Press Release
Ambac Financial Group, Inc. Announces Fourth Quarter Net Income of $202.7 Million, Down 1%
Fourth Quarter Net Income Per Diluted Share of $1.88, down 1%,
Fourth Quarter Credit Enhancement Production(1) $314.5 million, down 21%
NEW YORK, January 31, 2007--Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced fourth quarter 2006 net income of $202.7 million, or $1.88 per diluted share. This represents a 1% decrease from fourth quarter 2005 net income of $204.3 million, or $1.90 per diluted share.
Net Income Per Diluted Share
Net income and net income per diluted share are computed in conformity with U.S. generally accepted accounting principles (GAAP). However, many research analysts and investors do not limit their analysis of our earnings to a strictly GAAP basis. In order to assist investors in their understanding of quarterly results, Ambac provides other information.
Earnings measures reported by research analysts exclude the net income impact of net gains and losses from sales of investment securities and mark-to-market gains and losses on credit, total return and non-trading derivative contracts (collectively "net security gains and losses") and certain other items. Certain research analysts and investors further exclude the net income impact of accelerated premiums earned on guaranteed obligations that have been refunded and other accelerated earnings ("accelerated earnings"). During the fourth quarter 2006, net security gains and losses had the effect of increasing net income by $3.6 million, or $0.04 on a per diluted share basis. Other items during the fourth quarter 2006 had a net income effect of ($3.9) million, ($0.04) on a per diluted share basis, and represents the write-off of previously deferred issuance expenses related to debentures that were redeemed in October 2006. Accelerated earnings had the effect of increasing net income by $18.1 million, or $0.17 per diluted share for the fourth quarter 2006. Table I, below, provides fourth quarter and full year comparisons of earnings for 2006 and 2005.
Table I
|
|
Fourth Quarter |
|
Full Year |
|
2006 |
|
2005 |
|
%Change |
|
2006 |
|
2005 |
|
%Change |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted share |
$1.88 |
|
$1.90 |
|
-1% |
|
$8.15 |
|
$6.87 |
|
+19% |
Effect of net security gains |
($0.04) |
|
($0.12) |
|
n.a. |
|
($0.48) |
|
($0.40) |
|
n.a. |
Other items |
$0.04 |
|
$0.00 |
|
n.a. |
|
$0.04 |
|
$0.00 |
|
n.a. |
Operating earnings (a) (b) |
$1.88 |
|
$1.78 |
|
+6% |
|
$7.71 |
|
$6.47 |
|
+19% |
Effect of accelerated earnings |
($0.17) |
|
($0.19) |
|
n.a. |
|
($0.63) |
|
($0.74) |
|
n.a. |
Core earnings (b) |
$1.71 |
|
$1.59 |
|
+8% |
|
$7.08 |
|
$5.73 |
|
+24% |
- Consensus earnings that are reported by earnings estimate services, such as First Call, are on this basis.
- Operating and core earnings are non-GAAP measures. See footnote 2 on page 11.
Commenting on the overall results, Ambac Chairman and Chief Executive Officer, Robert J. Genader, noted, "I am satisfied with our overall business results for the quarter and for the full year. Despite one of the most difficult business environments the industry has faced in many years, Ambac's full-year top line production is very acceptable. Most gratifyingly, our record-level full-year international production demonstrates our success in expanding our global reach, as our triple-A financial strength and reputation for innovative and efficient execution is now firmly planted across a broad segment of the international markets."
Revenues
Highlights
- Credit enhancement production (1) in the fourth quarter of 2006 was $314.5 million, down 21% from the fourth quarter of 2005 which came in at $395.8 million. Growth in international was more than offset by declines in U.S. public finance and U.S. structured finance.
Credit enhancement production for the full year of 2006 of $1,295.2 million was 4% higher than credit enhancement production of $1,249.4 million in 2005, as significant growth in international business more than offset the decline in the U.S. public finance business.
Table II, below, provides the fourth quarter and full year comparisons of credit enhancement production by market segment for 2006 and 2005.
Table II
|
Credit Enhancement Production (1) |
($-millions) |
Fourth Quarter |
|
Full Year |
|
2006 |
|
2005 |
|
%Change |
|
2006 |
|
2005 |
|
%Change |
|
|
|
|
|
|
|
|
|
|
|
|
Public Finance |
$ 84.0 |
|
$ 153.5 |
|
-45% |
|
$ 405.0 |
|
$ 550.8 |
|
-26% |
Structured Finance |
97.1 |
|
143.4 |
|
-32% |
|
479.3 |
|
479.0 |
|
0% |
International |
133.4 |
|
98.9 |
|
+35% |
|
410.9 |
|
219.6 |
|
+87% |
Total |
$ 314.5 |
|
$ 395.8 |
|
-21% |
|
$ 1,295.2 |
|
$ 1,249.4 |
|
+4% |
- In public finance, Ambac's premium production was lower while overall market issuance, as reported by third party sources, was up approximately 24% quarter on quarter. The increase in issuance for the quarter was driven by strong new-money issuance across a broad range of municipal sectors. Ambac's market share remained stable at approximately 23% but the mix of business written in the fourth quarter 2006 varied significantly from the comparable prior period. Ambac's fourth quarter 2005 production included three large well-priced transactions and strong business flow in the health care sector. While fourth quarter 2006 overall market deal flow was fairly strong, the mix of issuance during the quarter was more inclined towards smaller, less complex transactions. Additionally, pricing continues to be negatively affected by competition from other financial guarantors.
