 9,648 | ||||||||||||
| Net premiums earned and other credit enhancement fees | 120,206 | 98,407 | 230,148 | 188,176 | ||||||||||||
| Net investment income | 73,593 | 65,058 | 146,140 | 129,534 | ||||||||||||
| Net securities (losses) gains (1) | (4,510 | ) | 1,350 | (9,081 | ) | (3,588 | ) | |||||||||
| Other income | 800 | 2,284 | 2,114 | 3,416 | ||||||||||||
| Financial Services: | ||||||||||||||||
| Revenue | 10,966 | 11,767 | 27,557 | 26,226 | ||||||||||||
| Net securities gains | 408 | — | 766 | 438 | ||||||||||||
| Other: | ||||||||||||||||
| Revenue | 956 | 678 | 1,685 | 2,307 | ||||||||||||
| Net securities losses | (444 | ) | — | (444 | ) | — | ||||||||||
| Total revenues | 201,975 | 179,544 | 398,885 | 346,509 | ||||||||||||
| Expenses: | ||||||||||||||||
| Financial Guarantee: | ||||||||||||||||
| Losses and loss adjustment expenses | 5,900 | 4,800 | 11,600 | 9,400 | ||||||||||||
| Underwriting and operating expenses | 18,603 | 17,426 | 37,164 | 34,069 | ||||||||||||
| Financial Services | 5,699 | 5,973 | 10,835 | 11,604 | ||||||||||||
| Interest | 10,816 | 9,485 | 21,482 | 18,968 | ||||||||||||
| Other | 2,015 | 1,714 | 3,481 | 3,451 | ||||||||||||
| Total expenses | 43,033 | 39,398 | 84,562 | 77,492 | ||||||||||||
| Income before income taxes | 158,942 | 140,146 | 314,323 | 269,017 | ||||||||||||
| Provision for income taxes | 39,181 | 32,509 | 77,610 | 63,865 | ||||||||||||
| Net income | $ | 119,761 | $ | 107,637 | $ | 236,713 | $ | 205,152 | ||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | 1.13 | $ | 1.02 | $ | 2.23 | $ | 1.94 | ||||||||
| Diluted | $ | 1.09 | $ | 0.99 | $ | 2.17 | $ | 1.88 | ||||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | 106,124,220 | 105,816,151 | 105,978,049 | 105,739,608 | ||||||||||||
| Diluted | 109,515,722 | 109,051,506 | 109,260,209 | 108,954,037 | ||||||||||||
| (1) | Includes net gains (losses) on investment securities sold of $3,472, $658, $2,972 and ($3,624) for the second quarter of 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively, and change in fair value of credit derivatives of ($7,982), $692, ($12,053) and $36 for the second quarter of 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively. |
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
(Dollars in Thousands Except Share Data)
June 30, 2002 | December 31, 2001 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
| Investments: | ||||||||
| Fixed income securities, at fair value | ||||||||
| (amortized cost of $10,204,539 in 2002 and $8,355,596 in 2001) | $ | 10,456,533 | $ | 8,469,157 | ||||
| Fixed income securities pledged as collateral, at fair value | ||||||||
| (amortized cost of $939,509 in 2002 and $1,393,193 in 2001) | 948,177 | 1,401,528 | ||||||
| Short-term investments, at cost (approximates fair value) | 220,426 | 415,002 | ||||||
| Other | 2,633 | 2,163 | ||||||
| Total investments | 11,627,769 | 10,287,850 | ||||||
| Cash | 27,713 | 76,580 | ||||||
| Cash pledged as collateral | 9,418 | — | ||||||
| Securities purchased under agreements to resell | 14,005 | 11,200 | ||||||
| Receivable for investment agreements | 169 | 4,101 | ||||||
| Receivable for securities sold | 8,649 | 8,922 | ||||||
| Investment income due and accrued | 156,133 | 144,463 | ||||||
| Reinsurance recoverable | 1,894 | 2,259 | ||||||
| Prepaid reinsurance | 272,946 | 267,655 | ||||||
| Deferred acquisition costs | 170,345 | 163,477 | ||||||
| Loans | 932,213 | 901,194 | ||||||
| Other assets | 648,212 | 399,994 | ||||||
| Total assets | $ | 13,869,466 | $ | 12,267,695 | ||||
Liabilities and Stockholders' Equity | ||||||||
| Liabilities: | ||||||||
| Unearned premiums | $ | 1,869,659 | $ | 1,780,272 | ||||
| Losses and loss adjustment expense reserve | 161,497 | 152,352 | ||||||
| Ceded reinsurance balances payable | 9,831 | 10,146 | ||||||
| Obligations under investment and payment agreements | 5,220,984 | 4,089,777 | ||||||
| Obligations under investment repurchase agreements | 1,190,564 | 1,422,151 | ||||||
| Securities sold under agreement to repurchase | 409,000 | 425,000 | ||||||
| Deferred income taxes | 183,214 | 123,077 | ||||||
| Current income taxes | 18,750 | 98,145 | ||||||
| Debentures | 612,472 | 619,315 | ||||||
| Accrued interest payable | 78,630 | 84,225 | ||||||
| Other liabilities | 595,637 | 416,632 | ||||||
| Payable for securities purchased | 158,027 | 62,915 | ||||||
| Total liabilities | 10,508,265 | 9,284,007 | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock | — | — | ||||||
| Common stock | 1,062 | 1,060 | ||||||
| Additional paid-in capital | 602,478 | 538,135 | ||||||
| Accumulated other comprehensive income | 158,746 | 62,476 | ||||||
| Retained earnings | 2,599,073 | 2,403,473 | ||||||
| Common stock held in treasury at cost | (158 | ) | (21,456 | ) | ||||
| Total stockholders' equity | 3,361,201 | 2,983,688 | ||||||
| Total liabilities and stockholders' equity | $ | 13,869,466 | $ | 12,267,695 | ||||
| Number of shares outstanding (net of treasury shares) | 106,203,509 | 105,584,049 | ||||||
| Book value per share | $31.65 | $28.26 | ||||||
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Core Earnings (1)
(Unaudited)
For The Periods Ended June 30, 2002 and 2001
