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Assured Guaranty Ltd. (NYSE:AGO)

Q4 2008 Earnings Call

February 26, 2009 08:30 AM ET

Executives

Sabra Purtill - CFA, Managing Director, Global Communications and Investor Relations

Dominic J. Frederico - President and Chief Executive Officer, Assured Guaranty Ltd.

Robert B. Mills - Chief Financial Officer

Analysts

Darin Arita - Deutsche Bank Securities

Mark Lane - William Blair & Company

Michael Grasher - Piper Jaffray

Brian Meredith - UBS

James Shanahan - Wachovia Capital Markets

Jay Leopold - Legg Mason

Jim Bond - JPMorgan Asset Management

Operator

Good day, ladies and gentlemen and welcome to the Fourth Quarter 2008 Assured Guaranty Earnings Conference Call. My name is Josh and I'll be your coordinator for today. At this time all participants are only in listen-only mode. We'll be facilitating a question answering session towards the end of the conference. (Operator Instructions)

I would now like to turn the presentation over to our host for today's call, managing director of Investor Relations Sabra Purtill. You may proceed.

Sabra Purtill

Thank you, Josh. And thank you all for joining us this morning for Assured Guaranty's fourth quarter 2008 earnings conference call.

Our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Limited and Bob Mills, Chief Financial Officer. After their prepared remarks, we will take questions from the audience.

Please note that our call is not -- our webcast is not enabled for Q&A, so if you would like to ask a question, please dial into the telephone conference call at 1800-561-2731 and join the call live, if you have any questions.

I would like to remind you today that Management's comments or responses to questions may contain forward-looking statements such as statements relating to our business outlook, market conditions, credit spreads and market credit conditions, ratings, loss reserves, acquisitions and other items where our outlook is subject to change. Listeners are cautioned not to place undue reliance on the forward-looking statements made on this conference call today, as Management does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

You should refer to the Investor Information section of our website and to our most recent SEC filings for the most current financial information on our company and also for more information on factors that could affect our future financial results and our forward-looking statements.

Thank you and I'll now turn the call over to Dominic.

Dominic J. Frederico

Thank you Sabra and thanks to all of you on the call for your interest in Assured Guaranty.

Without a doubt 2008 was the most challenging year that Assured and the financial markets have ever faced. Our step based (ph) commitment to strict underwriting discipline protected us from some of the worst of the damage done by poor mortgage underwriting and from the continued economic deterioration. But we nonetheless had to recognize some large losses on our portfolio.

In particular we have had to absorb losses on our HELOCs and closed-end second lien exposures. Unlike many other financial institutions, the growth of our earnings base since our IPO, enabled us to absorb almost $300 million in pre-tax losses incurred on our Assured exposures and still report operating earnings of 74.5 million for 2008 and 3.5 million for the fourth quarter.

Aside from the losses in our RMBS book, the vast majority of our other credit exposures have continued to perform well in this economically stressed environment. After extensive downgrades of corporate credits and CLOs, our pooled corporate portfolio continues to be highly rated with 87% of it still being rated AAA, and remember that's based on our internal ratings. Commercial MBS and consumer ABS portfolios are also holding up well with average ratings of AAA and AA respectively.

In the municipal market, which is experiencing revenue shortfalls and budgetary concerns, we've experienced only minor downgrades and have only one major troubled credit, that being the Jefferson County, Alabama Sewer System.

I would also note that aside from two life insurance securitizations that are having stress associated with their RMBS investment portfolios, our structured credit book is performing consistent with our underwriting expectations for this kind of economic environment which we plan for in our underwriting approach. As a result, our credit challenges still continue to be concentrated on our RMBS portfolio, which did experience additional deterioration in the quarter consistent with the continued following of real estate values and the rise in unemployment in delinquency trends. RMBS comprised about two thirds of our loss expenses in the quarter and 88% of our losses for the entire year.

Bob will go over the reconciliation of these losses in his part of the call, however I want to touch on our outlook for RMBS losses. We continue to believe that our RMBS losses are containable, given the limited amount of exposure that we underwrote and our also generally high attachment points. This not to say that all of our losses are behind us, we continue to increase our loss estimates, our second lien exposures and expect that we could have some future claim recognition on our alt-A risk, given the continued erosion of credit enhancement. However, there is a significant degree of uncertainty about if and when these losses could be incurred depending on the success of the economic stimulus program, the home foreclosure and loan modification plans, and at what level in time the U.S. housing and employment markets stabilize.

As our financial supplement discloses, average credit enhancement on our subprime and alt-A portfolios is still adequate for current delinquency trends. Additionally, our risk management team proactively reviews our portfolio and pursues any and all means of redress on troubled credits, including litigation if deemed appropriate. With respect to the two direct countrywide HELOC deals for instance, we aggressively pursue put backs under the terms of those deals and have submitted a significant amount of loans for repurchases. Repurchases began in October and have occurred in every month since. The continued success of this process alone could have a significant impact on the level of ultimate loss to be realized.

We expect that the credit environment will remain difficult in the near term, and we also hope that the various programs proposed and still to be considered by the Obama administration will help alleviate some of the fallout in the credit markets. Some of the administration's proposals maybe better for Assured than others, but we are and will remain very active on Capitol Hill making sure that our views our heard. It will probably take several months before we have greater certainty about the impact that these programs have on our portfolio, but we think that many aspects of the programs could help the housing market in some capacity.

Aside from mortgages, we're also still active in Washington on a variety of other fronts as well, including the various proposals in discussions concerning municipal bond insurance. You may have heard about the proposal of either starting a federal or state funded bond insurer for the municipal market or providing reinsurance capacity to the existing bond insurance companies. There is no question that the municipal market is facing numerous challenges, such as the cost of financing, investor demand, falling municipal revenues, and the overall economic outlook.

However, we do not believe that the U.S. tax payer or the municipal market will be better served by starting a non-profit government controlled entity. This concept has been tried in many areas with questionable success in the past. We have always believed that the market needs three to four strong well capitalized bond insurers and that direct federal intervention in the bond insurance market would have the effect of driving out private market solutions, thereby making the future of the municipal bond market totally dependent on the federal government, and that's not a very good outcome.

We believe there are more viable options for the government to help the municipal market, such as helping below investment grade insurers or providing some level of re-insurance support to support the existing monologues (ph). And we are working at all levels of the government and state regulation organizations in order to help create effective and efficient solutions to the challenges facing the municipal and structured finance markets today.

I'd like to talk briefly now about our outlook for 2009. I am pleased with our position today, and I believe in 2009 we will be able to capitalize on our three major advantages. First, our conservative approach to the U.S. RMBS market and our avoidance of CDOs of ABS means that we have containable loss exposure on RMBS, and we have avoided the catastrophic losses on the CDOs of ABS. This has allowed us to become the highest rated of any of the experienced legacy bond insurance companies in the market today, and the only bond insurer of that group that has a stable outlook from all three rating agencies.

Our second advantage is our strong revenue base, which continues to benefit from the growth in our franchise. We are growing our future revenue base and not shrinking, and our increased revenue base will help us absorb future losses if they arise. 2008 exemplifies this, we had about $350 million in total credit losses and asset impairments, more than our entire revenue in 2004, but still we're able to report both operating profits and net income for 2008.

Going forward the revenue base we have built will help drive earnings growth and capital accumulation which will in turn allow us to further expand our franchise and increase our return to shareholders. Third, we are in a unique position in the market today having ascended to the leading position in the bond insurance business. Demand for our policies remains high, through last Friday we have guaranteed about 12.7 of all municipal bonds issued so far this year, compared to 8.1% for the first three months of 2008, a 50% improvement.

We expect demand for bond insurance to remain strong, particularly in municipal bond market where concerns about issuer credit quality are growing. And our leading position and growing name recognition, and recognized credit experience, will help solidify our market reputation and position in the future when we expect more competitors. Taken together, these three factors will help Assured to continue to build our financial guaranty franchise and help us provide highly-rated credit enhancements to fixed income investors and produce a solid, long-term return on capital for shareholders.

I'd like touch on the FSA acquisition before turning the call over to Bob, after which we will open up the call for your questions. As of today, we have many of the regulatory approvals that we need in order to proceed, including Hart-Scott-Rodino clearance and the approval of the U.K. regulators. We will be holding a shareholder vote on March 16 to approve the issuance of shares to Dexia and also for the sale of shares to the WL Ross & Company that were part of the original purchase proposal. However, we hope the public market will offer us a more attractive financing option than those previously set share levels in the original agreement.

We expect to receive approval from New York and Oklahoma regulators in March as well, in addition to these approvals, we expect to review the separation of FSA's financial product subsidiary as well as the combination of our company's with the rating agencies in March and hope that we'll receive their ratings conclusions by the end of March, in order to affect the closing either in first or second quarter.

We continue to be excited by the opportunities that this acquisition will provide to Assured unit shareholders, given the combination of the two company's talent and balance sheet strength.

While the credit losses in RMBS continue to be a major disappointment for both of our companies, they are nevertheless within the stress range that we anticipated when doing our due diligence. We expect the FSA transaction to be accretive on an earnings and orderly basis and look forward to completing the transaction, so that we can move forward together as the leading financial guarantee company in the market today.

I'd now like to turn the call over to Bob to discuss our financial results in more detail and I'll be happy to take your questions at the end of Bob's comments.

Robert B. Mills

Thanks, Dominic and good morning.

I'd like to cover some brief highlights for the quarter. Please refer to our press release and financial supplement for further details on our financial position and results of operations, and also to our 10-K for details on full year 2008 results.

Operating income, which we calculate as net income excluding after-tax realized gains and losses on investments, and after-tax unrealized gains and losses on credit derivatives for the fourth quarter of 2008 was $3.5 million or $0.04 per diluted share, compared to $37 million or $0.53 per diluted share for the fourth quarter 2007. The principal reason for the decline in operating income is that we had pre-tax loss and loss adjustment expenses for contracts written either in insurance or credit derivative form of $114.8 million or $0.97 after-tax per diluted share.

Our PVP or present value of gross written premiums for insurance and credit derivatives totaled $128.1 million for the quarter, down 73% compared to $477 million for the fourth quarter of 2007. This reflects the lack of any large reinsurance transactions as last year's results included the Ambac portfolio reinsurance transaction, as well as the decline in new structured finance business and international business production in the financial guarantee segment.

Direct U.S. public finance business on the other hand experienced a significant increase in demand and market penetration during 2008, even after the downgrade from Moody's midway through the fourth quarter. Our direct public finance PVP rose 124% in the quarter to $57.4 million with more than 462 transactions in both the new issue and secondary markets compared to the 84 transactions we did in the prior year's quarter.

As Dominic mentioned, our revenues grew significantly during the year as a result of our new business as well as refunding premiums. Net earned premiums and earned revenues on credit derivatives for the quarter, totaled $105.7 million, up 56% from fourth quarter of 2007, with growth, in both, direct and reinsurance. This amount included $24.4 million of refundings in our reinsurance segment, which is lower than last quarter, but is still running at a much higher than normal amount, due to the continued refinancing of auction rate securities and other variable rate debt that were guaranteed by other financial guarantors and then reinsured to us.

Net earned premiums and earned revenues on credit derivatives excluding refundings were $79.9 million up 21% from fourth quarter 2007 and reflects the significant increase in new business underwritten over the last 12 months.

As Dominic discussed, the growth of our business over the past several years combined with the stability of our earnings model gives us a great deal of visibility into the future revenue growth levels. The source for most of our revenues for 2009, are invested assets and our unearned premiums is already on the books. To further illustrate our earnings model, just based on the business we have on the book as of December 31, 2008, we expect net earn premiums and credit derivative revenues excluding refundings of almost $309 million which you can see on page 16 of our financial supplement. The FSA acquisition will further increase our revenue base after it closes.

Consolidated loss and loss adjustment expenses incurred, including losses incurred on credit derivatives and consistent with our prior year accounting methodology for loss reserves, totaled $114.8 million for the quarter compared to loss expenses of $18.1 million for the fourth quarter 2007. These losses incurred were largely related to U.S. RMBS and in particular alt-A first lien RMBS of $15.7 million closed and secondly lien transactions of $24 million, and HELOCs of $24 million.

These transactions that generated these losses have all have been on our CMC list, so they are not new troubled credits. However, the continued deterioration of the economy, beyond what was expected, accelerated delinquencies in these transactions. We did have two credits outside of the RMBS category, where we posted loss reserves in the quarter, both of which have been long identified on our CMC list.

We posted case loss reserves of $6 million on Jefferson County Sewer, the troubled sewer system in Alabama that has been exacerbated by the authorities' use of interest rate swaps and the collapse of the auction rate securities market. We also posted approximately $17 million in case reserves on a life insurance securitization, the loss on this transaction is not due to the performance of the life mortality exposure, but rather due to the improper investment of the collateral account in subprime and alt-A mortgage securities by the investment manager.

Our fourth quarter 2008 balance sheet included about $49.8 million on accrued loss reserves for credits not on our CMC list. As discussed in prior quarters, and disclosed in our SEC filings, during the first quarter of 2009, we will be implementing FASB statement number 163, which affects several items on our income statement and balance sheet, that most notable will change our reserving approach.