U.S. structured finance production during the quarter was lower as the fourth quarter 2005 included two very large transactions (an auto rental securitization and a commercial asset-backed securitization) which combined represented almost 40% of the total structured finance production from that period. Otherwise, the current quarter was characterized by increased business activity in the investor-owned utility, pooled debt obligations and consumer asset-backed securities sectors. Competition from the senior/subordinated market remains challenging and spreads remain tight across most asset classes of U.S. structured finance.
International production was stronger as Ambac closed three large U.K. transactions in the current quarter and the geographic breadth of transactions closed was once again, encouraging. During the quarter, Ambac closed deals in five different countries along with several multi-national pooled debt obligations transactions. Management continues to believe that the broad international markets provide an array of opportunities and will be a driver of short-term and long-term growth for the industry.
- Net premiums written (which represent premiums collected during the period, net of reinsurance) in the fourth quarter of 2006 of $223.6 million were 17% lower than net premiums written of $268.1 million in the comparable period of 2005. Gross premiums written in the fourth quarter of 2006 and 2005 were $251.8 million and $306.1 million, respectively. The decreases in net and gross premiums written are primarily attributable to less U.S. public finance business written during the fourth quarter of 2006. Ceded premiums as a percentage of gross premiums written were 11.2% and 12.4% for the fourth quarter of 2006 and 2005, respectively.
Net premiums written for the full year of 2006 of $893.2 million were 10% lower than net premiums written of $996.3 million in 2005. Excluding the impact of return premiums from reinsurance cancellations in each of the years ($37.0 million in the first quarter of 2006 and $55.8 million in the first quarter of 2005), net premiums written are down 9% year on year primarily due to less U.S. public finance business written during 2006.
A breakdown of gross premiums written by market segment and ceded premiums for the fourth quarter and full year 2006 and 2005 are included below in Table III.
Table III
|
Premiums Written
|
($-millions) |
Fourth Quarter |
|
Full Year |
|
2006 |
|
2005 |
|
%Change |
|
2006 |
|
2005 |
|
%Change |
|
|
|
|
|
|
|
|
|
|
|
|
Public Finance |
$ 89.4 |
|
$ 159.1 |
|
-44% |
|
$ 375.7 |
|
$ 552.2 |
|
-32% |
Structured Finance |
85.9 |
|
83.3 |
|
+3% |
|
333.6 |
|
314.5 |
|
+6% |
International |
76.5 |
|
63.7 |
|
+20% |
|
287.4 |
|
229.3 |
|
+25% |
Total Gross Premiums Written |
251.8 |
|
306.1 |
|
-18% |
|
996.7 |
|
1,096.0 |
|
-9% |
Ceded Premiums Written |
(28.2) |
|
(38.0) |
|
-26% |
|
(103.5) |
|
(99.7) |
|
+4% |
Net Premiums Written |
$ 223.6 |
|
$ 268.1 |
|
-17% |
|
$ 893.2 |
|
$ 996.3 |
|
-10% |
- Net premiums earned and other credit enhancement fees for the third quarter of 2006 were $214.5 million, which represented a 7% decrease from the $231.1 million earned in the third quarter of 2005. The decrease was driven by lower accelerated premiums from refundings and policy termination fees offset by increased normal premiums and other credit enhancement fees earned in U.S. public finance and U.S. structured finance.
Net premiums earned include accelerated premiums, which result from refundings, calls and other accelerations recognized during the quarter. Accelerated premiums were $24.5 million in the third quarter of 2006, down 50% from $48.9 million in accelerated premiums in the third quarter of 2005. The third quarter 2005 accelerated premiums were impacted by one large refunded transaction, representing almost half of the total accelerated amount in that quarter.
Net premiums earned and other credit enhancement fees for the first nine months of 2006 were $647.9 million, flat to $648.6 million earned in the first nine months of 2005. Accelerated premiums were $86.9 million for the nine-month period of 2006, down 20% from $107.9 million in accelerated premiums for the comparable period of 2005. Accelerated premiums in 2006 and 2005 include $7.7 million and $4.5 million, respectively, related to the impact of reinsurance cancellations which occurred in the first quarter of the respective years.
A breakdown of net premiums earned and other credit enhancement fees by market segment for 2006 and 2005 are included below in Table IV. Normal net premiums earned exclude accelerated premiums that result from refundings, calls and other accelerations.
Table IV
| |
Premiums Written |
| ($-millions) |
Fourth Quarter |
|
Full Year |
| |
2006 |
|
2005 |
|
%Change |
|
2006 |
|
2005 |
|
%Change |
| |
|
|
|
|
|
|
|
|
|
|
|
| Public Finance |
$ 89.4 |
|
$ 159.1 |
|
-44% |
|
$ 375.7 |
|
$ 552.2 |
|
-32% |
|
