FinancialGuaranty InsuranceCompany. QuarterlyOperatingReview FourthQuarter2006

Transcription

1 FinancialGuaranty InsuranceCompany QuarterlyOperatingReview FourthQuarter2006

2 FGIC CORPORATION AND SUBSIDIARIES Preface Company Profile Earnings Release P1 P2 Table of Contents Annual Financial and Statistical Data Key Financial Highlights Consolidated Statement of Income Consolidated Balance Sheet Statutory Financial and Capital Information Net Premiums Earned Analysis After-Tax Effect of Refundings and Calls Net Unearned Premium Amortization and Estimated Future Installment Premiums Investment Portfolio Loss and Loss Adjustment Expenses Underwriting and Operating Expenses Deferred Expense Ratio Analysis Gross Premiums and Par Written U.S. Public Finance New Issuance Insured Portfolio by Bond Type Insured Portfolio by U.S. Public Finance Geographic Distribution Insured Portfolio by Credit Quality Summary of Below Investment Grade Net Par Outstanding Top Fifty U.S. Public Finance Exposures Top Fifteen U.S. Structured Finance Exposures Top Ten U.S. Structured Finance Servicers Top Five Reinsurer Exposures Net Debt Service Amortization Introductory Notes General. This Review contains selected financial and statistical information; it does not purport to contain all material information about our business and operations. Except as otherwise indicated, the financial statements and statistical data are those of FGIC Corporation and subsidiaries. This Review is not intended to be, and should not be, relied upon for the purpose of making any investment decisions, and it does not constitute an offer, invitation or recommendation to invest in FGIC Corporation or any securities guaranteed or issued by FGIC Corporation or any of its subsidiaries. We do not undertake to update or revise any information contained in this Review, except as required by law. Non-GAAP Performance Measures. This Review includes several financial performance measures that are not in conformity with accounting principles generally accepted in the United States. These measures include Adjusted Book Value (ABV) and Adjusted Gross Premiums (AGP) written. Please refer to "Non-GAAP Performance Measures" in the accompanying Earnings Release (see the Preface) for information regarding these non-gaap performance measures. Other Key Measurements. Except as otherwise indicated, the insured portfolio measures are provided on an end-of-period basis. Unaudited Information. The information in this Review is unaudited. Total Amounts. Some of the numbers contained in this Review may not foot to the total amounts shown due to rounding. Premiums. Premiums reported throughout this Review include amounts related to the issuance of credit default swaps ( CDSs ). The Company provides CDSs to certain buyers of credit protection by entering into contracts that reference collateralized debt obligations from cash and synthetic structures backed by pools of corporate, consumer or structured finance debt. It also offers credit protection on other public finance and structured finance obligations in CDS form. The Company considers these CDSs to be a normal part of its financial guaranty insurance business. Loss and Loss Adjustment Expenses. The loss reserves that are established by FGIC fall into two categories: case reserves and watchlist reserves. Case reserves are established for particular insured obligations that are presently or likely to be in payment default at the balance sheet date, and for which the future loss is probable and can be reasonably estimated. Watchlist reserves recognize the potential for claims against FGIC on insured obligations that are not presently in payment default, but that have migrated to an impaired level where there is a substantially increased probability of default. Watchlist reserves reflect an estimate of probable loss given evidence of impairment, and a reasonable estimate of the amount of loss in the event of default. Loss expense increases when there is deterioration relating to credits within the impaired portfolio and declines, or may be negative, if there are improvements in credits within the various impaired list categories.

3 FGIC CORPORATION AND SUBSIDIARIES Company Profile FGIC Corporation is an insurance holding company whose wholly owned subsidiary, Financial Guaranty Insurance Company, provides credit enhancement on public finance and structured finance securities in the U.S. and internationally. Established in 1983, FGIC is one of the four leading monoline financial guarantors. FGIC typically guarantees the scheduled payments of principal and interest on an issuer s obligation. FGIC s financial strength is rated triple-a by Moody s Investors Service, Standard & Poor s and Fitch Ratings. Company Contact Information Investor Relations Brian S. Moore Senior Vice President (212) brian.moore@fgic.com Chief Financial Officer Donna Blank Senior Vice President (212) donna.blank@fgic.com Financial Guaranty Insurance Company 125 Park Avenue New York, NY (212) (800) FGIC UK Limited 11 Old Jewry London EC2R 8DU 44 (0) Financial Guaranty Insurance Company