Going forward, loss reserving will be tied to specific transactions identified on our CMC list only. We will no longer record portfolio reserves on an inherent loss basis. Our total insured portfolio experienced some deterioration during the quarter principally on RMBS related credits. But has otherwise held up well given the poor credit conditions, market wide. Our closely monitored credit list increased by about $2 billion in the quarter principally due to the addition of $1.5 billion for two alt-A mortgage related exposures in our direct segment.

Summary information on our RMBS and other asset classes can be found in our financial supplement. In addition, specific transaction lists are available with (inaudible) on our website and you can use public data sources to evaluate all of those exposures.

Quarterly operating expenses decreased by 34%, net over fourth quarter 2007. The decrease in operating expenses is due to a 50% reduction in our cash bonus pool for the year. This was partially offset by a higher headcount and run expense versus fourth quarter 2007.

I would note that we intend to manage our operating expenses very carefully in 2009 and do not expect any meaningful increase over our 2008 run-rate. But it's not possible to provide a definite guidance for 2009 at this point in time, given the pending acquisition of FSA and the impact of that acquisition on our 2009 financial status.

Fourth quarter 2008 net unrealized loss on credit derivatives was $200.5 million after-tax. As we've stated in the past, these mark-to-market changes on our financial guarantees written in credit derivative form are not a reflection of our expectation of economic gains and losses on securities that ultimately be realized. These contracts that generally held the maturity in the gains and losses will dissipate as transactions approach maturity absent or credit default.

We believe it is more informative to analyze our results excluding these unrealized gains and losses. As of December 31, 2008, we had net cumulative losses of $386.6 million or $4.25 a share, from market value related items such as net losses on credit derivatives, the fair value gain on Assured Guaranty Corp's committed capital securities and accumulated other comprehensive losses on our investment portfolio.

Our book value per share excluding this amount is about $25.43, a 1% increase over the last 12 months, while our adjusted book value, excluding the $4.25 a share amount is about $41.91, a slight increase from $41.73 at December 31, 2007. Please note that we plan on filing our 10-K by the close of business today, and that it will contain more details on our 2008 full year results, audited financial statements, and management's discussion and analysis of our result.

I'd now like to turn the call over to the operator, for questions.

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions). And our first question comes from the line of Darin Arita from Deutsche Bank. Darin you may proceed.

Darin Arita - Deutsche Bank Securities

Hi, good morning.

Dominic Frederico

Hi Darin.

Robert Mills

Hi Darin.

Darin Arita - Deutsche Bank Securities

Can you give us a sense of where Assured Guaranty Corp's excess capital obtained with respect to Fitch and S&P?

Dominic Frederico

Darin, that's a real hard number for me to give you, obviously these guys have been changing their severity calculations pretty frequently. Obviously, the last mark we have for both of them, go back sometime, Fitch back to I think '07 year-end when they did the final calculation, and S&P probably late year 2008, probably September, October and both times we had excess capital. Obviously, the portfolio has run down a bit since then, but I think they've increased their view of stressed RMBS. Suffice to say I can't give you an exact number and I would almost have to rely to the historic numbers which I don't think are very relevant today.

Darin Arita - Deutsche Bank Securities

Okay, that's fair. And with respect to the loss reserve assumptions, can you review what your current assumptions are now on the two countrywide deals?

Dominic Frederico

Yeah, we've been looking at that fairly severely basically our assumptions are 100% severity, we continue to basically default most of the current delinquencies, a small hair cut (ph) on the current bucket, but everything else pretty much at a 100% and it's really getting down to what is our expectation of who of the current borrowers are going to still default. If I threw you out some broad numbers, we would show you that in our loss expectation today, we anticipate more defaults than we've already experienced today year-to-date. So, if you think about the two deals together, one was 900 and one was billion plus, 2.4 billion, today they have outstanding power of about 1.1 billion. So, that means 1.3 billion has left the securitization, about 1 billion in payments and about 300 million in charge-offs and yet that remaining 1.1 billion left, our assumptions are about 300 million of that still further defaults. So, we think 300 of the remaining one versus 300 of the original 1.4, that's already gone out of the securitization or 1.3 rather. So, we're taking a more pessimistic view of the future activity than we've already got, and if you really think conceptually, is that conservative or not, we have -- we believe that those securitizations will hit early on based on a lot of, what I'd call either a smaller fraud or bigger fraud (ph) in terms of the borrower not being qualified to be a applicable for the loan (inaudible) and then two, to be put into the securitization. So, if you really solid, then that should have had the experience at first half, of pay down to be worse in the second half, our reserving process actually shows it reverse.

So, I think we've got a reasonably conservative number, that gives you broad strokes of what the assumptions are without getting down the CDOs and that type of things, but just in terms of bulk, defaults and the ultimate severities going forward versus those we've experienced to-date. Hope that answers your question.

Robert Mills

And Darin, also, when we filed the 10-K this afternoon and when you are going through the footnotes of the 10-K, there's a great deal of detail relative to the assumption that remain.

Dominic Frederico

Yeah, but one other thing I will add Darin, since you brought up the HELOC, and this gives me a chance to talk a little bit about this. All of us, all of us in the market have really made issues relative to the rest of warranties of the quality and qualifications of the loans that were premium (ph) securitizations. As you know, and we've talked in the past, we've worked very hard to our surveillance group to go back and audit the files. And what we started to do, is audit the files of the charged-off loans, because obviously that's the easiest one to first look at the, the ones you've already in effect incurred a loss for.

What I can tell you today, is as we said it little bit briefly in the comments is that activity there has picked up. We're starting to achieve a result that I'm incredibly pleased by. I think if we continue at this level, it will have a potentially significant impact on the amount of losses we've incurred to-date, let alone the ability to absorb any future deterioration in those two structures. So, we're working hard at it, we've got a lot of people, we've got outside assistance and the results over the last, say, a month have been very, very satisfactory to the company. Although it's been slow and obviously, you can understand on behalf of the service there, they are not going to go real fast in getting us loan files and sitting down to go through it slug-by-slug over the qualifications of any given loan in the portfolio. I think, we're actually making some really good progress and that progress will be seen as we go through first quarter and continue on through the rest of the year, because we have a lot of files that we need to talk the services about.

Darin Arita - Deutsche Bank Securities

On that topic, Dominic, can you give some examples of what you're finding that gives you confidence that your remediation efforts will be successful?

Dominic Frederico

Well, we've done a file-by-file look for the charge-offs as I said. And if I really try that to capitalize it, there is probably 10 common reasons, why we don't believe the loan qualifies. And they could be, it exceeds the limit of the loan that's in their own guidelines. It doesn't have some of the required processing take place like an appraisal, like a proof of employment, like additional documentation, like a tax return or other verification of the reasonableness of the income claim. They talked about loan to values, they talked about debt to incomes. So, there is about ten reasons.

