Post on 03-Oct-2021
MANAGING GROWTH: CREDIT, SURVEILLANCE AND CAPITAL
A FIXED-INCOME INVESTOR CONFERENCE
Presented by Financial Guaranty Insurance CompanyFriday, September 22, 2006
TODAY’S FOCUSMANAGING GROWTH
•• Credit Credit –– Risks We Insure and the Risks We Insure and the Related ProcessRelated Process
•• SurveillanceSurveillance –– Review and Oversight of Review and Oversight of Insured ExposureInsured Exposure
•• Capital Capital –– Managing Our Resources to Managing Our Resources to Support TripleSupport Triple--A RatingsA Ratings
EXPANDING THE FRANCHISEMANAGING GROWTH
•• Established in 1983Established in 1983 –– Leader in the Leader in the Industry in Market and Product ExpansionIndustry in Market and Product Expansion
•• MidMid--1990’s 1990’s –– Pull Back by Then Parent Pull Back by Then Parent (GECC) (GECC) –– Low Risk Municipal FocusLow Risk Municipal Focus
•• Ownership Change in December 2003 Ownership Change in December 2003 ––New Strategy and DirectionNew Strategy and Direction
STRATEGYMANAGING GROWTH
Selectively Expand & Develop the FGIC FranchiseSelectively Expand & Develop the FGIC Franchise
Reenter Markets Where FGIC ParticipatedReenter Markets Where FGIC Participated
Where Other Industry Participants Have Proven Business ModelsWhere Other Industry Participants Have Proven Business Models
Focus on Excellent Risk, Growth and Return CharacteristicsFocus on Excellent Risk, Growth and Return Characteristics
EXECUTION OF STRATEGYMANAGING GROWTH
ACTIONS
• Established State of the Art Risk Management and Corporate Governance
• Hired Experienced Market Leaders in New Product Areas
• Re-established London Office – International Franchise
• Extensive Client Marketing to Highlight Ability to Execute
• Expanded Investor Reporting and Transparency, Reinforced by Calling Campaign to Promote Top-notch Trading Value
EXECUTION OF STRATEGYMANAGING GROWTH
RESULTS
• Re-established Our Presence in Virtually Every Major Financial Guaranty Market
• More Than Doubled Staffing Levels – Senior Management is the Most Tenured in the Industry
• Robust Investor Relations Programs that Support Superior Trading Value
• Financial Results and Claims-paying Resources Have Grown at Exceptional Levels
Frank J. Bivona, Chief Executive Officerfrank.bivona@fgic.comFrank J. Bivona is Chief Executive Officer and a member of the Board of Directors of FGIC Corporation. Before joining FGIC, Mr. Bivona was Vice Chairman and Chief Financial Officer of Ambac Financial Group, Inc. and Ambac Assurance Corporation. In addition to his CFO role, other responsibilities while at Ambac included: Group Head of the Financial Services Group; senior member of the Portfolio Risk Management Committee; President of the Construction Loan Insurance Company (Connie Lee), an Ambac subsidiary; and head of several Ambac businesses, including investment arbitrage, derivative products, third party investment management; investor relations, rating agency relationships and reinsurance. Prior to Ambac, Mr. Bivona was with Citibank in various finance positions, including CFO of Citibank's Global Insurance Division. He also worked in the Northern European Division based in London and played a key role in establishing new offices in Scandinavia. He is a member of the Board of Directors of the YMCA of Greater New York. Mr. Bivona received a BS from Adelphi University.
CREDIT RISK MANAGEMENT
•• Establish Credit PolicyEstablish Credit Policy
•• Ensure Compliance & ConsistencyEnsure Compliance & Consistency
•• Communicate Risk ToleranceCommunicate Risk Tolerance
ROLE OF CREDIT RISK MANAGEMENTCREDIT RISK MANAGEMENT
ESTABLISH CREDIT POLICYESTABLISH CREDIT POLICY
•• Review Underwriting CriteriaReview Underwriting Criteria
•• Set Risk LimitsSet Risk Limits
•• Modify Credit Policy as NecessaryModify Credit Policy as Necessary
•• Communicate Changes InternallyCommunicate Changes Internally
ROLE OF CREDIT RISK MANAGEMENTCREDIT RISK MANAGEMENT
•• CRM InvolvementCRM Involvement
•• Credit Committee StructureCredit Committee Structure
•• Standardized DocumentationStandardized Documentation
ENSURE COMPLIANCE AND CONSISTENCYENSURE COMPLIANCE AND CONSISTENCY
ROLE OF CREDIT RISK MANAGEMENTCREDIT RISK MANAGEMENT
COMMUNICATE RISK TOLERENCECOMMUNICATE RISK TOLERENCE
•• Deal MeetingsDeal Meetings
•• Senior Credit CommitteeSenior Credit Committee
•• Portfolio Risk CommitteePortfolio Risk Committee
•• Surveillance MeetingsSurveillance Meetings
CRM TEAM
•• Three Deal ManagersThree Deal Managers
•• One Financial Institutions AnalystOne Financial Institutions Analyst
•• One Modeling ManagerOne Modeling Manager
•• Sovereign Risk ConsultantSovereign Risk Consultant
Sandy D’Imperio, Chief Credit Officer
alessandra.dimperio@fgic.comalessandra.dimperio@fgic.com
Alessandra V. D'Imperio, Senior Managing Director and Chief Credit Officer, has overall responsibility for FGIC's underwriting risk management for new business production. Ms. D'Imperio joined FGIC in April 2005. Prior to that, she was a Managing Director and Head of Credit Risk Management, Public Finance, at Ambac. She began her career at MBIA. Ms. D'Imperio holds a BA from the State University of New York at Albany and an MPA from New York University.
BOOK OF BUSINESSU.S. PUBLIC FINANCE
Limited ProviderLimited Provider
Single Skill SetSingle Skill Set
Narrow Book of BusinessNarrow Book of Business
Single-risk ConcentrationSingle-risk Concentration
Market Share FocusMarket Share Focus
Low RiskLow Risk
FGIC AS OF 12/03
Leases3%
Transportation12%
Excise12%
Net Par In Force
$189.4 Billion $189.4 Billion
Tax-Supported52%
Utility Revenue17%
Education4% Other PF
<1%
BOOK OF BUSINESSU.S. PUBLIC FINANCE
FGIC AS OF 6/06
Return FocusReturn Focus
Still Low RiskStill Low Risk
Risk DispersionRisk Dispersion
Diversified Book of BusinessDiversified Book of Business
Multiple Skill SetMultiple Skill Set
Full Service ProviderFull Service Provider
Excise12%
Net Par In Force$219.9 Billion
Net Par In Force
$219.9 Billion $219.9 Billion
Other PF<1%
Leases7%
Tax-Supported42%
UtilityRevenue
16%
Transportation11%
Education5% Health Care
3%
Investor-OwnedUtilities 2%
Housing<1%
BOOK OF BUSINESS
12/0312/03
U.S. PUBLIC FINANCE
6/066/06
Excise12%
Net Par In Force$219.9 Billion
Net Par In Force
$219.9 Billion $219.9 Billion
Other PF<1%
Leases7%
Tax-Supported42%
UtilityRevenue
16%
Transportation11%
Education5% Health Care
3%
Investor-OwnedUtilities 2%
Housing<1%
Leases3%
Transportation12%
Excise12%
Net Par In Force
$189.4 Billion $189.4 Billion
Tax-Supported52%
Utility Revenue17%
Education4% Other PF
<1%
Where We’re Going
CONTINUED EXPANSION AS INDUSTRY LEADERS
Guiding Principles
• Focus on Value Added Market Sectors
• Relationships and Execution Capabilities
• Creative Credit Enhancement Solutions
• Maintain Risk / Reward Discipline
U.S. PUBLIC FINANCE
Where We’re Going
BUILDING BLOCKS
Core InfrastructureCore Infrastructure
• Maintain Balanced Portfolio
• Keep Steady Deal Flow
• Service Client Base
•• Maintain Balanced PortfolioMaintain Balanced Portfolio
•• Keep Steady Deal FlowKeep Steady Deal Flow
•• Service Client BaseService Client Base
Select Enterprise SectorsSelect Enterprise Sectors
• Health Care• Municipal Electric Utilities• Cultural Institutions• Land-secured Deals• Municipal Leasing• Transportation
•• Health CareHealth Care•• Municipal Electric UtilitiesMunicipal Electric Utilities•• Cultural InstitutionsCultural Institutions•• LandLand--secured Dealssecured Deals•• Municipal LeasingMunicipal Leasing•• TransportationTransportation
Public / Private Partnerships (P3s) and Project Finance• Potential High Growth• Essential Assets• Execution Capabilities
Public / Private Partnerships (P3s) and Project Finance• Potential High Growth• Essential Assets• Execution Capabilities
U.S. PUBLIC FINANCE
Construction Risk
Bankruptcy Risk
Environmental Risk
Enterprise Risk
Financing Risk
Structural Risk
Construction RiskConstruction Risk
Bankruptcy RiskBankruptcy Risk
Environmental RiskEnvironmental Risk
Enterprise RiskEnterprise Risk
Financing RiskFinancing Risk
Structural RiskStructural Risk
CREDIT ANALYSIS EXPERTISE
YANKEE STADIUM EXAMPLE
RISKSRISKS
ConstructionConstructionConstruction EnvironmentalEnvironmentalEnvironmental
StructuralStructuralStructural EnterpriseEnterpriseEnterpriseFinancingFinancingFinancing
BankruptcyBankruptcyBankruptcy
U.S. PUBLIC FINANCE
Construction Risk
Bankruptcy Risk
Environmental Risk
Enterprise Risk
Financing Risk
Structural Risk
Construction RiskConstruction Risk
Bankruptcy RiskBankruptcy Risk
Environmental RiskEnvironmental Risk
Enterprise RiskEnterprise Risk
Financing RiskFinancing Risk
Structural RiskStructural Risk
CREDIT ANALYSIS EXPERTISE
YANKEE STADIUM EXAMPLE
MITIGANTSMITIGANTS