4 FOR IMMEDIATE RELEASE FGIC CORPORATION ANNOUNCES QUARTERLY RESULTS FOURTH QUARTER NET INCOME $70.3 MILLION, UP 42% February 5, 2007 New York, NY FGIC Corporation, the parent company of Financial Guaranty Insurance Company, announced today that net income for the quarter ended December 31, 2006 was $70.3 million, a 42% increase over net income of $49.6 million for the quarter ended December 31, Net income for the full year 2006 totaled $247.8 million, a 30% increase over net income of $190.5 million for Frank J. Bivona, CEO, commented, Both the quarter and the year ended on a very upbeat note. Net income grew substantially on both a quarterly and an annual basis, and FGIC s return on equity continued to trend upward. Other measures of the Company s intrinsic worth, particularly book value and adjusted book value, also showed double-digit growth in Mr. Bivona continued, In terms of the overall business, FGIC made significant progress over the past year, extending our franchise more globally and developing talent throughout the company. As I have said in the past, in the long term, I remain optimistic about the future for the financial guarantors within the context of expanding worldwide financial markets. Non-GAAP Performance Measures FGIC uses three non-gaap performance measures in discussing its financial results and performance: Core Net Income, Adjusted Book Value (ABV) and Adjusted Gross Premiums (AGP) Written. Core Net Income, ABV and AGP Written are not promulgated in accordance with GAAP and should not be considered substitutes for GAAP measures. Reconciliations of these non-gaap measures to the comparable GAAP measures are provided elsewhere in this press release. Core Net Income is an earnings measure used by management and many research analysts. It excludes the net income impact of various gains and losses, principally including net investment gains and losses and mark-to-market gains and losses on credit derivative contracts; it also excludes the net income effect of premiums and deferred acquisition costs that have been accelerated due to refunding activity. A refunding occurs when an insured obligation is called or legally defeased by the issuer prior to its stated maturity. When an obligation insured by the Company is refunded prior to the end of the expected policy coverage period, any remaining unearned premiums ( refunding premiums ) and deferred acquisition costs are recognized. Page 1 of 10

5 ABV adjusts stockholders equity to add the impact of deferred income from business previously generated, net of expenses and taxes. Management and many research analysts consider ABV to be helpful in valuing the Company, as it reflects income from business previously written that will be earned over time. AGP Written includes both direct and assumed financial guaranty premiums and amounts received for credit default swaps, which the Company considers to be a normal extension of its financial guaranty business. AGP Written adjusts gross premiums written to add the present value of estimated future installment premiums written on financial guaranty policies issued in the period. Management and many research analysts believe that AGP Written is a useful measure of business production because it provides an estimate of the total value associated with business written in a period, rather than just the premiums collected or earned in the period. Further, AGP Written correlates to reported insured par written. Net Income Net income for the quarter ended December 31, 2006 was $70.3 million, a 42% increase over net income of $49.6 million for the quarter ended December 31, Net income for the full year 2006 totaled $247.8 million, a 30% increase over net income of $190.5 million for Net income and Core Net Income for full year 2005 were negatively impacted by loss expenses of $21.8 million ($14.2 million after tax) recorded in response to the impact of Hurricane Katrina on FGIC-insured credits. Approximately $8.0 million of Hurricane Katrina-related reserves were released in 2006 due to the improved outlook for certain credits. Net income includes refunding premiums of $8.3 million and $26.5 million, respectively, for the fourth quarter and full year 2006, compared to $5.6 million and $35.4 million for the fourth quarter and full year The reduction in refunding premiums in 2006 reflected lower refunding volume in the public finance market. Table I provides the breakout of net income and Core Net Income for the fourth quarters and full years 2006 and Table I Net Income ($ millions) 4Q Q 2005 % Change Full Year 2006 Full Year 2005 % Change Net Income $70.3 $ % $247.8 $ % Less: Net income effect of net gains and losses (0.2) 0.4 (0.7) 0.1 Less: Net income effect of refunding premiums (8.3) (5.6) (26.5) (35.4) Core Net Income $61.8 $ % $220.6 $ % Book Value and ABV At December 31, 2006, stockholders equity, or book value, equaled $2.35 billion, an increase of 13% over stockholders equity of $2.08 billion at December 31, ABV increased to $3.48 billion at December 31, 2006, from $3.00 billion at December 31, Table II shows the increases in book value and ABV between December 31, 2005 and December 31, Page 2 of 10

6 Table II Increase in Book Value and ABV ($ millions) Dec 31, 2006 Dec 31, 2005 % Change Book Value $2,354.0 $2, % Adjusted Book Value $3,478.0 $3, % NEW BUSINESS PRODUCTION AGP Written AGP Written for the quarter ended December 31, 2006 were $170.4 million, an 8% decrease from AGP Written of $184.8 million for the quarter ended December 31, For public finance, the decrease in AGP Written reflected the mix of deals that came to market, as well as strong competition. FGIC s strategy is to focus on the more complex, value-added transactions and there were fewer of these in the fourth quarter. Among the deals FGIC insured were a large infrastructure transaction and several utility, airport, lease-backed and healthcare deals. FGIC faced intense competition in the investor-owned utility sector during the quarter. In structured finance, though FGIC s total production was down from the fourth quarter of 2005, the business written was more diverse. Despite a challenging environment in the MBS market, FGIC insured two MBS transactions that met underwriting and return criteria, as well as a combination of other asset-backed transactions, including auto, credit card and equipment leasing. FGIC s CDO business had another solid quarter in both loan and ABS CDOs. In international finance, FGIC again guaranteed a good mix of business, including a large Australian Public/Private Partnership transaction, utility deals in the UK and the first insured residential MBS transaction to be done in Mexico. FGIC s execution capabilities, coupled with strong investor demand for FGIC paper, have helped propel the Company s international efforts. FGIC continues to extend its global reach and to diversify the products it offers outside of the US. AGP Written for the year ended December 31, 2006 were $703.6 million, a 10% increase from AGP Written of $637.9 million for the year ended December 31, Table III breaks down AGP Written for public, structured and international finance for 2006 and Table III AGP Written ($ millions) 4Q Q 2005 % Change Full Year 2006 Full Year 2005 % Change U.S. Public Finance $66.1 $ % $314.1 $ % U.S. Structured Finance % % International Finance % % Total $170.4 $ % $703.6 $ % Page 3 of 10

