Exhibit 99.2
Quarterly
Operating
Supplement
December 31, 2005
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
QUARTERLY OPERATING SUPPLEMENT
December 2005
Table of Contents
Financial Security Assurance Holdings Ltd. (the Company), through its wholly owned subsidiary, Financial Security Assurance Inc. (FSA), provides Aaa/AAA/AAA financial guaranty insurance for obligations in the municipal, infrastructure, asset-backed and structured finance markets worldwide. FSA's financial strength is rated Triple-A by Fitch Ratings, Moody's Investors Service, Inc. (Moody's), Standard & Poor's Ratings Services (S&P) and Rating and Investment Information, Inc. The Company is a member of the Dexia group, a leading European banking group with four core business lines: public/project finance and credit enhancement; retail financial services; investment management services; and treasury and financial markets.
FSA HOLDINGS 2005 RESULTS
NET INCOME
$60 Million in Q4 05 (-43% vs. Q4 04)
$326 Million in 12M 05 (-14% vs. 12M 04)
ORIGINATIONS (PRESENT VALUE)
$293 Million in Q4 05 (+35% vs. Q4 04)
$1,014 Million in 12M 05 (+9% vs. 12M 04)
New York, New York, February 15, 2006 — Financial Security Assurance Holdings Ltd. (the Company), a member of the Dexia group and the holding company for bond insurer Financial Security Assurance Inc. (FSA), announced 2005 net income of $326.1 million, a year-over-year decrease of 13.9%. Non-GAAP operating earnings, which exclude fair-value adjustments for both insured credit default swaps and economic interest-rate hedges, were $333.9 million, 3.1% higher than for 2004. For the fourth quarter, net income declined 43.2%. Operating earnings decreased $11.7 million due primarily to a $16.5 million one-time tax benefit in the fourth quarter of 2004. Results for 2004 in this release reflect the restated financial statements filed with the Securities and Exchange Commission on December 19, 2005 in the Company's amended annual report on Form 10-K/A.
NET INCOME AND RECONCILIATION TO NON-GAAP OPERATING EARNINGS
(Dollars in millions)
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Three Months Ended |
|
Year Ended |
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|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
| ||||
|
Net Income |
|
$ |
59.8 |
|
$ |
105.3 |
|
$ |
326.1 |
|
$ |
378.6 |
|
|
Less fair-value adjustments for economic interest-rate hedges, net of taxes (1) |
|
(12.9 |
) |
(0.3 |
) |
(15.0 |
) |
17.1 |
| ||||
|
Less fair-value adjustments for insured credit default swaps, net of taxes (1) |
|
(10.2 |
) |
11.0 |
|
7.2 |
|
37.7 |
| ||||
|
Operating Earnings (1) |
|
$ |
82.9 |
|
$ |
94.6 |
|
$ |
333.9 |
|
$ |
323.8 |
|
(1) For definitions and further discussion of net income and operating earnings, see below, "Analysis of Financial Results – Operating Earnings."Also see "Non-GAAP Measures" below for a discussion of measures not promulgated in accordance with accounting principles generally accepted in the United States of America (GAAP).
Shareholders' equity (book value) was $2.8 billion and non-GAAP adjusted book value (ABV) was $3.9 billion at December 31, 2005. Over the past 12 months, after taking dividends into account, ABV grew 14.0%. The Company's management considers ABV to be an operating measure of the Company's intrinsic value and discloses ABV because it provides information important to management that would not be available to investors through GAAP disclosure alone. See "Non-GAAP Measures" below for a more detailed discussion of ABV and a reconciliation to GAAP shareholders' equity.
Present value (PV) originations, a non-GAAP measure, reached $293.1 million in the fourth quarter of 2005, 34.9% higher than in that quarter of 2004. For the year, PV originations increased 9.4% to $1,014.0 million.
Robert P. Cochran, chairman and chief executive officer of the Company and FSA, said: "Despite a challenging business environment for financial guaranty products, FSA turned in a solid performance in 2005. We surpassed the $1 billion mark in present value originations for the first time.
"In the U.S. municipal market, we had success by focusing primarily on basic municipal sectors that met our credit and pricing standards. We also did well in international markets, primarily due to the expansion of our public infrastructure business. We weren't as successful in the U.S. asset-backed business, where our business, though broad-based, declined in 2005 primarily due to tight credit-quality spreads driven by aggressive credit appetites among direct investors in the sector. When spreads return to attractive levels, FSA is well positioned to increase its volume of asset-backed originations. Until then, we will keep our powder dry."
BUSINESS PRODUCTION
TOTAL ORIGINATIONS
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Three Months Ended |
|
Year Ended |
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|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
| ||||
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Gross par insured (dollars in billions) |
|
$ |
23.5 |
|
$ |
21.1 |
|
$ |
103.4 |
|
$ |
107.8 |
|
|
Gross PV originations (dollars in millions) (1) |
|
293.1 |
|
217.3 |
|
1,014.0 |
|
927.2 |
| ||||
(1) Estimated by the Company for business originated in the period as the sum of (a) the present value of premiums originated (PV premiums originated), defined as estimated future installment premiums discounted to their present value, as well as upfront premiums, plus (b) the present value of net interest margin originated (PV NIM originated) in the financial products segment, defined as the net of estimated interest to be received on investments and estimated interest to be paid on liabilities issued in the form of guaranteed investment contracts (GICs), net of the expected derivative results from economic interest-rate hedges, discounted to present value. The discount rate was 5.30% in 2005 and 5.62% in 2004 for all originations. PV premiums originated, PV NIM originated and PV originations are non-GAAP measures. Management believes that, by disclosing the components of PV originations in addition to premiums written, the Company provides investors with a more comprehensive description of its new business activity in a given period. For further discussion, see "Non-GAAP Measures" below. For a reconciliation of PV premiums originated to gross premiums written, see "Analysis of Financial Results – Premiums" below.
Unless otherwise noted, percentage changes mentioned in this release compare the period named with the comparable period of the previous year.
U.S. MUNICIPAL ORIGINATIONS
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Three Months Ended |
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Year Ended |
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|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
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Gross par insured (dollars in billions) |
|
$ |
14.8 |
|
$ |
12.4 |
|
$ |
64.8 |
|
$ |
49.0 |
|
|
Gross PV premiums originated (dollars in millions) |
|
139.8 |
|
110.6 |
|
484.5 |
|
433.5 |
| ||||
Driven by steady new-money issuance and high levels of refundings, the municipal new-issue market achieved record volume of approximately $408.4 billion in 2005, rising 13.4% above 2004 volume. Insurance penetration was approximately 56%, compared with 54% in 2004. In this environment, FSA insured approximately 26% of the par amount of insured new municipal bond issues sold in 2005.
Including both primary and secondary U.S. municipal obligations with closing dates in the fourth quarter, the par amount insured by FSA increased 19.5%, and PV premiums originated increased 26.4%, primarily due to growth in the health care and utility sectors. For the year, FSA's U.S. municipal par originated increased 32.3%, and PV premiums originated increased 11.8%. In general, the mix of business shifted toward a greater volume of general obligations, including school bonds, and other tax-backed transactions that tend to have lower absolute premiums than revenue bonds because of their lower risk.
U.S. ASSET-BACKED ORIGINATIONS
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Three Months Ended |
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Year Ended |
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|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
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|
Gross par insured (dollars in billions) |
|
$ |
4.3 |
|
$ |
7.0 |
|
$ |
24.5 |
|
$ |
48.6 |
|
|
Gross PV premiums originated (dollars in millions) |
|
24.2 |
|
48.8 |
|
195.4 |
|
234.2 |
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