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FINANCIAL GUARANTORS INSURED
RECORD LEVELS OF ASSET-BACKED
AND PUBLIC SECTOR SECURITIES IN 2005
___________
Report Eleventh Consecutive Year of Revenue and Profit Growth
NEW YORK, May 16, 2006 – The member firms of the Association of Financial Guaranty Insurers
(AFGI) insured a record volume of public sector bonds and asset-backed securities in 2005, totaling
$540.7 billion in par value. Further, the member firms' aggregated revenues and net income exceeded
2004's record levels, and qualified statutory capital continued to grow. In 2005, premium levels were
flat with that of the year before, in large part because of tight credit spreads, investor liquidity and low
perceived credit risk in some sectors.
AFGI's eleven member companies are highly rated insurers and reinsurers of municipal bonds and
structured asset-backed securities. They provide an unconditional and irrevocable guarantee of
scheduled principal and interest payments on the securities they insure. Issuers benefit from enhanced
securities distribution and borrowing cost savings resulting from the credit enhancement of their
insured securities.
Following are highlights of 2005 aggregated financial results:
Record total par insured, consisting of domestic and international public sector bonds and asset-
backed securities (ABS): $540.7 billion, up 16% over 2004's record. This total reflects record
domestic par insured munis, $248.0 billion, up 19%, and record domestic par insured ABS, $216.3
billion, up 8%. A record level of international public sector securities was also insured: $14.9
billion, up 27%. International insured ABS, at $61.5 billion, up 31%, reached the second highest
level in the association's history
Estimated savings to U.S. taxpayers: $2.3 billion because of the lower cost of funding for
issuers of insured municipal bonds. Since the inception of municipal bond insurance in 1971,
borrowing cost savings are estimated to total almost $40 billion nationwide.
Direct premiums written: $3.8 billion, virtually flat with 2004.
Record net income: $2.1 billion, up 8%, marking the eleventh consecutive year of profit growth.
Record revenues: $3.9 billion, up 5%. AFGI member firm revenues consist predominantly of net
premiums earned and net investment gain.
Qualified statutory capital: $20.7 billion, up 8%. Qualified statutory capital, an important
measure of the insurers' financial strength, comprises policyholders' surplus and contingency
reserves.
Unearned premium reserves: $11.5 billion, up 8%. Bond insurance premiums are often
collected in full when securities are insured, and then booked as revenue proportionately over the
life of the bond. This accounting treatment of unearned premium reserves contributes to a
consistent and predictable earnings pattern unique to the bond insurance industry.
Commenting on the 2005 aggregated financial results, Séan W. McCarthy, Chair of AFGI and
President and Chief Operating Officer of Financial Security Assurance, said: "While 2005 was a
challenging year for bond insurers, industry par insured increased over that of 2004 in all of the sectors
served, and the industry expanded into new geographical areas. This is a trend we expect to continue
as financial guaranty insurance is applied to a broader range of public infrastructure and asset-backed
securities throughout the world and the new Basel II bank capitalization standards take hold.
"Most important, however, the industry's aggregate statutory capital continued to grow, as we
provided economic value to an increasing number of issuers and investors around the world.
"Of course no report on 2005 activities would be complete without noting the personal and financial
devastation caused by Hurricane Katrina. While only a handful of municipalities had to call upon their
insurers to help with interest payments, it demonstrated our members' unconditional and irrevocable
guarantees and the value of bond insurance," Mr. McCarthy concluded.
About AFGI
AFGI is the trade association representing the eleven insurers and reinsurers of municipal bonds and
asset-backed securities. AFGI member companies are ACA Financial Guaranty Corporation,
Ambac Assurance Corporation, Assured Guaranty Corp., BluePoint Re Limited, CIFG
Assurance North America, Inc., Financial Guaranty Insurance Company, Financial Security
Assurance Inc., MBIA Insurance Corporation, Radian Asset Assurance Inc., RAM
Reinsurance Company Ltd. and XL Capital Assurance Inc.
All AFGI member firms operate under the strict risk-based capital provisions of Article 69 of the New
York Insurance Law. To safeguard the rating of the insured obligations and to protect the interests of
insured bond investors, AFGI firms subscribe to a "zero loss" or "remote loss" underwriting standard.
Securities insured by AFGI members receive the unconditional guarantee of scheduled principal and
interest payments to holders of these obligations. In the 35-year history of the financial guaranty
industry, no member company has ever failed to fulfill its payment obligations to insured bond
investors when due.
Posted: May 2006
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