7 REVENUE ANALYSIS Gross Premiums Written Gross direct and assumed premiums written for the quarter ended December 31, 2006 were $103.7 million, a 6% increase from the $97.7 million written for the quarter ended December 31, Gross premiums written include amounts received for credit default swaps, which the Company considers to be a normal extension of its financial guaranty business. For public finance, gross premiums written in the fourth quarter of 2006 were $57.7 million, compared to $77.8 million for the comparable period of 2005, reflecting the industry conditions discussed above. Structured finance gross premiums written in the quarter were $25.5 million, growing 35% from $18.9 million in the comparable quarter of 2005, stemming from FGIC s increased participation over the past several years in a broader array of asset classes in all areas of structured finance. International finance gross premiums written in the fourth quarter of 2006 were $20.5 million, compared to $1.0 million for the fourth quarter of The increase reflected the development of the international business since the opening of FGIC s UK office in late Gross premiums written for the year ended December 31, 2006 were $441.2 million, an 8% increase over the $410.2 million for the year ended December 31, Net Premiums Written Net premiums written (gross premiums written less premiums ceded to reinsurers) for the quarter ended December 31, 2006 were $83.0 million compared to $92.8 million of net premiums written for the quarter ended December 31, For the quarter ended December 31, 2006, ceded premiums were $20.7 million, compared to $4.9 million for the quarter ended December 31, The increase in ceded premiums resulted from increased use of reinsurance to reduce risk concentrations. Net premiums written for the year ended December 31, 2006 were $366.8 million, compared to net premiums written of $381.1 million for the year ended December 31, Ceded premiums for the year ended December 31, 2006 were $74.4 million, compared to $29.2 million for the year ended December 31, Net Premiums Earned Net premiums earned for the quarter ended December 31, 2006 were $72.4 million, a 31% increase over net premiums earned of $55.2 million for the quarter ended December 31, The growth in net premiums earned resulted primarily from the substantial increase in new business production since the beginning of Refunding premiums for the quarter ended December 31, 2006 were $13.2 million, compared to $8.6 million for the comparable period of Net premiums earned for the year ended December 31, 2006 were $266.5 million, a 19% increase over net premiums earned of $224.6 million for the year ended December 31, Refunding premiums for the year ended December 31, 2006 were $41.8 million, compared to $54.8 million for the year Table IV breaks down net earned premiums for 2006 and Page 4 of 10

8 Table IV Net Premiums Earned ($ millions) 4Q Q 2005 % Change Full Year 2006 Full Year 2005 % Change U.S. Public Finance $29.5 $ % $116.7 $ % U.S. Structured Finance % % International Finance NA NA Total Scheduled Premiums Earned $59.2 $ % $224.7 $ % Refunding Premiums % % Total $72.4 $ % $266.5 $ % Investment Income For the quarter ended December 31, 2006, net investment income was $36.7 million, a 16% increase over net investment income of $31.6 million for the quarter ended December 31, For the year ended December 31, 2006, net investment income was $139.7 million, a 17% increase over net investment income of $118.8 million for the year ended December 31, The increases in the 2006 fourth quarter and full year were attributable to continued growth in the investment portfolio as a result of strong positive cash flow from premium production, as well as an increase in the GAAP book yield on the portfolio. EXPENSE ANALYSIS Underwriting and Other Operating Expenses Underwriting and other operating expenses for the quarter ended December 31, 2006 were $15.1 million, compared to $14.2 million for the quarter ended December 31, Underwriting and other operating expenses for the year ended December 31, 2006 were $69.8 million, compared to $58.9 million for the year ended December 31, The increases were attributable to the higher staffing levels required to support business growth and employee stock compensation expenses resulting from the implementation of FAS123R. Loss Expenses FGIC s loss reserves fall into two categories: case reserves and watchlist reserves. Case reserves are established for particular insured obligations that are presently or likely to be in payment default at the balance sheet date, and for which future loss is probable and can be reasonably estimated. Watchlist reserves recognize the potential for claims against FGIC on insured obligations that are not presently in payment default, but which have migrated to an impaired level where there is a substantially increased probability of default. Watchlist reserves reflect an estimate of probable loss given evidence of impairment, and a reasonable estimate of the amount of loss in the event of default. Loss expense increases when there is deterioration relating to credits within the impaired portfolio and declines, or may be negative, if there are improvements in credits within the various impaired list categories. For the quarter ended December 31, 2006, FGIC generated a loss benefit of $7.0 million compared to an expense of $3.5 million for the comparable period of The benefit in the fourth quarter of 2006 was largely attributable to the improved outlook for certain Katrina credits. Page 5 of 10

9 For the year ended December 31, 2006, FGIC generated a loss benefit of $8.7 million compared to an expense of $18.5 million for the full year 2005, which included the Katrina-related charges discussed above. Interest Expense For the quarter ended December 31, 2006, interest expense was $4.9 million, unchanged from the quarter ended December 31, Debt outstanding at both December 31, 2006 and 2005 was $323.4 million. For the year ended December 31, 2006, interest expense was $19.5 million, unchanged from the year ended December 31, BALANCE SHEET ITEMS Assets Total assets as of December 31, 2006 were $5.01 billion compared to total assets of $3.75 billion as of December 31, Approximately $750 million of this $1.26 billion increase stemmed from the Company s consolidation of a third party Variable Interest Entity (VIE), resulting from a financial guaranty provided by the Company on a structured insurance transaction. The Company consolidated an equal amount of liabilities related to this transaction. The creditors of the VIE do not have recourse to the general assets of the Company outside the financial guaranty policy provided to the VIE. Investment Portfolio At December 31, 2006, the market value of the Company s investment portfolio was $3.86 billion. The portfolio had an average credit quality of AA based on Standard & Poor s ratings, and no investment was rated below A. ADDITIONAL INFORMATION Claims-Paying Resources As of December 31, 2006 FGIC had total claims-paying resources of $4.74 billion. This included capital and surplus of $1.13 billion and contingency reserves of $1.27 billion (which combined comprise qualified statutory capital, shown below), and unearned premium and loss and loss adjustment expense reserves totaling $1.41 billion. Table V provides comparisons of claims-paying resources as of December 31, 2006 and December 31, Table V Statutory Basis Claims-Paying Resources ($ millions) As of Dec 31, 2006 As of Dec 31, 2005 Qualified Statutory Capital $ 2,405.1 $ 2,198.3 Soft Capital Unearned Premiums and Loss Reserves 1, ,273.0 Present Value of Installment Premiums Total Claims-Paying Resources $ 4,743.0 $ 4,164.4 Page 6 of 10

10 Insured Portfolio As of December 31, 2006, FGIC had $300 billion in insured net par outstanding. U.S. public finance transactions represented approximately 73% of the total insured portfolio; U.S. structured finance represented approximately 23% of the portfolio; and international finance obligations accounted for the remaining 4%. Based on FGIC internal ratings, expressed in industry terms, 82% of the insured portfolio had an underlying credit quality of A or better, with over 99% rated investment grade at December 31, NON-GAAP PERFORMANCE MEASURES As discussed above, FGIC uses non-gaap performance measures in discussing its financial results and performance, and management, investors and others consider these non-gaap measures to be useful in understanding the Company s financial position and new business production. Investors routinely request this information, and many of FGIC s competitors disclose similar information. However, these items are not promulgated in accordance with GAAP and should not be considered substitutes for GAAP measures. ABV ABV is defined as book value (stockholders equity), plus the after-tax value of the net unearned premium reserve less deferred acquisition costs, plus the after-tax present value of estimated future installment premiums, discounted at 5%. Table VI provides a reconciliation of ABV to book value at December 31, 2006 and December 31, Table VI ABV to Book Value ($ millions) As of Dec 31, 2006 As of Dec 31, 2005 ABV $ 3,478.0 $ 3,002.3 Net unearned premium reserve less deferred acquisition costs (714.0) (667.7) Net present value of future installment premiums (410.0) (255.5) Book value $ 2,354.0 $ 2,079.1 AGP Written AGP Written is defined as gross up-front premiums written plus the present value of estimated future installment premiums written on financial guaranty policies issued in the period, discounted at 5%. A reconciliation of AGP Written to gross premiums written for the quarters and years ended December 31, 2006 and 2005 is included below in Table VII: Page 7 of 10

11 Table VII AGP to Gross Premiums Written ($ millions) 4Q Q 2005 Full Year 2006 Full Year 2005 AGP Written $170.4 $184.8 $703.6 $637.9 Present value of installment premiums written on policies issued during the period (99.2) (108.4) (414.4) (310.2) Gross up-front premiums written Gross installment premiums written Gross premiums written $103.6 $97.7 $441.2 $410.2 Company Profile FGIC Corporation is an insurance holding company whose wholly owned subsidiary, Financial Guaranty Insurance Company, provides credit enhancement on public finance and structured finance securities in the U.S. and internationally. Established in 1983, FGIC is one of the four leading monoline financial guarantors. FGIC typically guarantees the scheduled payments of principal and interest on an issuer s obligation. FGIC s financial strength is rated triple-a by Moody s Investors Service, Standard & Poor s and Fitch Ratings. Cautionary Statement This press release contains forward-looking statements that is, statements related to possible future events. Forward-looking statements often address expectations and beliefs as to future performance, results and business plans. You should not place undue reliance on forward-looking statements, because they are necessarily subject to risks and uncertainties that could cause actual results and performance to differ materially from those expressed or implied by our forward-looking statements. Among the factors that could cause our results or performance to differ are: (1) our ability to maintain our ratings; (2) our ability to execute our business plan and to continue to expand into new markets and asset classes; (3) competitive conditions and pricing levels; (4) legislative and regulatory developments within the United States and abroad, including the effect of new pronouncements by accounting authorities and changes in tax laws; (5) the level of activity within the national and international debt markets; (6) fluctuations in the economic, credit or interest rate environment in the United States or abroad; (7) uncertainties arising from Hurricane Katrina, referred to in prior disclosures; and (8) other risks and uncertainties that have not been identified by us at this time. Forward-looking statements are based upon our current expectations and beliefs concerning future events. We undertake no obligation to update or revise any forward-looking statement, except as required by law. Page 8 of 10

12 Consolidated Balance Sheets ($ thousands, except per share amounts) Dec 31, 2006 Dec 31, 2005 Assets Fixed maturity securities, available for sale, at fair value (amortized cost of $3,644,851 in 2006 and $3,300,634 in 2005) $ 3,644,195 $ 3,281,671 Variable interest entity fixed maturity securities, held to maturity at amortized cost 750,000 Short-term investments 222, ,146 Total investments 4,617,039 3,457,817 Cash and cash equivalents 33,278 51,901 Accrued investment income 50,214 42,871 Reinsurance recoverable on losses 1,485 3,271 Prepaid reinsurance premiums 156, ,636 Deferred policy acquisition costs 93,170 63,330 Property and equipment, net of accumulated depreciation of $2,107 in 2006 and $885 in ,617 3,092 Prepaid expenses 1,282 1,378 Foreign deferred tax asset 3,491 3,500 Other assets 53,948 14,180 Total assets 5,013,232 3,751,976 Liabilities and stockholders' equity Liabilities: Unearned premiums 1,347,592 1,201,163 Loss and loss adjustment expenses 40,299 54,812 Ceded reinsurance balances payable 7,524 1,615 Accounts payable and accrued expenses 46,207 41,459 Other liabilities 40,235 3,881 Payable for securities purchased 10,770 Variable interest entity floating rate notes 750,000 Accrued interest expense variable interest entity 1,298 Capital lease obligations 2,941 4,262 Current income taxes payable 22,609 6,376 Deferred income taxes 66,424 35,902 Debt 323, ,350 Total liabilities 2,659,272 1,672,820 Stockholders' equity: Senior Participating Mandatorily Convertible Modified Preferred Stock, par value $0.01 per share; 2,500 shares authorized, 2,346 shares issued and outstanding at December 31, 2006 and , ,870 Preferred stock, par value $0.01 per share; 47,500 authorized, none issued and outstanding Common stock, par value $0.01 per share; 6,000,000 shares authorized, 2,403,067 and 2,402,830 shares issued and outstanding at December 31, 2006 and December 31, 2005, respectively Additional paid-in capital 1,442,077 1,435,261 Accumulated other comprehensive gain (loss), net of tax 7,237 (12,907) Retained earnings 617, ,908 Total stockholders equity 2,353,960 2,079,156 Total liabilities and stockholders equity $ 5,013,232 $ 3,751,976 Page 9 of 10

13 Consolidated Statements of Income ($ thousands) Three months ended Dec 31, 2006 Three months ended Dec 31, 2005 Year ended Dec 31, 2006 Year ended Dec 31, 2005 Revenues: Gross direct & premiums written $103,660 $97,676 $ 441,231 $ 410,202 Ceded premiums written (20,666) (4,867) (74,417 (29,148) Net premiums written 82,994 92, , ,054 Increase in net unearned premiums (10,582) (37,574) (100,357 (156,485) Net premiums earned 72,412 55, , ,569 Net investment income 36,682 31, , ,802 Interest income investments held by variable interest entity 11,265-35,893 - Net realized gains (losses) 289 (10) Net realized and unrealized gains (losses) on credit derivative contracts 168 (439) 507 (167) Other income , Total revenues 121,099 86, , ,070 Expenses: Loss and loss adjustment expenses (7,021) 3,490 (8,700 18,506 Underwriting expenses 22,539 22,352 91,356 81,761 Deferred policy acquisition costs (9,485) (12,273) (39,728 (38,069) Amortization of deferred policy acquisition costs 4,000 2,428 11,486 8,302 Other operating expenses 1,656 1,683 6,704 6,960 Interest expense debt held by variable interest entity 11,265-35,893 - Interest expense 4,875 4,875 19,500 19,500 Total expenses 27,829 22, ,511 96,960 Income before income taxes 93,270 63, , ,110 Income tax expense 22,922 14,293 80,401 56,644 Net income 70,348 49, , ,466 Preferred stock dividends (4,858) (4,543) (18,485 (17,295) Net income available to common stockholders $ 65,490 $ 45,084 $ 229,359 $ 173,171 Page 10 of 10