(Dollars in Thousands)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
| Net income | $ | 119,761 | $ | 107,637 | $ | 236,713 | $ | 205,152 | ||||||||
| Adjustments: | ||||||||||||||||
| Net securities losses (gains) | 2,500 | (878 | ) | 5,238 | 2,047 | |||||||||||
| Operating earnings | 122,261 | 106,759 | 241,951 | 207,199 | ||||||||||||
| Refundings, calls and other accelerations | (6,410 | ) | (6,057 | ) | (10,569 | ) | (9,529 | ) | ||||||||
| Core earnings | $ | 115,851 | $ | 100,702 | $ | 231,382 | $ | 197,670 | ||||||||
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Adjusted Book Value Per Share(2)
June 30, 2002 and December 31, 2001
June 30, 2002 | December 31, 2001 | ||||||
| Book value | $ | 31.65 | $28.26 | ||||
| After-tax value of: | |||||||
| Net unearned premium reserve less deferred acquisition costs | 8.72 | 8.31 | |||||
| Present value of future installment premiums | 6.37 | 6.07 | |||||
| Unrealized loss on investment agreement liabilities | (1.09 | ) | (0.61 | ) | |||
| Adjusted book value | $ | 45.65 | $42.03 | ||||
| (1) | Core earnings and operating earnings are not substitutes for net income computed in accordance with accounting principles generally accepted in the United States of America (GAAP), but are important measures used by management, equity analysts and investors to measure Ambac's financial results. The Company defines operating earnings as net income, less the effect of realized and unrealized gains and losses and certain non-recurring items. Core earnings, which Ambac reports as analytical data, is defined as operating earnings less net insurance premiums earned from refundings and calls. The definitions of operating earnings and core earnings used by Ambac may differ from definitions of operating earnings and core earnings used by other public holding companies of financial guarantors. |
| (2) | Adjusted book value (ABV), which is not promulgated under GAAP, is used by management, equity analysts and investors as a measurement of the Company's intrinsic value with no benefit given for ongoing business activity. Management derives ABV by beginning with stockholders' equity (book value) and adding or subtracting the after-tax value of: the net unearned premium reserve; deferred acquisition costs; the present value of estimated net future installment premiums; and the unrealized gain or loss on investment agreement liabilities. These adjustments will not be realized until future periods and may differ materially from the amounts used in determining ABV. The definition of ABV used by the Company may differ from definitions of ABV used by other public holding companies of financial guarantee insurers. |
Ambac Assurance Corporation
Statutory Accounting, Financial and Capital Information(1)
June 30, 2002 and December 31, 2001
(Dollars in Thousands, Except Ratios)
June 30, 2002 | December 31, 2001 | |||||
| Capital and Claim-Paying Resources: | ||||||
| Contingency reserve | $ | 1,374,533 | $ | 1,265,652 | ||
| Capital and surplus | 2,101,092 | 1,996,284 | ||||
| Qualified statutory capital | 3,475,625 | 3,261,936 | ||||
| Unearned premiums | 1,960,671 | 1,860,090 | ||||
| Losses and loss adjustment expenses | 38,227 | 27,835 | ||||
| Policyholders’ reserves | 5,474,573 | 5,149,861 | ||||
Third party capital support(2) | 800,000 | 800,000 | ||||
| Present value of future installment premiums | 1,040,799 | 986,760 | ||||
| Total claims-paying resources | $ | 7,315,372 | $ | 6,936,621 | ||
| Net financial guarantees in force | $ | 502,956,334 | $ | 476,189,690 | ||
Capital ratio(3) | 145:1 | 146:1 | ||||
Financial resources ratio(4) | 69:1 | 69:1 | ||||
| (1) | Statutory accounting information for Ambac Assurance Corporation and Connie Lee Insurance Company are combined for purposes of this schedule. Qualified statutory capital for Ambac Assurance, on a stand alone basis, as of June 30, 2002 and December 31, 2001 are $3.453 billion and $3.240 billion, respectively. |
| (2) | Third party capital support at June 30, 2002 represents pre-funded capital which provides for the unconditional ability to issue up to $800 million of preferred stock to high quality asset-backed trusts. |
| (3) | Capital ratio is net financial guarantees in force divided by qualified statutory capital. |
| (4) | Financial resources ratio is net financial guarantees in force divided by total claims-paying resources. |
Ambac Assurance Corporation and Subsidiaries
Capitalization Table - GAAP
June 30, 2002 and December 31, 2001
(Dollars in Millions)
The following table sets forth Ambac Assurance's consolidated capitalization as of June 30, 2002
and December 31, 2001, respectively, on the basis of accounting principles generally accepted in
the United States of America.
June 30, 2002 | December 31, 2001 | |||||
(unaudited) | ||||||
| Unearned premiums | $ | 1,880 | $ | 1,790 | ||
| Other liabilities | 1,138 | 888 | ||||
| Total liabilities | 3,018 | 2,678 | ||||
| Stockholder’s equity: | ||||||
| Common stock | 82 | 82 | ||||
| Additional paid-in capital | 922 | 928 | ||||
| Accumulated other comprehensive income | 142 | 81 | ||||
| Retained earnings | 2,592 | 2,386 | ||||
| Total stockholder’s equity | 3,738 | 3,477 | ||||
| Total liabilities and stockholder’s equity | $ | 6,756 | $ | 6,155 | ||