ConstructionConstructionConstruction
GuarantiesGuarantiesSuretiesSuretiesContingenciesContingencies
BankruptcyBankruptcyBankruptcy
Stadium CompanyStadium Company
EnvironmentalEnvironmentalEnvironmental
Impact SurveyImpact Survey
EnterpriseEnterpriseEnterprise
Credit AnalysisCredit AnalysisStress TestStress Test
ReservesReserves
StructuralStructuralStructural
Property Tax Property Tax AnalysisAnalysis
FinancingFinancingFinancing
Derivative ExpertiseDerivative Expertise
U.S. PUBLIC FINANCE
GOALS
• Deep Relationships Built on Trust• Deep Relationships Built on Trust
• Leader in Value Added Sectors• Leader in Value Added Sectors
• Insurer of Choice for Complex Transactions
• Insurer of Choice for Complex Transactions
• Expand Range of Products and Services
• Expand Range of Products and Services
• Maintain Strict Credit Risk Standards
• Maintain Strict Credit Risk Standards
U.S. PUBLIC FINANCE
Jeffrey R. Fried, Senior Managing Directorjeffrey.fried@fgic.com
Jeffrey R. Fried, Senior Managing Director, leads FGIC’s Public Finance Group. Before joining FGIC, he was General Counsel, since 1998, of Ambac Assurance Corporation's Public Finance Department and Financial Services Division. Mr. Fried was also a voting member of Ambac's Public Finance credit committee. In 1995, Mr. Fried joined Ambac from Greenberg Traurig LLP, where he served as bond counsel and underwriters' counsel. He holds a BS from the State University of New York at Albany and a JD from Fordham University School of Law.
TIMELINEINTERNATIONAL FINANCE
FGIC Founded
1983 12/03
Sale to New Investor Group
Opened London and Paris Offices
1990s
• Obtained Branch Licenses – UK and France
• Closed London and Paris Offices – Branches Kept in Place
TIMELINE: 12/2003 – 8/2006
FGIC12/03
6/04 First Hires
London Office Opens10/04
11/04FSA Approves
License for FGIC UK Limited Ltd
Insures 1st Deal11/04
1/051st New
IssuePriced
FGIC Credit Products
Ltd ObtainsFSA License
7/05
9/05Closes 1st Two
Future Flow Deals
Insures 1stUtility New
Issue11/05
6/06Insures 1st New IssuePFI Deal
Insures 1st Euro Market & 1st Italian Deal
6/06
8/06Awarded 1stMandate forAustralian
Deal
INTERNATIONAL FINANCE
INTERNATIONAL TEAM
Credit FocusedCredit Focused • One Credit Committee – Streamlined, Consistently Applied Standards
• One Credit Committee – Streamlined, Consistently Applied Standards
Skill Base Strength
INTERNATIONAL FINANCE
ExperiencedExperienced • Real Time Feedback• Proven Track Records• Real Time Feedback• Proven Track Records
Execution OrientedExecution Oriented • Nimble / Responsive • Promises Kept• Nimble / Responsive • Promises Kept
Local Market KnowledgeLocal Market Knowledge
• Languages – French, Spanish, Italian, Portuguese, Greek
• Markets – London, Sydney, Hong Kong, Tokyo, Paris, Madrid
• Languages – French, Spanish, Italian, Portuguese, Greek
• Markets – London, Sydney, Hong Kong, Tokyo, Paris, Madrid
BOOK OF BUSINESSINTERNATIONAL FINANCE
Net Par In Force
$0.17 Billion$0.17 Billion
12/200312/200312/2003
International Sovereign
68%
Sub-Sovereign32%
Sub-Sovereign4%
Public FinanceInfrastructure
14%
Other1%
Future Flow7% Sovereign
1%
Pooled Debt Obligations
39%
Utility32%
Toll Road2%
6/30/20066/30/20066/30/2006
Net Par In Force
$8.3 Billion$8.3 Billion
COUNTRY BREAKDOWN
Australia9%
United Kingdom37%
Turkey5%
Singapore2%
France2%
Italy4%
Brazil1%
Canada<1%
Kazakhstan1%
Diversified38%
$8.3 Billion Net Par Outstanding$8.3 Billion Net Par Outstanding$8.3 Billion Net Par Outstanding
INTERNATIONAL FINANCE
WHERE ARE WE GOING?