14 ANNUAL FINANCIAL AND STATISTICAL DATA Summary of GAAP Income Data: (1) Gross Premiums Written $441 $410 $324 $260 $233 $155 $102 $112 $112 $96 Adjusted Gross Premiums Written Net Premiums Earned Net Investment Income Underwriting and Operating Expenses Net Income Return on Equity % 9.5% 8.6% 9.7% 10.1% 10.6% 8.2% 10.0% 9.2% 9.6% Summary of GAAP Balance Sheet Data: (3) Total Investments ,617 3,458 3,149 2,706 2,869 2,602 2,575 2,527 2,693 2,520 Total Assets ,013 3,752 3,422 2,981 3,247 2,877 2,836 2,798 2,984 2,832 Unearned Premium Reserve ,348 1,201 1, Loss and Loss Adjustment Expenses Long-Term Debt Stockholders' Equity ,354 2,079 1,918 1,743 2,288 2,007 2,030 2,039 2,072 1,953 Adjusted Book Value ,478 3,002 2,628 2,330 2,667 2,342 2,330 2,318 2,364 2,248 Summary of Statutory Data: (4) Qualified Statutory Capital ,405 2,198 2,011 1,835 2,050 1,940 1,913 1,993 1,886 1,796 Unearned Premium Reserve ,379 1,239 1, Loss and Loss Adjustment Expenses Policyholders Reserves ,812 3,471 3,074 2,729 2,828 2,645 2,577 2,645 2,561 2,494 Third Party Capital Support Present Value of Installment Premiums Total Claims-Paying Resources ,743 4,164 3,566 3,141 3,227 3,050 2,807 2,851 2,780 2,710 Net Par Outstanding , , , , , , , , , ,446 Net Debt Service Outstanding $468,626 $433,587 $382,783 $343,395 $316,988 $297,493 $261,089 $237,682 $229,751 $193,613 GAAP Financial Ratios: (4) Loss Ratio (3.3)% 8.2% 3.4% (4.3)% 0.4% 1.7% 4.4% (9.8)% 3.0% 10.9% Expense Ratio % 22.4% 24.7% 34.9% 25.5% 21.4% 34.2% 30.7% 35.8% 28.7% Combined Ratio % 30.7% 28.1% 30.5% 25.9% 23.1% 38.6% 20.8% 38.9% 39.6% (1) Consolidated income data for FGIC Corporation from and Financial Guaranty Insurance Company income data for (2) Excludes the impact of realized gains on income and unrealized impact on equity related to FAS115 on securities available for sale. (3) Consolidated balance sheet data for FGIC Corporation from and Financial Guaranty Insurance Company balance sheet data for (4) Statutory data and GAAP ratios relate solely to Financial Guaranty Insurance Company. 1

15 KEY FINANCIAL HIGHLIGHTS Fourth Quarter Twelve Months Ended GAAP Net Income $70.3 $49.6 $247.8 $190.5 Premiums Earned on Refundings and Calls $13.2 $8.6 $41.8 $54.8 Stockholders' Equity $2,354.0 $2,079.2 $2,354.0 $2,079.2 Return on Equity (1) % 9.6% 11.2% 9.5% GAAP Loss Ratio (2) (9.7)% 6.3% (3.3)% 8.2% GAAP Expense Ratio (2) % 21.7% 23.8% 22.4% GAAP Combined Ratio (2) % 28.0% 20.5% 30.7% Statutory (2) Qualified Statutory Capital $2,405.1 $2,198.3 $2,405.1 $2,198.3 Loss and Loss Adjustment Expense Reserve $28.2 $33.9 $28.2 $33.9 Capital Ratio (3) Statutory Loss Ratio (2) (4) (8.2)% 9.7% (0.8)% 12.1% Statutory Expense Ratio (2) (5) % 18.6% 20.4% 17.3% Statutory Combined Ratio (2) % 28.3% 19.6% 29.4% Other Key Measurements Adjusted Gross Premiums Written $170.4 $184.8 $703.7 $637.9 Gross Debt Service Written , , , ,432.4 Net Debt Service Written , , , ,452.6 Gross Par Outstanding , , , ,446.6 Gross Debt Service Outstanding , , , ,161.4 Net Par Outstanding , , , ,327.2 Net Debt Service Outstanding $468,625.9 $433,586.9 $468,625.9 $433,586.9 Effective Tax Rate Consolidated Total Effective Tax Rate % 22.1% 24.5% 22.9% (1) (2) (3) (4) (5) Return on equity based on annualized calculation for the period. Statutory data and GAAP ratios relate solely to Financial Guaranty Insurance Company. Capital ratio is net debt service outstanding divided by qualified statutory capital. Loss ratio is the sum of loss and loss adjustment expenses incurred divided by net premiums earned. Expense ratio is other underwriting expenses divided by net premiums written. 2

16 CONSOLIDATED STATEMENT OF INCOME Fourth Quarter Twelve Months Ended Revenues Gross Premiums Written $103.7 $97.7 $441.2 $410.2 Ceded Premiums (20.7) (4.9) (74.4) (29.1) Net Premiums Written Increase in Unearned Premium Reserve (10.6) (37.6) (100.4) (156.5) Net Premiums Earned Net Investment Income Interest income - investments held by variable interest entity (1) Net Realized (Losses) Gains (0.0) Net Realized and Unrealized Losses on Credit Derivative Contracts (0.5) 0.5 (0.2) Other Income Total Revenues Expenses Loss and Loss Adjustment Expenses (7.0) 3.5 (8.7) 18.5 Underwriting Expenses Policy Acquisition Costs Deferred (9.5) (12.3) (39.7) (38.1) Amortization of Deferred Policy Acquisition Costs Other Operating Expense Interest expense - debt held by variable interest entity (1) Interest Expense Total Expenses Income Before Income Tax Expense Income Tax Expense Net Income Preferred Stock Dividends (4.9) (4.5) (18.5) (17.3) Net Income Available to Common Shareholders $65.5 $45.1 $229.4 $173.2 (1) In accordance with Financial Interpretation No. 46, Consolidation of Variable Interest Entities (VIE), the Company consolidated a third-party VIE as a result of a financial guaranty provided to the VIE. Although the third-party VIE is included in the consolidated financial statements, its creditors do not have recourse to the general assets of the Company outside of the financial guaranty policy provided to the VIE. 3

17 CONSOLIDATED BALANCE SHEET Dectember 31, December 31, ASSETS Fixed Maturity Securities, Available for Sale, at Fair Value $3,644.2 $3,281.7 Variable Interest Entity Fixed Maturity Securities, Held to Maturity, at Amortized Cost (1) Short-Term Investments Total Investments , ,457.8 Cash and Cash Equivalents Accrued Investment Income Reinsurance Recoverable on Losses Prepaid Reinsurance Premiums Deferred Policy Acquisition Costs Property and Equipment, Net of Accumulated Depreciation Prepaid Expenses Foreign Deferred Tax Asset Other Assets Total Assets $ 5,013.2 $3,752.0 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Unearned Premium Reserve $1,347.6 $1,201.2 Loss and Loss Adjustment Expenses Ceded Reinsurance Balances Payable Accounts Payable and Accrued Expenses Other Liabilities Payables for Securities Purchased Variable Interest Entity Floating Rate Notes (1) Accrued Interest Expense - Variable Interest Entity Capital Lease Obligations Federal Income Taxes Payable Deferred Income Taxes Debt Total Liabilities , ,672.8 Stockholders' Equity Senior Participating Mandatorily Convertible Modified Preferred Stock, par value $0.01 per share; 2,500 shares authorized, 2,346 shares issued and outstanding Preferred Stock, par value $0.01 per share; 47,500 authorized, none issued and outstanding Common Stock, par value $0.01 per share; 6,000,000 shares authorized, 2,403,067 and 2,402,830 shares issued and outstanding at December 31, 2006 and December 31, respectively Additional Paid In Capital , ,435.3 Accumulated Other Comprehensive Income (Loss), Net of Tax (12.9) Retained Earnings Total Stockholders' Equity , ,079.2 Total Liabilities & Stockholders' Equity $5,013.2 $3,751.9 (1) In accordance with Financial Interpretation No. 46, Consolidation of Variable Interest Entities (VIE), the Company consolidated a third-party VIE as a result of a financial guaranty provided to the VIE. Although the third-party VIE is included in the consolidated financial statements, its creditors do not have recourse to the general assets of the Company outside of the financial guaranty policy provided to the VIE. 4