As we put these things back, one of the things that's really confused us is, there has not been a consistent acceptance of anyone given criteria in terms of the put back, it's kind of been spread over the board, which we actually think helps us. Because if it were the fact that, it required the proof of employment and there is no proof of employment, yet here is another file where there is no proof of employment, and it's not like there... I mean, they're still trying to say they're searching for documentation as you walk in and imagine if their both HELOC in the primary, it could be in the other file, they just got to trace that thing down, but it really goes along those specific definable criteria, that really isn't subject to a whole lot of interpretation.

We've hired two outside firms to assist us in this process. So it's not just us making ourselves feel good about, the amount of qualifications that we have. And then there is another big caveat that I'm just being shown by our head of surveillance. It is.. most of our deals also exclude any loan where there is any fraud or misrepresentation determined regardless of when, like the loan has to come out in the file. So, as you look at that, we've been, like I said diligent in it, in the last month, I had to tell you, I think we've made at least some sort of a reasonable breakthrough in getting more activity and more success in the footpads (ph) request and as I've said I think this could have a reasonably, potentially, so I'll make sure I caveat the daylight part of it, significant impact on the level of losses that we've already realized today let alone any future development.

Darin Arita - Deutsche Bank Securities

Okay, thank you.

Operator

And our next question comes from the line of Mark Lane from William Blair & Company. Mark you may proceed.

Mark Lane - William Blair & Company

Thank you, good morning.

Dominic Frederico

Hi Mark.

Robert Mills

Hi Mark.

Mark Lane - William Blair & Company

Yeah, my question is just a broad one directed at the FSA acquisition. So, you were able to remain profitable on an operating basis this quarter and the credit environment has definitely deteriorated but, you're saying you think your losses are containable but there is a lot of moving parts and you are talking about all this remediation efforts and all these different variables. But I mean the reality is, you're taking on a company that's twice your size with the structured finance business that's larger than yours. So, how do you get -- how do shareholders get comfortable that you are not taking on an inordinate amount of risk with this deal at this time given what's happening in the environment in the last three or four months?

Dominic Frederico

I think it is a great question Mark. So, let's talk about it a little bit. So, I disagree a little bit with the twice your size, even though I think we can lift pretty heavy balances in our company. But if you look at FSA, I'm pleased to say they are pretty much a mirror image of ourselves, right? We've avoided the really troubled stuff, both of us, we're not participants in the CDOs of ABS. We both have I think relative to our capital basis and revenue capabilities containable RMBS exposure. Their HELOC is five times ours, but once again, they've got a revenue bucket stream that's probably at least two on half times ours, so in terms of the ability to absorb, it seems fairly well done.

They have a very limited, maybe three times our exposure in the closed-end second. But once again, go back to the capital and revenue analysis, that's fairly well contained. In terms of the pooled corporates or the structured credit side, I'd say their book is as solid as our book and all of the things that we've talked about on our call, on our disclosures and dialogue, I mean that book is still very, very, very well performing and we still do not see any real issues in terms of significance coming out of that book of business, even based on the horrific economic situation that continues to unfold.

Now obviously, the big caveat is, if we go into a severe depression guys, we're all going to be pushing carts around Manhattan selling apples, but at the end of the day lets assume that the activity of the government and the intervention programs that have acting are going to somehow stabilize or at least put floor to where further economic deterioration will go. But even on that basis, as you know, we're nice enough to give you every statistic on all the deals we've got out there, go through the website, those deals are still even today highly, highly, highly protected. So, as I look at their structure book, remember we did the due diligence on every one of those deals. I mean we went through their portfolio and we had the benefit of being their largest reinsurer, so a lot of familiarity, we know the company, we know the people, we know the underwriting, we've gone through the business and we're very, very comfortable.

Sure, can there be further deterioration, but there is a huge revenue base there, we've gotten into a very attractive value in terms of price. I think it really adds to the company, because they are a very good compliment to or a mirror image of us, relative to the underwriting discipline, we're very, very pleased with where it is today, what the future holds for it, and then the combining of the two talents of the two companies in terms of the amount of penetration we will have in the various markets, it's very, very positive from our point of view, and we're excited about closing this transaction and moving forward.

Mark Lane - William Blair & Company

So are... do you have any insight into their, not that you would disclose it, but have you... do you have any insight on an ongoing basis and how their business perform in the fourth quarter, or will you see it when everybody else sees it and I would assume that's before the shareholder vote?

Dominic Frederico

Well we get to see more of it, remember because of the reinsurance relationship. So, do we know some of it? Sure we do. Do we know it all? Absolutely not. Obviously, we don't own the company today, we can't affect or intercede or intervene on any of their current business processes. So, our anticipation is, because we read the same stuff in the industry information, where they are at relative to new business written, we expect them to take in proportion to us, kind of the same type of hit across the loss of borders. And obviously, we're all sitting here looking at what happens further, with the government and the government policies. And remember FSA has been putting the situation, as it is, off of its financial products business, having nothing to do with financial guarantee. So, by and large that's not straw off (ph) the camel's back. And as I said, we're very, very comfortable with the company, the management, the underwriting process, the portfolio as it's constructed. And as I said, once you put this together, you're going to see that they very much mirror us or compliment us.

Robert Mills

Right. And just to reiterate, we are taking no risk on their financial products system.

Mark Lane - William Blair & Company

Right.

Sabra Purtill

Yeah. And Mark, and just in terms of timing, just so you know, Dexia released their fourth quarter earnings at 1 O'clock this morning. So, there is extensive disclosures in Dexia's information about their results and they had pre-announced in fact that they were going to take all of the closing sale losses on FSA in their fourth quarter results. In that earnings release this morning, they indicated that FSA would be releasing their full financial results by March 12. So, that would in fact to be before our shareholder meeting.

Mark Lane - William Blair & Company

All right.

Robert Mills

So that, in that... when you look at that release, that are... by the fact that they took the loss on disposition, it not necessarily reflect whether you won't be able to take that information and translate that into FSA's result.

Mark Lane - William Blair & Company

All right. Okay.

Dominic Frederico

(inaudible) got to fix some of consideration they're receiving for the transaction. They know what they are carrying cost, that's what they really recognize.

Robert Mills

And that will be compared against their carrying value because they're going to put FD (ph) business aside.

Mark Lane - William Blair & Company

Got it.

Dominic Frederico

That's it.

Mark Lane - William Blair & Company

Okay. Thank you.

Dominic Frederico

Thanks, Mark.

Operator: (Operator Instructions). And our next question comes from line of Mike Grasher from Piper Jaffray. Mike, you may proceed.

Michael Grasher - Piper Jaffray

Well, thank you. Good morning, everyone.

Dominic Frederico

Hey, Mike.

Robert Mills

Hey, Mike.

Michael Grasher - Piper Jaffray

Yeah. Just a follow-up on Mark's question around FSA, Dominic, do you happen to have a feel for what they are doing on the mediation side of things?

Dominic Frederico

Yeah, obviously, we have started to bring staffs together both, from a standpoint of integration and potential expense reviews. They are very much inline with us in turn, and I think that's pretty much the industry somewhat, giving either of us undue credit for being active in the remediation. I think, we're a little further along, if I can kind of pat ourselves in the back, a little bit, because I think we've taken a different path and how we've gone, kind of a file-by-file, we've gotten commitments to set aside personnel specifically dedicated to our put back process.

As I said, we had a kind of a watershed moment in the last few weeks, where we actually had a sit down. We sent back a number of files, they accept or reject. Obviously, the initial acceptance is a fairly lone number as you would expect, and we had a second round of where we've... as part our set procedures with them, we have a rebottle (ph) process to go back and say, okay, now sit down with us instead of just sending us back the stuff and tell us why did this file you believe still belong. And we've had tremendous success with that. And I think a lot of folks are still at the put back and more or less, more correspondence rebottled as opposed to the face to face, let's drag the file into the room, let's get everybody to conference room table and go through ten inches of paper and now let's figure out what this is all about.

Now, it's costly, right, it's time consuming. We don't get the immediate gratification that you'd like to see, based on the work that we've done. But it's having a success. So, they are right in step with us maybe just a tad behind us. And we think that's still the better way to go, then a lawsuit at this point in time.

Michael Grasher - Piper Jaffray

Okay.

Dominic Frederico

We are not pleased with the hand-to-hand combat, but we're more than happy to go through the process, because we think it has real potential relative to losses that have already been incurred, as well as to mitigate any further deterioration.

Michael Grasher - Piper Jaffray

Okay. And then you did mention the acceleration in the alt-A in the quarter in terms of the incurred losses. Sorry, if I missed this, but did you actually comment on what those structures looked like, or how many...

Dominic Frederico

They are in the... they are in both the supplement and the website. We will tell you that by and large, they are still, we do a stress loss model and then compare it to credit enhancement, and then come out with a factor of enhancement to stress losses. And we still are by and large, you can say about 120%. So, enhancements still in excess of stress losses. But if you look back six months go, that might have been 140%. So, it continues to get a little warmer. We've only posted portfolio reserves, because remember, in our existing structure and as Bob mentioned, it changes as of January 1 in the first quarter reporting, as we downgrade something internally. So, when you saw the additions to the CMC list of the alt-A exposure, that immediately triggers a portfolio reserve. Bob, what's the number that we put up? Like 17?

Robert Mills

Yeah.

Dominic Frederico

15 million in portfolio. But at this point in time, we still have enough credit protection, even under a stress loss far from what we consider the current view of delinquencies to be able to absorb that. Now, more importantly or as importantly, there has been a lot of dialogue in Washington about coming out with some sort of mortgage decisions program. The one that was vetted yesterday, not approved yet, we believe would have a significant impact on further potential losses in our alt-A and subprime books.

So, set aside HELOCs close-end second, their second liens maybe, you've got 100% severity, you're basically going to ride that storm as barely as it is, and the only benefit we can see on the horizon there is the rest of warranties (ph). The first lien stop which is the subprime and the alt-A, different animals. I mean look at the bill that's been proposed through the congress yesterday, it had three neat features in it that would really help senior positions in any of these structures.

One is, that the bankruptcies are not going to be prorated to the structure, they are integrated at the bottom of the waterfall, that's a big benefit to the senior holdings. Two, they've lift off the limit of how many loans could be adjusted, typically the servicer has a limit to case or a percentage of loans and then it has to start buying them out. So, it says, no you can leave them there, which is good in that, typically they're going to go to a market value decline or offset lowering of the interest rate, either way if you look at our modeling, we stress the daylights out of these things as we look at these loss coverage models.

So, if we say, we think there is a average market value decline of 50% and there is another 10 to 15% of cost of foreclosure, we're taking a severity hit of 65 in our model. Now it's going to get down to what is market value write downs that the servicers are going to perform and they are basically going to look at national statistics on market value declines, which are probably in a 20 to 30% range.

So, all of a sudden, for every loan industry work (ph), the first thing that happens is, you avoid a future delinquency and default, two, you lower significantly the severity from maybe 60% to 30%. Remember we take the hit of the full severity when we look at our stressed view of can we have enough collateral or enough credit protection to cover the ultimate loss. So, that's a huge positive. And number three, the loan stays in the structure, so it's cash flow offers a revised principal in interest balance, we still get as the top the of waterfall below the subordinated trenches. So, A, it avoids default, it takes us out of the severity hit and then we get the benefit of the cash flow by having this loans payment structure and the amount of the write down to be less than the stress level of severity that we already have build into the models. Obviously, there is a whole lot of moral hazards that still have to be considered in this situation, and obviously facing the rules, it is first lien and it is got to be under occupied, but long story short, it should help with our view of future defaults coming off of further economic deterioration as well as limited severity.

Sabra Purtill

And Mike just to be clear, the bill that Dominic is referring to is HR 1106 which is expected to be voted on in the house today, it obviously would need the vote of the senate and then through Congress committee for ultimate signature. But that is the bill that he is referring to.

Dominic Frederico

So, call your congressman and ask him to vote for HR 1106.

Michael Grasher - Piper Jaffray

Alright. And then but more specifically though, is it fair to say that there are just two deals that are creating this move in the incurred losses?

Dominic Frederico

Worldwide, alt-A?

Michael Grasher - Piper Jaffray

Yeah.

Dominic Frederico

Yeah. I'd say we got the two large securitizations, but remember they are the ones we've downgraded today. Unless we see some start of the stabilization, although the other deals are well protected because they are not on the CMC list yet, these are the ones that got on there, because they're getting closer to getting to one-to-one stress losses over coverage, they are the ones that we're concerned about today.

Michael Grasher - Piper Jaffray

Okay. And then one final question switching gears here. Outside of California, do you have any other states where you might be concerned about concentration issues, just looking over the list? In this supplement it seems like you probably have adequate amount of room to maneuver.

Sabra Purtill

You're referring to the public finance portfolio?

Michael Grasher - Piper Jaffray

Exactly.

Dominic Frederico

Mike, obviously California is a big issue. I'd hate to say, I told you so, but there was a treasurer of that foreign (ph) state that was talking about their AAA rating in July of last year. I'd hate to think, if I made those kind of statements and then windup in the situation where I might have to file for bankruptcy. What you guys would do me, as well as the general market and the SEC and an Attorney General. But putting that aside, obviously, we look all the states, not just California under a significant stress. And we've gone back over our portfolio, we've looked at... are we doing essential type of projects and services, do they have significant revenue coverage, because we think there is going to be tremendous stress, any municipal market beyond California. I mean, if you just think about New York, the City and the state, and whether there is going to be the change in income levels, and therefore the tax base both, from the real estate and the income over the next two years, that fall-off has to be usually significant. But typically, you're going to windup having some short-term problems and windup doing a restructuring and pushing the debt out, to windup getting a recovery. So, I think you're going to see a lot more incidents of downgrades and potential defaults and defaults to the sense of missing or getting away, we're on a principal interest payment which is the benefit of bond insurance. I mean, we keep talking about the value of our product goes well beyond, in fact we think, we just provide a guarantee, and it's about liquidity, it's about valuation, but it is also about remediation. You're going to see a lot of that play out, we believe over the next 18 months, but as I said, we're really focusing on kind of their critical services, critical projects and whose got the best revenue protection.

Michael Grasher - Piper Jaffray

Okay, thanks. That's helpful. Appreciate it.

Dominic Frederico

Thanks.

Operator

And our next question comes from the line of Brian Meredith from UBS. Brian, you may proceed.

Brian Meredith - UBS

Yes, thanks, good morning. Most of my questions have been answered. But I guess one, Dominic, if the rating agencies come out and decide that the new entity FSA AGO is no longer a AAA entity, it's a AA plus entity or whatever. What would your willingness to go forward with the transaction, because I know you've got an out clause where (inaudible).

Dominic Frederico

Right. We've got the closing condition that says you can't affect the ratings of AGO. And that's a great question, Brian, and I wish I could give you a sweet answer. We'd have to take a lot of things in consideration, one; that would be, what is the impact in the market, but with the market even care at this point in time. How does it affect our new business opportunities and our view of the company in the market, all I'm saying that obviously is the significant benefit to income that the transaction provides us. We're buying a great revenue stream, and I think it's a really solid company with great intellectual property at a huge discount. So, we cannot ignore that. And remember the out for the downgrade goes both ways, FSA, if FSA gets downgraded, else if AGO gets downgraded. So, it's a good question. The things we have to consider is market position, what it does to business opportunity, balance that against about the accretiveness of the transaction. And, hopefully, we don't have to deal with that issue, but it's something we'd have to consider.

Brian Meredith - UBS

Okay, great. And then just one other one, just curious with the State of Florida, kind of what's your thoughts are there, particularly given as P&C (ph) analyst, we know (inaudible) huge funding, shortfall that is there kind of, how nervous are you about that state?

Dominic Frederico

I guess, I'm nervous about New York and California than I'm Florida. And we were actually in Florida last week, there was municipal bond conference and spoke to a number of people from the State. I think they really have a more positive view of their life as they see it than that, and for us, it's not a significant exposure as well. But, as I said, I think I feel more comfortable with what I see the happenings down there, than I do, with what I think could happen in New York and California.

Brian Meredith - UBS

Okay. Thank you.

Operator

And our next question comes from the line of James Shanahan from Wachovia. James, you may proceed.

James Shanahan - Wachovia Capital Markets

Okay, I just had a quick clarifying question here. Regarding the potential change in reserving methodology. Do you expect with respect to both the FSA transaction, would you expect to actually then release reserves back through earnings in the first quarter or what would be your expectation there?

Dominic Frederico

Hey, that's a great question, Jim, because the methodology is reasonably complex relative to anything that's on the CMC list. Things that are for instance on our CMC one today that are subject to our portfolio reserving process, we actually have to go through a very detail expected cash flow evaluation of each of those exposures.

So what is on the CMC list it will not be exactly as it is today because the rules are slightly different. There is the possibility ... we're in the middle of that now, that calculation is a possibility that some of it could come back is also the possibility that the portfolio reserve will be allocated to under the cash flow calculations of the CMC once and it's ... the adjustment anyway goes through equity, it's not through earnings.

Unidentified Analyst

And you remember Jim, if you think about our portfolio model and I don't know if you remember this specifically, but the whole idea that was an inherent risk model we said we know we're going to have a loss we just don't know where. This gives us a nice mathematical approximation of holding a reserve. So that the financials statements from an income point of view are not over stayed, right?

And although it wasn't specific credit, when you ultimately had a loss incurred you typically have to raise the portfolio and one of the significant reasons of that is because the portfolio limited the amount of the loss relative to the amount of earned premium realized because you're basically in step with the earned premium exposed on that special deal.

Now, that we've got to specific identification, the good news is that some of those fundamentally sound credits would as you would say fall off and you would take the reserve down. However, for the wins that are on the CMC but are still being calculated on the portfolio, you're now unlocking the limitation of earned premium.

So, therefore that increases the potential reserve that you put up there. So, at this point in time as Bob says, we're going through each and every one of them to figure what the ultimate net effect is. But any positive benefit goes through equity obviously if we just recast the reserve to some of the other portfolio reserve items that are on CMC where we are going to lock the premium limitation obviously you anticipate then an increase in those reserves.

James Shanahan - Wachovia Capital Markets

Okay, thank you.

Unidentified Analyst

Thank you.

Operator

(Operator Instructions) and our next question comes from the line of Eleanor Chen from Oralias Capital. (ph) Eleanor, you may proceed.

Unidentified Analyst

Hi, good morning.

Dominic Frederico

Good morning.

Unidentified Analyst

My question is, given that Assured Guaranty is trading below the range at which verso (ph) has agreed to back sub the equity rates, how does that affect your decision making as whether you are going to go to market and raise the equity or join on the overall back sub and also is there any room where Mr. Ross might negotiate the terms of the backlog.

Dominic Frederico

Well, to a lot of part, obviously the whole idea the back stock is unlocked in the terms of what would be the lowest value to the stock that we can get in terms of raising the equity to close the transaction. So, it is what it is. His floor (ph) $6, Dexia's at $8.10.

Its really going to depend on what we hear and see from the market based on the digesting of this information as we put together kind of a road show type presentation on the value of the FSA transaction integration, ultimate impact in the result of the company and the company's position in the marketplace whether that get those stock price up higher and gives us the opportunity to consider other financing alternatives, its going to be determined over the next couple of months as we finish the approval process, and then get ready to close the transaction.

Hopefully, we get a better price than what we're currently getting penalized today in the market. I mean as a I look at the company, this troubles me tremendously and I can go on my rent and somebody ask me a question to give me rent opportunity, and you've opened the door, but here we are a company through the worst economic times where you can see exactly where our exposure is.

There are two really positive things that are happening that will further limit that. The potential bill coming out of the Congress as well as now the implied success we're seeing in the reps and warranties, that really then takes us the out of what I think is really horrific circumstance.

If you look at the rest of the portfolio, we give you all the detail. It's performed well. We're the only company that's been able to maintain operating income throughout the worst period in anyone's recollections yet. We're been treated as if we're one of the companies that's ready to require government assistance or file for further protections, etcetera.

I mean, it just boggles my mind as we sit here and look at ... and it's not like we're not transparent. We're not trying to help you guys along this stage, look at everything we possibly have and ask if any questions you want and then we get this tremendously accretive transaction as well.

This is okay, we're buying a whole lot of economic value for not a whole lot of money, and the company is pretty much like us, relative to its exposures and yet, we're being treated by like a paying stock.

It absolutely blows my mind. And I don't know what the value of all the work we're doing because it's not reflected in the share price that's we're darn sure.

So hopefully, some reality hits the world, the price moves up and we get to execute this transaction in a lot favorable terms. But the nice thing is, we don't have a downside, the downside is already in contracted, structured, and able to close at a still very highly accretive value of the company.

Unidentified Analyst

Okay. Great, thank you.

Operator

And our next question comes from the line of Jay Leopold from Legg Mason. Jay, you may proceed.

Jay Leopold - Legg Mason

Good morning. I just want to go back to the loss of reps, warranties and reps countrywide. You've gone through some files and exchanged view. Have you actually settled on any single loan remediation yet or you're still...

Dominic Frederico

Sure. Sure, we've actually if you go the ... I don't know whether to the subway or the website, we are actually starting to show the breakdown of rep and warranty recoveries as part as the deal performance. So, you're going to be able to start tracking that every month. We have already received, I want to say okay here are the number, $16.5 million. And that's up from, if you went back two months ago like, $8 million.

We have gotten, like I said, that process is actually starting to work and showing benefit. I guess that we put tremendous amount of time. We started this back mid-year last year. And if talk to our surveillance people, I think they are ready to hang me from as much questions I ask them and going through and making sure that we are staying on top of this plus remember this effects every deal.

So, we can talk about countrywide as being probably the poster boys for the activity done today. But it chuggles through the closed end second deals as well and we've begun pulling those files and doing the same type of rep and warranty type of review.

So yes, we've actually collected real money. We've got commitments for more. We now have a process in terms of the rebuttal and we sit down and actually go through the files with everyone in the same room, which we're seeing as providing good benefit for us.

Jay Leopold - Legg Mason

So when you're going through a specific file, is it black and whites that yes, there is an issue here in some cases and others you negotiate for some...

Dominic Frederico

Remember, we always think everything is black and while. We want to put it back, because remember we've gone through two levels of external verdict. We're not sitting here trying to say, this is great let's see if we can get some value and let's see if we can say okay. We disagree, just give us 50% of it. This is a 100%.

And you accept it or you don't. And even the once you don't accept at the first level, we were rebut (ph) even the set one and we got this last second round, we said even the ones that still fell out, we're still holding aside. Because we still believe it is black and white as the other ones that you've already accepted.

Remember, these things are pretty definable. One of my responsibility, because Mr. Mills and I signed some financial statements that leave us out with a little bit of exposure here, is to make to sure that we had a very detailed specific and heavily reviewed process that was specific to absolute identifiable situation.

So, we're not into the old, we are gong to throw and it cannot stop against the wall and let's see we get to accept 50% of it. That's not what we are doing here, right. So, we don't have this well, we put up a big number so that you can buy and give us 25% of it. And we're going to back and high five in the closet that the 25% was a good number, wrong answer.

So, we actually sat down and it's a 100% of every file that we reject, they reimburse back the loss.

Jay Leopold - Legg Mason

Right.

Dominic Frederico

And that they accept so we are in that process now.

Jay Leopold - Legg Mason

So you are getting hundred tenths of the dollar in the once you agreeing to?

Dominic Frederico

Yes.

Jay Leopold - Legg Mason

Okay. And in the example the 16.5 so far that you've gotten, are you netting that against your $300 million of charge off so far.

Dominic Frederico

Remember I say we had 300 million charge offs, we anticipated another three about six and our reserve calculation we're taking about round numbers, a $50 million credit on the ultimate 600 million of charge offs, right? And now today we're at 16 but that's on such a small segment of that ultimate 600 million of charge offs that quite honestly, we continue this levels as you said so remember this has really happened over the last couple of weeks.

We'd have to take a hard look at the ... I think it's $49 million not 50 million, but whatever the number is, we'd have to take a hard look at that estimate as well because obviously we know that other folks in our industry put up bigger numbers relative to the ultimate credit for this type of remediation or a recovery. We've been trying to take it kind of as we go and generally based off of success that we see and we can actually prove.

And your questions are very well targeted. One of the things though, to be honest with you, we think part of the deal here is, as we go back and fight the battle file by file that the other party is going to say, okay, we're spending in tons of time, these guys are waiting, let's make it global settlement. And then it will come down to, are we amenable to a settlement? If so, what we would accept as a settlement and how would that affect our loss that we booked today as well as any exposure to the future losses?

These are great questions that we have to consider and what we're working towards, even though we're more than happy to fight file by file and go and sit there and get the 100% of recoveries as we're doing on a file by file basis.

Jay Leopold - Legg Mason

Right. So, just to be clear I think I heard you say you've kind of have a counter reserve of 50 million out of this 600 total.

Dominic Frederico

Right. And remember again, against that 600 million you also get the benefit of excess spread, you get the benefit of future growth because of the way those two deals are structured, wants to hit the rapid answer. So, there are like three positives spread, draw and rep and warranty. Negative being the defaults and so there are. So it's the battle of who wins out and in that calculation I get is to the current reserves held, your business down with 600 million, you get the credit for the spread and the draws and the footpads.

The footpad credit is rough numbers $50 million.

Jay Leopold - Legg Mason

Great, and that number could grow significantly if you keep that in excess?

Dominic Frederico

Exactly.

Jay Leopold - Legg Mason

Great.

Dominic Frederico

The percentage of success on the last files would be indicate that that numbers would be significantly short. So, either way, if we continue to maintain that, so no promises, no guarantees, I don't know how to say, but kind me beam me over the head and say you said too much of a positive nature.

Either to do one of two things; limit the loss where you realize or stop any further deterioration.

Jay Leopold - Legg Mason

Got it and then alt-A side that is coming around the corner is it tougher to go file by file because a lot of all takes by definition are may be low doc or no doc (ph)

Dominic Frederico

Yeah, but they may have say you typically the alt-A has like something that's missing. But then is all the other stuff is there so you still go back into the file by file on the making sure that the stuff that shouldn't be there, so if it's an the appraisal issue fine you said that you're present but the proof of income, right the asset value the debt income still has to be there.

Jay Leopold - Legg Mason

And would you characterize the alt-A is going to be tougher to win.

Dominic Frederico

I can't tell you that, right. Because we haven't really beyond that process.

Jay Leopold - Legg Mason

Great.

Dominic Frederico

And understand while we have a tradition as in I needed to be conditional. We've done the work. We've gotten more positive success recently. What it could possibly lead to is what I said the possibilities are out there, that we would have to relocate the credit that we take or does it lead to a settlement, those are the open questions. But it reflects against anything in our residential portfolio relative to the reps and warrantees that are contained in all of those deals.

Jay Leopold - Legg Mason

Okay.

Dominic Frederico

And remember, the alt-A and the subprime would be even better benefited by the passing of HR1106.

Jay Leopold - Legg Mason

Great. Thank you.

Dominic Frederico

You're welcome.

Operator

And your next question comes up from the line of Jim Bond from JPMorgan Asset Management. Jim, you may proceed.

Jim Bond - JPMorgan Asset Management

Thank you. Good morning. I had a couple of questions, if you could just step me through some of the cash flow dynamics behind the business? The cash that went out the door during the quarter, is that the claims paid of 90 million or is that the incurred losses of $114 million during the quarter?

Dominic Frederico

Claim spend.

Jim Bond - JPMorgan Asset Management

Okay, and then the cash flow coming in, is that the earned premiums plus the interest growth?

Sabra Purtill

Gross written premiums plus the interest income.

Jim Bond - JPMorgan Asset Management

Okay.

Dominic Frederico

That's now when you do the municipal deal you get the cash upfront that's why its grown that's earnings. Ian just says in the portfolio of collective premiums in the past and this is the percentage that I can earn in the current period after they run off with the exposure. Cash is really out of gross which is really being and the receipt of further payments on the installment business.

Jim Bond - JPMorgan Asset Management

Okay, it is a pretty harsh quarter than you are ever cover any kind of cash out, or is that with basically operating cash, correct?

Dominic Frederico

Yes.

Robert Mills

That's exactly right. There was positive cash flow to the quarter and in the net premiums written wherever114 million then you have investment income of 46 million so you have a 161 inflow which more than covers the losses that are paid during the quarter.

Jim Bond - JPMorgan Asset Management

Okay. And then, the 2008 incurred losses that were see 309 million and then you've got the loss adjustment expense reserves that fall, I would expect given that kind of outlook that the claims page should fall during 2009 each quarter would that be a corrected assumption?

Dominic Frederico

Yeah, now cant go there because now you are using claims paid as opposed you said incurred when you paid but the claim payments are going to be based on what continues to happen in the residential securitization and whether we pay any further legal expenses on some of the other things like say, Jefferson County.

Jim Bond - JPMorgan Asset Management

Okay.

Dominic Frederico

That is a hard number of us predict, but obviously, your point that you've made at the beginning, we have enough operating cash flows that seems to meet those needs even at the high levels of paid losses. The one thing we can tell you is, if you look at healers, the old five deal is that we have it stabilized. So, the ... there is actually a decrease month-to-month now what the claim payments are but on the percentage of the remaining part is still a high percentage, but they are coming down.

Robert Mills

I mean if you looked at the operating cash flow for the year, even, even in this situation that we're in. It was very significant that $400 million of operating cash flow, even considering the loss is paid. That's operating cash flow not some additional capital.

Jim Bond - JPMorgan Asset Management

Okay. It just seems with a lack of CDO especially more visualized CDO obligations and the lack of any paper payments down the road on that. And the fact that you are generating operating cash flow and there is descent chance you'd be able to cover any claims paid with that during 2009. It kind of points to the fact that were you've got investment assets sitting there went around is it 2.9, around what 3.6 million?

Dominic Frederico

3.6

Jim Bond - JPMorgan Asset Management

So 3.6, so the market capital of the company is $500 million but is got three point some million dollars of just investment assets that are sitting there it seems like there is a relatively big discount?

Dominic Frederico

You're making my case for me. Thank you very much.

Robert Mills

I mean even I get premium reserves that they are going to spin around income plus the cash that comes down from the installment premium to cash flow. It's hard to predict with losses paid can be but the cash flow coming in will continue to be robust.

Jim Bond - JPMorgan Asset Management

Given rated age sees ever talk about the business in these type of cash flow dynamics or they more concentrated on kind of the modeling out of future losses and look at things in traditional away?

Robert Mills

Certainly there is view towards liquidity there is no doubt about that.

Jim Bond - JPMorgan Asset Management

Okay.

Dominic Frederico

liquidity for the standpoint of determination of events, collateral posting some of the issue that have happened in the past. They still have a view towards operating capability Are you running business? Do you maintaining profitability in your positive cash flow? But obviously they are more of a capital orientation so they are obviously looking at stress losses, total potential in the portfolio with the level of capital against it.

So there is balance I think still more waits of the capital but it is to be operational.

Jim Bond - JPMorgan Asset Management

Thank you.

Dominic Frederico

You are welcome.

Sabra Purtill

Thank you.

Operator

And our next question comes from the line Patrick Dennis (ph) from DK Partners. Patrick you may proceed.

Unidentified Analyst

Hi, good morning guys. Thanks for taking the call. One quick question about the separation of exposures as we know MBI has gone down the road of isolating out the U.S. community business through via insurance contracts. Once FSA is under the umbrella of the Assured Guaranty, is there any intention to also separate out the US exposure to one of that two insurance entities?

Dominic Frederico

Let's speak with different contacts. So, with the really doing the setting of pure play entity. They think that would be very well accepted in the market. First and foremost our company as it is, is very well accepted in the market. As we've talked about last Friday, we did 12.7% of all municipal insurance. That is an incredibly positive statistic.

So we already tremendous market acceptance. The reason why they're doing that is to get market acceptance because they've got to separate the past. And a strategy or plus or minus that's the position they proceeded on. Closing the transaction and how we look at licenses and business platforms will give us the option of putting a newly owning company into the market if we deem that, that's a good avenue for us to pursue.

So, that's an open issue. The transaction helps us along that way and we have strategies in place that we could get pure play, unique company out there to the extent we deem that to be beneficial, but let's not lose sight of that. So far in the quarter, year-to-date statistics in a public. We have written more percentage of the market than ever in our history and probably pretty comparable to even when the market was dominated by other players with their percentage of the overall issued market was that time.

Unidentified Analyst

Sure. Okay, great. Thanks.

Dominic Frederico

You're welcome.

Operator

At this time there are showing no more further questions available. Sabra Purtill you may proceed.

Sabra Purtill

Hey, thank you Josh. Many thanks to you all for joining g us today, we're certainly interest, appreciate your interest in Assured Guaranty. If you had any other additional questions or require further information, please feel free to contact me or Ross by email or by phone. And we look forward to talking to against them.

Thanks and have a good day!

Operator

Thank you for your participation in today's conference. Thus concludes the presentation. You may now disconnect. Have a great day.

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Source: Assured Guaranty Q4 2008 Earnings Call Transcript

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