Exporting Our ExpertiseExporting Our ExpertiseP3 FrontierP3 Frontier
New Asset ClassesNew Asset Classes
Acceptable Risk ProfilesAcceptable EconomicsAcceptable Risk ProfilesAcceptable Economics
New Geography?New Geography? Central & Eastern Europe, Latin America, AsiaCentral & Eastern Europe, Latin America, Asia
New Offices?New Offices? Sydney, Tokyo, Mexico City, Madrid, Paris, Milan, Frankfurt, TorontoSydney, Tokyo, Mexico City, Madrid, Paris, Milan, Frankfurt, Toronto
INTERNATIONAL FINANCE
CREDIT ANALYSIS EXPERTISE
BIRMINGHAM HOSPITAL PFI PROJECT EXAMPLE
RISKSRISKS
ConstructionConstructionConstruction Trust DefaultTrust DefaultTrust DefaultService ContractService ContractService Contract
Force MajeureForce Force MajeureMajeureFoundation Trust Vires
Foundation Trust Foundation Trust ViresVires
INTERNATIONAL FINANCE
CREDIT ANALYSIS EXPERTISE
BIRMINGHAM HOSPITAL PFI PROJECT EXAMPLE
MITIGANTSMITIGANTS
ConstructionConstructionConstruction
ExperienceExperienceGuarantiesGuarantiesTA ReviewTA Review
Service ContractService ContractService Contract
ExperienceExperienceCompetitive SuppliersCompetitive Suppliers
TA ReviewTA Review
Trust DefaultTrust DefaultTrust Default
Secretary of State Secretary of State GuaranteeGuarantee
of Trust Obligationof Trust Obligation
StandstillStandstillDSRADSRA
TerminationTerminationForce MajeureForce Force MajeureMajeure
QC OpinionQC OpinionAuditors OpinionAuditors OpinionStringent Legal AnalysisStringent Legal Analysis
Foundation Trust ViresFoundation Trust Foundation Trust ViresVires
INTERNATIONAL FINANCE
Timothy Travers is Senior Managing Director of International Finance and Global Utilities of FGIC Corporation. Prior to joining FGIC, Mr. Travers held various positions at Ambac Assurance Corporation, most recently Managing Director-European Structured Finance and Securitization. He served as Ambac's Managing Director-Global Utilities from 1993 through 2002. Mr. Travers received a BS from New York University’s School of Business and Public Administration.
Timothy S. Travers, Senior Managing Director tim.travers@fgic.com
U.S. STRUCTURED FINANCE
Thomas J. Adams, Senior Managing DirectorKenneth L. Degen, Managing Director
MBS84%
FGIC’S EVOLUTION
Very Limited ParticipationVery Limited Participation
Broad Participation Across Market SpectrumBroad Participation Across Market Spectrum
2006
U.S. STRUCTURED FINANCE
Narrow FocusNarrow Focus Building Portfolio Similar to PeersBuilding Portfolio Similar to Peers
CDOsCDOsCommercial AssetsCommercial AssetsConsumer AssetsConsumer Assets
2003
MBS84%
BOOK OF BUSINESSU.S. STRUCTURED FINANCE
Conduits6%
Credit Card5%
Net Par In Force
12/200312/200312/2003
$17.2 Billion $17.2 Billion $17.2 Billion
MBS83%
Other6%
MBS84%
BOOK OF BUSINESSU.S. STRUCTURED FINANCE
MBS83%
Auto5%
6/20066/20066/2006
$61.2 Billion$61.2 Billion$61.2 Billion
MBS59%
CDO22%
Credit Card1%
Other <1%
Other ABS6%
Pooled Aircraft4% Receivables
3%
Conduits6%
Credit Card5%
Net Par In Force
12/200312/200312/2003
$17.2 Billion $17.2 Billion $17.2 Billion
MBS83%
Other6%
MBS84%
SUB-PRIME AUTO LOAN TRANSACTIONS
ABS CONSUMERU.S. STRUCTURED FINANCE
RISKSRISKS
Collateral
• Borrower Credit Quality
• New vs. Used Car
• Borrower Equity
• Loan Terms
Counterparty
• Underwriting Guidelines / Process
• Collection Efforts
• Ability to Liquidate / Repossess Collateral
Market
• New Car Market -Incentives, Supply, etc.
• Used Car Price
• Volatile Asset Performance
MBS84%
ABS CONSUMERU.S. STRUCTURED FINANCE
MITIGANTSMITIGANTS
Established Asset ClassesEstablished Established Asset ClassesAsset Classes
Rigorous Loss ModelingRigorous Loss Rigorous Loss ModelingModeling
Structured Protection• Credit Enhancement Triggers• Servicer Termination Triggers
Structured ProtectionStructured Protection•• Credit Enhancement TriggersCredit Enhancement Triggers•• Servicer Termination TriggersServicer Termination Triggers
Large Loss CushionLarge Loss Large Loss CushionCushion
Short ExposureShort ExposureShort Exposure
Back-Up ServicerBackBack--Up Up ServicerServicer
Counterparty Track Record & Financial Strength
Counterparty Track Counterparty Track Record & Financial Record & Financial StrengthStrength
SUB-PRIME AUTO LOAN TRANSACTIONS
MBS84%
U.S. STRUCTURED FINANCE – ABS CONSUMER
SAMPLE AUTO POOL
0%
10%
25%
1 Month 68 Months30 36 42
BreakevenLoss Curve
Base CaseLoss Curve
Worst Performing Vintage
FGIC’S LOSS COVERAGE PROVIDES A SUBSTANTIAL CUSHION
MBS84%
U.S. STRUCTURED FINANCE
WHAT IS TRIPLE–X INSURANCE SECURITIZATION?