18 STATUTORY FINANCIAL AND CAPITAL INFORMATION (1) Dectember 31, December 31, Capital and Claims-Paying Resources Contingency Reserve $1,274.3 $1,035.4 Capital and Surplus , ,162.9 Qualified Statutory Capital , ,198.3 Unearned Premium Reserve , ,239.1 Loss and Loss Adjustment Expense Reserve Policyholders' Reserves , ,471.3 Third Party Capital Support (2) Present Value of Installment Premiums Total Claims-Paying Resources $4,743.0 $4,164.4 Net Debt Service Outstanding $468,625.9 $433,586.9 Capital Ratio (3) Financial Resources Ratio (4) Gross Debt Service Outstanding $519,514.0 $472,161.4 Gross Par Outstanding $329,777.5 $298,446.6 Twelve Months Ended Full Year Statutory Financial Ratios Loss Ratio (5) (0.8)% 12.1% Expense Ratio (6) % 17.3% (1) (2) Statutory data relates solely to Financial Guaranty Insurance Company. Represents Money Market Committed Preferred Custodial Trust Securities ( CPS Securities ). Under the CPS Securities facility, each of six separate organized Delaware trusts (the Trusts ) issues $50,000 in perpetual CPS Securities on a rolling 28-day auction rate basis. Proceeds from these securities are invested in high quality, shortterm securities and are held in the respective Trusts. Each Trust is solely responsible for its obligations and has been established for the purpose of entering into a put agreement with FGIC, which obligates the Trusts, at FGIC s discretion, to purchase perpetual Preferred Stock of FGIC. In this way, the program provides capital support to FGIC by allowing it to obtain immediate access to new capital at its sole discretion at any time through the exercise of the put options. (3) Capital ratio is net debt service outstanding divided by qualified statutory capital. (4) Financial resources ratio is net debt service outstanding divided by total claims paying resources. (5) Loss ratio is the sum of loss and loss adjustment expenses incurred divided by net premiums earned. (6) Expense ratio is other underwriting expenses divided by net premiums written. 5

19 NET PREMIUMS EARNED AND REFUNDINGS ANALYSIS Fourth Quarter Twelve Months Ended Net Premiums Earned Analysis U.S. Public Finance Up-front Premiums Earned $40.1 $34.1 $149.4 $156.9 Installment Premiums Earned Total U.S. Public Finance Premiums Earned U.S. Structured Finance Up-front Premiums Earned Installment Premiums Earned Total U.S. Structured Finance Premiums Earned International Finance Up-front Premiums Earned Installment Premiums Earned Total International Finance Premiums Earned Total Up-front Premiums Earned Installment Premiums Earned Total Premiums Earned $72.4 $55.2 $266.5 $224.6 After-Tax Effect of Refundings and Calls Premiums Earned After Tax $8.6 $5.6 $27.2 $35.6 Accelerated Amortization of Deferred Acquisition Costs..... (0.3) - (0.7) (0.2) Net Income Effect $8.3 $5.6 $26.5 $35.4 6

20 NET UNEARNED PREMIUM AMORTIZATION AND ESTIMATED FUTURE INSTALLMENT PREMIUMS December 31, 2006 Net Unearned Premium Amortization (1) Estimated Future Installment Premiums (2) Total Estimated Future Net Premium Earnings 2007 (As of December 31, 2006) $121.3 $116.9 $ (As of December 31, 2006) After Total $1,190.9 $860.8 $2,051.6 (1) Depicts amortization of the unearned premium reserve, net of prepaid reinsurance premiums, assuming no refundings or calls, as of December 31, (2) Includes estimated future receipts, on a future value basis. 7

21 INVESTMENT PORTFOLIO December 31, 2006 Portfolio Fair Amortized Investment Book Percentage Value Cost Income Yield Financial Guaranty Investments, Available for Sale Long-Term Investments Municipal % $ 3,124.2 $ 3,118.0 $ % U.S. Treasury/Agency % % Foreign Government % % Corporate Obligations % % Preferred % % Asset Backed % % Total Long-term Investments % 3, , % Short-Term Investments % % Total Financial Guaranty Investments, Available for Sale % 3, , % FGIC Corporation Investments, Available for Sale Long-Term Investments U.S. Treasury/Agency % % Corp Debt Total Long-Term Investments % % Short-Term Investments % % Total FGIC Corporation Investments % % Investment Expense (2.6) - Total FGIC Corporation Consolidated, Available for Sale % $ 3,867.0 $ 3,867.7 $ % Financial Guaranty Investments, Held to Maturity Total Financial Guaranty Investments, Held to Maturity (1) Total Investments $ 4,617.0 $ 4,617.7 Investment Portfolio by Rating (2) AAA % AA % A % 100% Total Fair Value $3,867.0 Total GAAP Amortized Cost ,867.7 Unrealized Losses ($0.7) (1) (2) In accordance with Financial Interpretation No. 46, Consolidation of Variable Interest Entities (VIE), the Company consolidated a third-party VIE as a result of a financial guaranty provided to the VIE. Although the third-party VIE is included in the consolidated financial statements, its creditors do not have recourse to the general assets of the Company outside of the financial guaranty policy provided to the VIE. Ratings are based on Standard & Poor's ratings or, if unavailable, Moody's ratings. Includes municipal bonds that have been refunded or defeased with U.S. Treasury and/or Agency obligations, but not necessarily re-rated by Standard & Poor's or Moody's. FGIC considers the credit quality of these bonds, which comprise approximately 3% of the investment portfolio, to be AAA. 8