FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
September 30, 1999
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months ended September 30, 1999 and 1998
INDEX
FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
The New York State Insurance Department recognizes only statutory accounting
practices for determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under the New
York Insurance Law, and for determining whether its financial condition warrants
the payment of a dividend to its stockholders. No consideration is given by the
New York State Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in making such
determinations.
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
September 30, December 31,
ASSETS 1999 1998
------------- ------------
Bonds at market value (amortized cost of $1,794,832 and
$1,631,094) $ 1,760,527 $ 1,683,928
Equity investments at market value (cost of $30,393 and
$34,250) 29,305 37,268
Short-term investments 135,924 92,241
------------- -----------
Total investments 1,925,756 1,813,437
Cash 4,338 2,729
Deferred acquisition costs 195,310 199,559
Prepaid reinsurance premiums 259,859 217,096
Reinsurance recoverable on unpaid losses 6,468 3,907
Receivable for securities sold 30,724 1,656
Other assets 167,946 144,105
------------- -----------
TOTAL ASSETS $ 2,590,401 $ 2,382,489
============= ===========
LIABILITIES AND MINORITY INTEREST AND SHAREHOLDER'S EQUITY
Deferred premium revenue $ 810,024 $ 721,699
Losses and loss adjustment expenses 71,803 63,947
Deferred federal income taxes 66,385 95,398
Ceded reinsurance balances payable 28,241 31,502
Payable for securities purchased 208,475 105,749
Long-term debt 120,000 120,000
Minority interest 22,002 20,388
Accrued expenses and other liabilities 114,766 119,215
------------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST 1,441,696 1,277,898
------------- -----------
Common stock (500 shares authorized, issued and
outstanding; par value of $30,000 per share) 15,000 15,000
Additional paid-in capital 706,117 694,788
Accumulated other comprehensive income (loss) (net of deferred
income tax provision (benefit) of $(12,388) and $19,904) (23,005) 36,964
Accumulated earnings 450,593 357,839
------------- -----------
TOTAL SHAREHOLDER'S EQUITY 1,148,705 1,104,591
------------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST AND
SHAREHOLDER'S EQUITY $ 2,590,401 $ 2,382,489
============= ===========
See notes to condensed consolidated financial statements.
1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
Nine Months Ended September 30,
-------------------------------
1999 1998
--------- ---------
REVENUES:
Net premiums written (net of premiums ceded of
$89,620 and $66,074) $ 172,598 $ 154,530
Increase in deferred premium revenue (45,829) (57,539)
--------- ---------
Premiums earned (net of premiums ceded of
$46,652 and $37,497) 126,769 96,991
Net investment income 67,728 55,268
Net realized gains (losses) (10,504) 16,808
Other income 1,096 295
--------- ---------
TOTAL REVENUES 185,089 169,362
--------- ---------
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $2,796 and $(6,780)) 5,950 3,140
Policy acquisition costs 30,197 25,311
Other operating expenses 24,951 18,566
--------- ---------
TOTAL EXPENSES 61,098 47,017
--------- ---------
Minority interest and equity earnings (1,773)
---------
INCOME BEFORE INCOME TAXES 122,218 122,345
Provision for income taxes 29,464 33,223
--------- ---------
NET INCOME 92,754 89,122
--------- ---------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Holding gains (losses) arising during period (67,573) 24,880
Less: reclassification adjustment for losses (gains)
included in net income 7,604 (10,925)
--------- ---------
Other comprehensive loss (59,964) 13,955
--------- ---------
COMPREHENSIVE INCOME $ 32,785 $ 103,077
========= =========
See notes to condensed consolidated financial statements.
2
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended September 30,
-------------------------------
1999 1998
----------- -----------
Cash flows from operating activities:
Premiums received, net $ 171,519 $ 173,581
Policy acquisition and other operating expenses
paid, net (42,125) (68,510)
Recoverable advances received (paid) (10,889) 1,884
Loss and LAE recovered (paid), net (641) 10,928
Net investment income received 64,683 52,042
Federal income taxes paid (35,654) (41,190)
Interest paid (6,668)
Other, net 1,057 1,701
----------- -----------
Net cash provided by operating activities 141,282 130,436
----------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds 1,488,111 1,316,212
Purchases of bonds (1,585,789) (1,476,892)
Purchases of property and equipment (619) (822)
Net decrease (increase) in short-term securities (41,183) 33,302
Other investments, net (193)
----------- -----------
Net cash used for investing activities (139,673) (128,200)
----------- -----------
Cash flows from financing activities:
Stock repurchase (8,500)
-----------
Net cash used for financing activities (8,500)
-----------
Net increase (decrease) in cash 1,609 (6,264)
Cash at beginning of period 2,729 11,235
----------- -----------
Cash at end of period $ 4,338 $ 4,971
=========== ===========
See notes to condensed consolidated financial statements.
3
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Inc. (the Company), a wholly owned subsidiary
of Financial Security Assurance Holdings Ltd. (the Parent), is an insurance
company domiciled in the State of New York. The Company is primarily engaged in
the business of providing financial guaranty insurance on asset-backed and
municipal obligations.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by the Company and are unaudited. In the opinion of management, all
adjustments, which include, only normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows at
September 30, 1999 and for all periods presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These statements should be read in
conjunction with the Company's December 31, 1998 consolidated financial
statements and notes thereto. The year-end condensed balance sheet was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. The results of operations for the
periods ended September 30, 1999 and 1998 are not necessarily indicative of the
operating results for the full year.
4