ABS COMMERCIALU.S. STRUCTURED FINANCE
ABS COMMERCIAL
• Statutory Reserve Requirements under Regulation Triple-X Created Significant Excess Reserve Requirements for Life Companies
Standard Valuation Mortality Tables are Based on Outdated Mortality Data of the Insured Population
Do Not Adjust for Historical Mortality Improvements
Do Not Adjust for Variance in Mortality Experience Among Different Risk Classes
MBS84%
TERM LIFE INSURANCE POLICIES – RESERVE PROFILES
U.S. STRUCTURED FINANCE
ABS COMMERCIAL
2006 20350
1,400,000
800,000
200,000 Economic ReservesEconomic Reserves
MBS84%
U.S. STRUCTURED FINANCE
ABS COMMERCIAL
Statutory ReservesStatutory Reserves
Economic ReservesEconomic Reserves
TERM LIFE INSURANCE POLICIES – RESERVE PROFILES
0
1,400,000
800,000
200,000
2006 2035
MBS84%
U.S. STRUCTURED FINANCE - COMMERCIAL
CREDIT ANALYSIS EXPERTISE
TRIPLE-X EXAMPLE
RISKSRISKS
MortalityMortalityMortality UnderwritingUnderwritingUnderwriting
AssetAssetAsset InsolvencyInsolvencyInsolvency
LapseLapseLapse
MBS84%
U.S. STRUCTURED FINANCE
ABS COMMERCIAL
MITIGANTSMITIGANTS
Contributed Contributed CapitalCapital
Embedded Embedded ProfitsProfits
Actuarial Actuarial ReviewReview
Rigorous Model Rigorous Model TestingTesting
Legal AnalysisLegal AnalysisStringent Investment Stringent Investment GuidelinesGuidelines
TRIPLE-X EXAMPLE
MBS84%
WHERE WE’RE GOING
CONTINUED EXPANSION AS INDUSTRY LEADERS
U.S. STRUCTURED FINANCE
• Balance Opportunities with Prudent Risk Taking
• Drive Business through Expertise, Execution and Relationships
• Continue to Diversify for Effective Capital Allocation
Thomas J. Adams, Senior Managing Director
thomas.adams@fgic.com
Thomas J. Adams, Senior Managing Director, leads FGIC's Consumer Asset-Backed Securities Group. Before joining FGIC, Mr. Adams was a Managing Director at Ambac responsible for Mortgage-Backed Securities and mortgage-related collateral. Prior to that, he worked at Moody's Investors Service in the Asset-Backed Securities Group and in the Residential Mortgage-Backed Security Group. Until 1992 Mr. Adams worked in the Structured Finance Group of Thacher Proffitt & Wood. He holds a BA from Colgate University and a JD from Fordham University School of Law.
Kenneth L. Degen, Managing Directorken.degen@fgic.com
Ken Degen joined FGIC in May 2004, and he is the head of the Commercial Asset-Backed Group. In this role he is responsible for all commercial asset transactions, including aviation, operating and leasing securitizations, as well as all financial institution products. Prior to joining FGIC, Mr. Degen spent 14 years with the bond insurer MBIA where he was responsible for insuring more than $12 billion in asset-backed transactions. He has been involved in the securitization of numerous asset classes including residential mortgages, rail stock, shipping containers and other corporate assets. Mr. Degen also has seven years experience at Standard & Poor’s. He has a BS from Temple University and an MPA from Syracuse University Maxwell School.
SURVEILLING RISK
RISK CLIMATE
WHY SURVEILLANCE?
“Housing Market Cools”
“Got Downgraded”
“Hurricane Hits New Orleans”
“Will Interest Rates Continue to Rise?”
“Medicare Reform Introduced”
DEVELOPMENTS
• Since 12/03, FGIC’s Business Has Grown Significantly
Insured Portfolio Up 40%Substantial Increase in New Sectors / Countries
• Surveillance Department is Growing and Changing to Meet These Demands
• And Will Continue to Adapt with FGIC’s Growth and Diversification
SURVEILLING RISK
CORE SURVEILLANCE RESPONSIBILITIES
• Credit Monitoring
• Remediation of Impaired Credits
• Portfolio Risk Assessments
PROACTIVE MONITORING LEADS TO EARLY DETECTION AND FACILITATES LOSS PREVENTION
SURVEILLING RISK
OPERATING MODEL
INTEGRATED PROCESS HELPS MAINTAIN FGIC’S HIGH QUALITYINSURED PORTFOLIO
SURVEILLING RISK
UnderwritingUnderwriting
SurveillanceSurveillance
Credit, Legal, Structural Analyses
Performance Assessments
Lessons Learned and Reinforced
SURVEILLANCE INFRASTRUCTURE
FRAMEWORK FOR HIGH QUALITY PORTFOLIO MONITORING
• Implemented Surveillance Policies / Procedures for New Sectors
• Developed Risk Management DatabaseAutomated Surveillance CalendarEnhanced Tracking of ExposuresDeal Specific Performance for ABS and CDOs
• Enhanced FGIC’s Modeling Capabilities
• Instituted Portfolio Sector Reviews
• Enhanced Oversight
SURVEILLING RISK
OVERSIGHT OF SURVEILLANCE ACTIVITIES
STRONG MANAGEMENT AND BOARD OVERSIGHT IN PLACE
FGIC’s Watch List Committee
FGIC’s Portfolio Risk Committee
The FGIC Board’s Credit and Investment Committee
• Surveillance Department Operates Independent of Underwriting and Credit Departments
• Reports to General Counsel
• Frequent, Regular Meetings
SURVEILLING RISK
HOW WE DO IT
SURVEIL TO A “NO SURPRISE” LEVEL OF OVERSIGHT
• Sign off by Managing Director, Portfolio Risk
• Calendar Reset
FullyPerforming
REGULAR SURVEILLANCE
FORMAL REVIEWSEach Transaction Monitored in Accordance with a “Risk-Adjusted” Review Schedule
• Monthly / Quarterly Performance Tracking
• Financial Database
• More Frequent Review List
• Counterparty Diligence Visits
• Rating Agency Feeds
• Market Trend Analysis
PLUS
SURVEILLING RISK
HOW WE DO IT
SURVEIL TO A “NO SURPRISE” LEVEL OF OVERSIGHT
Recommend for Watch List
Remediation Process Begins
• More Frequent and Heightened Surveillance Reviews• Proactive Remediation Efforts• Regular Review by Senior Management and Board Committee
ISSUES IDENTIFIED
SURVEILLING RISK
ImpairmentDetected
SURVEILLANCE OVERVIEW
CONSUMER ASSET–BACKED SECURITIES EXAMPLE
Monthly Surveillance
• Track Deal Performance
• Review Comparative Performance
Issuer by Vintage
Industry Comparisons
• Track Market Trends
Annual Surveillance
• Written Deal Reviews
• Issuer Financial and Performance Review
• Servicer and Issuer On-Site Due Diligences
• Cash Flow Analysis on Seasoned Transactions
• Report Market Trends
SURVEILLING RISK
FGIC’s RESPONSE TO KATRINA
• Leveraged the Whole FGIC TEAM – Resources from Underwriting, Credit and Legal to Supplement Surveillance Efforts
• Contacted Issuers, Trustees and Paying Agents
• Reached Out to Law Firms and Consultants
• Visited New Orleans
• Mobilized Trade Association Efforts
• Established Comprehensive Communications Plan
WE KNEW WE NEEDED TO MOVE FAST, SO WE. . .
SURVEILLING RISK
FGIC’s RESPONSE TO KATRINA
FGIC’S PROACTIVE SURVEILLANCE EFFORTS YIELDED:
• Informed Assessments of Potential Exposure
Publicly Posted September 2005
Determined Impaired Credits
Reserves Established Where Appropriate
• Credibility with Issuers, Investors and Other Participants
Opens Up Dialogue and Information Flow
Seat at the Negotiating Table
SURVEILLING RISK
• Ability to Influence and Act Quickly on Loss Mitigation Opportunities
KATRINA EXPOSURE TODAY
• $1 Billion Par on FGIC Watch List
• Essential Services Restored
• Housing / Population Coming Back Slowly
• Remediation Efforts Continue
• Federal and State Aid Flowing
• We Are Cautiously Optimistic
SURVEILLING RISK
SURVEILLANCE GOING FORWARD
• Will Continue to Evolve to Meet FGIC’s Needs
• Will Always Play a Critical Role
• Will Provide Ongoing Value and Comfort to FGIC’s Investors
SURVEILLING RISK
A. Edward Turi, III, Senior Vice President and General Counseledward.turi@fgic.com
A. Edward Turi, III, has served as General Counsel of FGIC Corporation and FGIC Insurance since September 1995. He joined FGIC in July 1991 and was Co-General Counsel from January 1992 to September 1995. Mr. Turi was an attorney at Cravath, Swaine & Moore from August 1984 until he joined FGIC. He holds a BS from Georgetown University and a JD from the University of Virginia School of Law.
Managing Capital • An Integrated Approach Focused On:
Protecting a Solid Triple-A
While Maximizing Return on Capital
INTEGRATED APPROACHMANAGING CAPITAL
Deal Level “Capital Charge”
Single Obligor / Servicer Limits
•S&P Margin of Safety Cushion•Moody’s Capital Ratios Margins•Fitch Capital Model•NYSID Aggregate Insured Limits
Equity Allocated to Each Deal
Limits on Portfolio Concentrations
Overall Financial Strength Requirements
+
+
=AAA
MAINTAINING STABLE TRIPLE-AMANAGING CAPITAL
AAA
FGIC TRIPLEFGIC TRIPLE--A CAPITAL STRUCTURE DEFINED AT MULTIPLE LEVELSA CAPITAL STRUCTURE DEFINED AT MULTIPLE LEVELS
CLAIMS PAYING RESOURCESMANAGING CAPITAL
12/2003 12/2004 12/2005 6/2006
($ in Millions)
$1,835 $2,011 $2,198 $2,289
$300$300 $300$895
$1,062$1,273 $1,374
$111$192
$393$520
$300
Present Value of Installment Premiums
$4,483$4,164
$3,566$3,141
14%17%
8%
Statutory Capital
Soft Capital
Unearned Premiums and Loss & LAE
CAPITAL ADEQUACY RESULTS
Capital Adequacy TrendMANAGING CAPITAL
1.44*
1.78Moody's
Total Capital Ratio
S&P Margin of Safety
2001 2002 2003 2004 2005
1.75
1.93
1.46
1.3 - 1.4x
1.5 - 1.6x
1.3 - 1.4x 1.3 - 1.4x 1.3 - 1.4x
* Published as of 1H05
CAPITAL TO MEET TRIPLECAPITAL TO MEET TRIPLE--A CRITERIA A CRITERIA
CAPITAL PLANNINGMANAGING CAPITAL
2003 2004 2005
Total Claims Paying Resources
Capital Usage
• Net Consumer of Capital Currently
• Growth Will Reach a Level Where Returns on Capital Fund New Business Growth
BALANCE CAPITAL GENERATION WITH CAPITAL USEBALANCE CAPITAL GENERATION WITH CAPITAL USE
FOCUSED ATTENTION FROM A CORPORATE FINANCE AND BUSINESS PERSPECTFOCUSED ATTENTION FROM A CORPORATE FINANCE AND BUSINESS PERSPECTIVEIVE
HOW WE MANAGE CAPITALMANAGING CAPITAL
Critical Levers
GoalOptimize Capital Structure, Given Rating Agency Criteria
Corporate Capital Structure
Corporate Capital Structure
• Financial Leverage• Soft Capital
Utilization• Dividend Policy• Liquidity Position
Target Profitable Product Mix, While Maintaining Risk Diversity across the Insured Portfolio
Business Performance
Business Performance
• Product Mix• Sector Capital
Requirements• Expense Efficiency
HOW WE MANAGE CAPITAL: CORPORATE LEVEL
MANAGING CAPITAL
Since the Sale of FGIC in December 2003• Introduced Financial Leverage at the Holding
Company
• Introduced Market-Standard Soft Capital Facility
• Have Reinvested Capital Generated in the Business to Support New Business Growth
GOAL: OPTIMIZE CAPITAL STRUCTURE GIVEN RATING AGENCY CRITERIAGOAL: OPTIMIZE CAPITAL STRUCTURE GIVEN RATING AGENCY CRITERIA
HOW WE MANAGE CAPITAL: BUSINESS PERFORMANCE
MANAGING CAPITAL
GOAL: TARGET PROFITABLE PRODUCT MIX, MAINTAIN PORTFOLIO DIVERSITGOAL: TARGET PROFITABLE PRODUCT MIX, MAINTAIN PORTFOLIO DIVERSITYY
Since the Sale of FGIC in December 2003• Diversified the Product Mix, Notably in Areas that
Offer Attractive Risk/Return Dynamics
• Building the Scale to Achieve Improved Operating Efficiency Going Forward
2004
ACHIEVING GROWTH IN EARNINGS AND RETURNSACHIEVING GROWTH IN EARNINGS AND RETURNS
MANAGING CAPITAL
HOW WE MANAGE CAPITAL:BUSINESS PERFORMANCE
Year
-ove
r-Ye
ar E
arni
ngs
Gro
wth
’04-
1H06
Year-over-Year ROE Growth Rate
-10%
10%
15%
30%40%
-10%
2005
1H 2006
Diversification of Product Lines
Building Operating Efficiency
MANAGING CAPITAL
RETURN ON EQUITY
2004 2005 1H 2006
8.6%9.5%
11.1%
CREATING POSITIVE PROFITABILITY DYNAMIC CREATING POSITIVE PROFITABILITY DYNAMIC
MANAGING CAPITAL
• Managing Capital Efficiently is a Key Strategic Imperative for FGIC
• FGIC, as Planned, is Now a Capital Consumer
• FGIC’s Capital Structure Aligned to Support Business Growth
SUMMARY
CAPITAL PLANNING: WELL POSITIONED FOR THE FUTURE CAPITAL PLANNING: WELL POSITIONED FOR THE FUTURE
Donna Blank has served as the Chief Financial Officer of FGIC Corporation since March 2003. Ms. Blank joined FGIC in 1997, and after serving in several financial roles, is currently responsible for directing the company’s financial operations including financial reporting, financial and capital planning, accounting, treasury, and tax. She also manages the Information Technology department. Prior to joining FGIC, Ms. Blank held several management positions, including Manager of Financial Planning and Analysis for a GE insurance business unit, and Director of Budget and Planning for the Robert Plan Insurance Company. Ms. Blank received a bachelor’s degree from the University of Michigan. She holds an MBA in Finance, and a Master in International Affairs, both from Columbia University.
Donna J. Blank, Chief Financial Officerdonna.blank@fgic.com
MANAGING GROWTH: CREDIT, SURVEILLANCE AND CAPITAL
A FIXED-INCOME INVESTOR CONFERENCE
Presented By Financial Guaranty Insurance CompanyFriday, September 22, 2006
MANAGING GROWTH
Howard C. Pfeffer, President
ADJUSTED GROSS PREMIUM BY BUSINESS LINES 2003-2005
MANAGING GROWTH
12/0312/03 12/0412/04 12/0512/05
Public FinancePublic Finance
Structured Structured FinanceFinance
InternationalInternationalFinanceFinance
224.2224.2
49.349.3
00
371.0371.0
195.2195.2
71.771.7$ in Millions$ in Millions
•• Growth of Capital MarketsGrowth of Capital Markets
•• Niche MarketsNiche Markets
•• Convergence of Public & Structured FinanceConvergence of Public & Structured Finance
•• Exportation of Products to New MarketsExportation of Products to New Markets
•• Advancement of Existing Core MarketsAdvancement of Existing Core Markets
FUTURE GROWTH
•• New Structures, TechnologyNew Structures, Technology
•• Strategic RelationshipsStrategic Relationships
MANAGING GROWTH
•• Tight Credit SpreadsTight Credit Spreads
•• Alternative StructuresAlternative Structures
•• Bank CompetitionBank Competition
•• Monoline CompetitionMonoline Competition
•• Maintaining DisciplineMaintaining Discipline
CHALLENGESMANAGING GROWTH
•• Disciplined Business ExpansionDisciplined Business Expansion
•• Organizational FlexibilityOrganizational Flexibility
•• Consistent Risk ManagementConsistent Risk Management
•• Superior Transaction ExecutionSuperior Transaction Execution
HOW WE WILL GROWMANAGING GROWTH
HOW WE WILL GROW
•• Exercise Risk / Return DisciplineExercise Risk / Return Discipline
•• Optimize Capital UsageOptimize Capital Usage
•• Enhance Risk DistributionEnhance Risk Distribution
•• Maintain TransparencyMaintain Transparency
MANAGING GROWTH
EVOLUTION OF A LEADER
•• Global FranchiseGlobal Franchise
•• Buyer and Seller of Credit RiskBuyer and Seller of Credit Risk
•• Diversified Insured PortfolioDiversified Insured Portfolio
•• Execution Capability in All MarketsExecution Capability in All Markets
•• Remain at Forefront of Risk ManagementRemain at Forefront of Risk Management
•• Low Risk Insured PortfolioLow Risk Insured Portfolio
•• Transparent OrganizationTransparent Organization
FGIC IN 5 YEARS
MANAGING GROWTH
Howard C. Pfeffer, Presidenthoward.pfeffer@fgic.com
Howard C. Pfeffer is President and a member of FGIC Corporation’s Board of Directors. He is responsible for all of FGIC’s domestic and international underwriting businesses. Mr. Pfeffer Joined FGIC in December 2003. Prior to joining FGIC, he was a Vice Chairman of Ambac Financial Group, which he joined in 1989. During his 14 years at Ambac, he had responsibility for a variety of Ambac’s businesses including Public Finance and Structured Finance. In 2003, he assumed responsibility for Ambac’s Investment Portfolio and Financial Services Group. Mr. Pfeffer was a member of Ambac’s Senior Credit Committee and Portfolio Risk Management Committee. Prior to joining Ambac, Mr. Pfeffer was a Vice President in Citicorp’s Investment Bank’s Municipal Finance Division. During his tenure at Citicorp, he specialized in innovative structured finance transactions utilizing Citibank credit and derivative products. In addition, Mr. Pfeffer was a member of Citicorp Investment Bank’s recruiting committee. He holds a Bachelor of Business Administration degree from Baruch College and completed an Executive Management Program at Stanford University.
The information contained in this presentation is of a general nature and includes forward-looking statements. Actual results may differ, and FGIC does not undertake to update the forward-looking statements or any other information contained in this presentation. This presentation is not intended to be, and should not be, relied upon for the purpose of making any investment decisions whatsoever. Under no circumstances does it constitute an offer or invitation to invest in FGIC or any securities or investments guaranteed by FGIC.
DISCLAIMER