RAM Holdings Ltd. Announces First Quarter Net Losses of $189.5 Million

Business Wire, May 19, 2008

HAMILTON, Bermuda -- RAM Holdings Ltd. (NASDAQ:RAMR) (RAM) today reported a first quarter 2008 net loss of $189.5 million, or net loss of $6.95 per diluted share. This compares to net income of $14.3 million, or $0.52 per diluted share, for the first quarter 2007. The decrease for the first quarter 2008 is attributable to the following:

* Increase in mark-to-market losses on credit derivatives of $166.4 million, or ($6.11) per basic and diluted share, as result of changes in fair value inclusive of credit impairments of $12.4 million;

* Increase in case basis loss reserves of $20.6 million, relating primarily to continuing deterioration in the performance of residential mortgage-backed securities ("RMBS");

* Increase in unallocated loss reserves of $9.9 million, primarily associated with RMBS.

Commenting on financial results, RAM Chief Executive Officer Vernon Endo noted that, "Our disappointing loss for the quarter was driven by the well publicized continued severe developments in the US residential mortgage market. Additional seasoning of recent RMBS transactions provided better insight into future performance, which caused us to increase loss reserves. In addition, continued credit spread widening contributed significantly to our loss as we recorded an unrealized fair value loss on our credit derivatives of $166.4 million. We continue to work on improving our capital position to further stabilize our ratings, while our liquidity over the next 12 months remains sound, barring of course additional, dramatic negative developments."

Losses on Credit Derivatives

Credit spreads continued to widen substantially during the first quarter of 2008, and this widening, as well as the continued deterioration in RMBS collateral underlying collateralized debt obligations ("CDOs"), resulted in a substantial increase in losses in the first quarter of 2008 on the credit derivatives we reinsure. For the first quarter 2008 $12.4 million of the losses on credit derivatives reflects credit impairments the Company expects to incur in the future, representing the net present value estimate of probable and estimable losses on credit derivatives, primarily credit default swaps on CDOs of asset back securities ("ABS") backed primarily by RMBS. In compliance with the requirements of FAS 157, the Company considered its own non-performance risk when measuring the fair value of its derivative liability. The effect of adopting this requirement was a reduction in the Company's derivative liability of approximately $110.5 million at March 31, 2008. The balance of the losses on credit derivatives, in the absence of further credit impairments, are expected to net to zero over the remaining life of the insured credit derivatives. The unrealized losses, except for credit impairments, do not impact operating earnings, a non-GAAP measure of income used by market analysts in assessing the Company's performance, rating agency and statutory capital requirements and claims paying resources. Credit impairments are included in "Net change in fair value of credit derivatives" in the statement of operations.

Loss Reserve Activity

Case basis loss reserves (loss reserves for probable and estimable losses) increased $20.6 million during the first quarter of 2008 from $30.4 million at December 31, 2007 to $51.0 million at March 31, 2008. The increase in case reserves relates primarily to RMBS transactions that have continued to underperform against the Company's previous expectations. Total net claims paid during the quarter amounted to $7.1 million which related primarily to RMBS policies.

Unallocated loss reserves are established to reflect our estimate of ultimate losses due to general deterioration in our insured credits. Unallocated loss reserves increased $9.9 million, or 30%, during the first quarter of 2008 from $33.4 million at December 31, 2007 to $43.3 million at March 31, 2008. The increase in unallocated reserves relates primarily to the continued deterioration of RMBS transactions.

Case reserves and unallocated reserves for all RMBS exposures amounted to $48.5 million and $30.9 million, respectively at March 31, 2008, which represents 84% of RAM's loss reserves. Additionally, credit impairments on RMBS CDOs amounted to $56.8 million which are included in derivatives liabilities.

Adjusted Premiums Written

RAM reported adjusted premiums written, a measure of business production, of $41.2 million for the first quarter of 2008, which represents a 53% increase over the comparable quarter in 2007. RAM expects new business production will not be as strong for the remainder of 2008 as the markets continue to adjust to the continued ratings actions and shortage of capital in the financial guaranty industry.

Net adjusted premiums written is a non-GAAP measure of business production which includes both upfront premiums written and the present value of future installment premiums for new business written in the quarter (note: present value of installment premiums is reported by RAM at a one-quarter lag). Adjusted premiums written by product line are provided in the table below: