---

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|                                  
|----------------------------------
|UNITED
STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington,
 D.C. 20549           
|                                  
|FORM
 10-K                        

|           |                                                                              
|---------- | -----------------------------------------------------------------------------
|(Mark One)
|           |                                                                              
|x          | ANNUAL REPORT PURSUANT TO SECTION
 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
|           |                                                                              
|           | For the fiscal year ended December 31, 2008                                  
|           |                                                                              
|o          | TRANSITION REPORT PURSUANT TO
 SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
|           |                                                                              
|           | For the transition period from
            
           to                    

Commission file number
0001-352713

|                                                       
|-------------------------------------------------------
|RAM
 HOLDINGS LTD.                                     
|                                                       
|(Exact
 name of Registrant as specified in its charter)

|                                                                |                                           
|--------------------------------------------------------------- | ------------------------------------------
|Bermuda                                                         | N/A                                       
|(State
 or other jurisdiction of incorporation or organization) | (I.R.S.
 employer identification no.)     
|                                                                |                                           
|RAM Re House                                                    | HM 12                                     
|46 Reid Street                                                  | (Zip
 code)                               
|Hamilton Bermuda                                                |                                           
|(Address
 of principal executive offices)                       |                                           
|                                                                |                                           
|(441) 296-6501                                                 
|                                                                |                                           
|(Registrants
 telephone number, including area code)          
|                                                                |                                           
|Securities
registered pursuant to Section 12(b) of the Act:    
|                                                                |                                           
|Title
 of each class                                            | Name
 of each exchange on which registered
|Common Shares, $0.10 par value per share                        | NASDAQ Global Market                      

Securities registered pursuant to Section 12(g) of the
Act: None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x

Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes o No x

Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o

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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act:

| |                              |  |                        |  |                                              |  |                              
| | ---------------------------- |  | ---------------------- |  | -------------------------------------------- |  | -----------------------------
| | Large Accelerated
 Filer   o |  | Accelerated
 filer   o |  | Non-accelerated
 filer   x                   |  | Smaller reporting
 company  o
| |                              |  |                        |  | (Do not check if smaller
 reporting company) |  |                              

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o
No x

The
aggregate market value of voting and non-voting shares held by non-affiliates
of the registrant as of the close of business on June 30, 2008 was $17,417,297
(based upon the closing price of the registrants shares on the NASDAQ Global
Market on that date, which was $1.00). For purposes of this information, the
outstanding Common Shares which were owned by all directors and executive
officers of the registrant were deemed to be Common Shares held by affiliates.

As
of April 13, 2009,
27,282,579 Common Shares, par value $0.10 per share were outstanding.

Documents Incorporated By Reference

None

2

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TABLE OF CONTENTS

|         |  |                                                                                                                |  |     
|-------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                |  | Page
|         |  |                                                                                                                |  |     
|PART I   |  |                                                                                                                |  |     
|Item 1.  |  | Business                                                                                                       |  | 5   
|Item 1A. |  | Risk
 Factors                                                                                                  |  | 27  
|Item 1B. |  | Unresolved
 Staff Comments                                                                                     |  | 42  
|Item 2.  |  | Properties                                                                                                     |  | 42  
|Item 3.  |  | Legal
 Proceedings                                                                                             |  | 42  
|Item 4.  |  | Submission
 of Matters to a Vote of Security Holders                                                           |  | 42  
|PART II  |  |                                                                                                                |  |     
|Item 5.  |  | Market for
 Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
 of Equity Securities |  | 42  
|Item 6.  |  | Selected
 Financial Data                                                                                       |  | 44  
|Item 7.  |  | Managements
 Discussion and Analysis of Financial Condition and Results of Operations                         |  | 46  
|Item 7A. |  | Quantitative
 and Qualitative Disclosures About Market Risk                                                    |  | 82  
|Item 8.  |  | Financial
 Statements and Supplementary Data                                                                   |  | 83  
|Item 9.  |  | Changes in
 and Disagreements With Accountants on Accounting and Financial Disclosure                          |  | 127 
|Item 9A. |  | Controls
 and Procedures                                                                                       |  | 127 
|Item 9B. |  | Other
 Information                                                                                             |  | 127 
|PART III |  |                                                                                                                |  |     
|Item 10. |  | Directors,
 Executive Officers and Corporate Governance                                                        |  | 127 
|Item 11. |  | Executive
 Compensation                                                                                        |  | 132 
|Item 12. |  | Security
 Ownership of Certain Beneficial Owners and Management and Related Stockholder
 Matters               |  | 151 
|Item 13. |  | Certain
 Relationships and Related Transactions                                                                |  | 153 
|Item 14. |  | Principal
 Accountant Fees and Services                                                                        |  | 154 
|PART IV  |  |                                                                                                                |  |     
|Item 15. |  | Exhibits,
 Financial Statement Schedules                                                                       |  | 155 

3

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FORWARD-LOOKING STATEMENTS

Some of the statements under
Business, Risk Factors, Managements Discussion and Analysis of Financial
Condition and Results of Operations, and elsewhere in this Form 10-K include
forward-looking statements which reflect our current views with respect to
future events and financial performance. These statements include
forward-looking statements both with respect to us specifically and the
insurance and reinsurance industries in general. Statements which include the
words expect, intend, plan, believe, project, anticipate,
should,
could, may, will and similar words or statements of a future or
forward-looking nature identify forward-looking statements for purposes of the
federal securities laws or otherwise.

All forward-looking
statements address matters that involve risks and uncertainties. Accordingly,
there are or will be important factors that could cause our actual results to
differ materially from those indicated in these statements. We believe that
these factors include but are not limited to those described under Risk
Factors below and the following:

| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | recapture of business by
 customers with whom we have a concentration of our reinsurance in force;                                                                                                                    
| |   |                                                                                                                                                                                                                       
| |  | the adverse developments
 in the housing and credit markets that began in mid 2007 and have continued
 through the date of this report and credit risk;                                                               
| |   |                                                                                                                                                                                                                       
| |  | inability to access
 capital on acceptable terms or at all;                                                                                                                                                           
| |   |                                                                                                                                                                                                                       
| |  | more severe losses or more
 frequent losses associated with our reinsurance products or changes in our
 assumptions used to estimate loss reserves and unrealized (losses) gains on
 derivative financial instruments;
| |   |                                                                                                                                                                                                                       
| |  | income taxes, including
 our ability to write reinsurance business through Bermuda or other similarly
 tax-efficient jurisdictions;                                                                                   
| |   |                                                                                                                                                                                                                       
| |  | timing of cash flows
 including, principally, receipt of premium and timing of loss payments;                                                                                                                         
| |   |                                                                                                                                                                                                                       
| |  | developments in the
 worlds financial and capital markets that adversely affect our loss
 experience, our unrealized (losses) gains on derivative financial instruments
 or our investment returns;                  
| |   |                                                                                                                                                                                                                       
| |  | further downgrades of the
 financial strength ratings of RAM Re by Standard & Poors;                                                                                                                                 
| |   |                                                                                                                                                                                                                       
| |  | changes in ratings
 methodology by Standard & Poors;                                                                                                                                                                 
| |   |                                                                                                                                                                                                                       
| |  | inability to execute our
 business strategy;                                                                                                                                                                          
| |   |                                                                                                                                                                                                                       
| |  | changes in regulation or
 tax laws applicable to us, our subsidiaries or customers;                                                                                                                                   
| |   |                                                                                                                                                                                                                       
| |  | our ability to retain
 qualified management and other personnel;                                                                                                                                                      
| |   |                                                                                                                                                                                                                       
| |  | contract cancellations;                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                       
| |  | effects of mergers,
 acquisitions, amalgamations and divestitures;                                                                                                                                                    
| |   |                                                                                                                                                                                                                       
| |  | changes in accounting
 policies or practices; and                                                                                                                                                                     
| |   |                                                                                                                                                                                                                       
| |  | changes in general
 economic conditions, including inflation, credit, foreign currency
 environment, interest rates and other factors.                                                                                

The foregoing review of
important factors should not be construed as exhaustive, and should be read in
conjunction with the other cautionary statements that are included in this
annual report on Form 10-K. We undertake no obligation publicly to update or
review any forward-looking statement, whether as a result of new information,
future developments or otherwise.

If one or more of these or
other risks or uncertainties materialize, or if our underlying assumptions
prove to be incorrect, actual results may vary materially from those we
projected. Any forward-looking statements you read in this Form 10-K reflect
our current views with respect to future events and are subject to these and
other risks, uncertainties and assumptions relating to our business,
operations, results of operations, financial condition, strategies and
liquidity. All subsequent written and oral forward-looking statements
attributable to us or to individuals acting on our behalf are expressly
qualified in their entirety by this paragraph. You should specifically consider
the factors identified in this Form 10-K which could cause actual results to
differ before making an investment decision.

4

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Part I

|        |         
|------- | --------
|Item 1. | Business

Our Company

RAM
Holdings Ltd. is a Bermuda-based holding company that provides, through its
operating subsidiary, RAM Reinsurance Ltd., financial guaranty reinsurance for
public finance and structured finance obligations that are insured by the
primary monoline financial guaranty insurers, which we refer to as the
primaries or ceding companies. Both RAM and RAM Re were incorporated in
Bermuda in January 1998 and all of our operations and business are located and
transacted in Bermuda. In this Form 10-K, references to RAM,, RAM Holdings,
the Company, we, us or our refer to RAM Holdings Ltd. and references to
RAM Re refer solely to RAM Reinsurance Company Ltd.

As
a holding company, RAM does not independently generate cash flows and is
dependent on dividends from RAM Re to pay principal and interest on its debt,
to pay dividends on preference shares, and to meet any other obligations.
Dividends from RAM Re are subject to regulatory restrictions as explained in
Regulation below and in Managements Discussion and Analysis  Liquidity and
Capital Resources located in Part II, Item 7.

In
our initial public offering in May of 2006, we raised approximately $131
million of proceeds, of which the Company received $17 million and the selling
shareholders received the remainder. We also raised an additional $75 million
in our Series A Preference Shares offering in December 2006. We contributed
substantially all of the proceeds of these offerings, net of expenses, to RAM
Re to increase its capital and surplus in order to increase its underwriting
capacity. In June 2007, the Company completed a secondary offering of 5,347,179
common shares. The Company did not receive any proceeds from the secondary
offering. See Managements Discussion and Analysis  Liquidity and Capital
Resources for further information.

Recent developments

The
unprecedented deterioration in the U.S. housing market since the latter half of
2007 and the resulting lack of liquidity in the capital markets has had a
substantial adverse impact on the financial guaranty industry generally and the
Company in particular. Such effects are discussed further under Customers,
Pricing, Products, Rating Agencies and Competition in the Financial
Guaranty Reinsurance Market. Since AAA/Aaa ratings are critical to the primary
companies business model, rating agency downgrades of the seven historical
primary companies to below AAA/Aaa, as well as investor concern regarding their
capital adequacy, have severely limited the volume of new financial guaranty
insurance business written in 2008 and 2009 to date. Currently, no primary
insurers are rated AAA/Aaa with a stable outlook. Two primary companies have
announced their intention to use existing subsidiaries to write new public
finance business only and other potential new entrants have been announced. It
is uncertain whether the new entrants will achieve ratings and franchise value
required for market acceptance in the near term and whether the primary
financial guaranty market will return to the level of business volume of prior
years.

Our
business model through 2008 was predicated upon providing our customers with
capital credit from the rating agencies by means of our financial strength
ratings, capital credit from regulators by means of trust accounts we
established for the benefit of our customers regulated in the United States
(U.S.) and risk transfer. Our ratings have been downgraded from AAA to A+ by
Standard & Poors Ratings Services (Standard and Poors or S&P) and
from Aa3 to Baa3 by Moodys Investors Service (Moodys) (see Rating
Agencies). We requested withdrawal of our Moodys rating on March 17, 2009. As
a result of these adverse developments referenced above and the downgrades of
our ratings, we wrote only a modest amount of new financial guaranty
reinsurance business in 2008 and have not written any new financial guaranty
business to date in 2009. The discussion of our business in Item 1 of this
Annual Report on Form 10-K concerns our business operations during 2008 and
prior unless otherwise noted.

Our business strategy

In
response to the economic and rating events referenced above, we are continuing
efforts that we began in 2008 to reduce the volatility of our insured portfolio
and evaluate our business model:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reducing our insured risk exposure: We commuted our entire insured portfolio
 assumed from Syncora Guaranty Re Ltd. and MBIA, effective July 25, 2008 and
 November 30, 2008, respectively. See Managements Discussion and Analysis of
 Financial Condition and Results of Operations, Results of operations: Net
 income - Commutations. As a result of these commutations, we reduced our
 exposure as follows:
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   | §                                                                                                                                                                                                                                                                                                                                                                                                                     | Total 20052007 vintage US
 RMBS was reduced by $733.4 million par outstanding consisting of $609.2
 million of second-lien RMBS (HELOCs and Closed-End Seconds) and $124.2
 million of first-lien RMBS. As a percent of outstanding par at December 31,
 2007, the commuted amounts represent 35.4% of total 2005-2007 vintage US
 RMBS, 50.7% of second-lien RMBS, and 14.3% of first-lien RMBS, respectively.

5

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | §                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Total ABS CDO par
 outstanding, predominantly 2005-2007 vintages, was reduced by $1,149.9
 million. As a percent of outstanding par at December 31, 2007, the commuted
 amount represents 81.6% of total ABS CDOs.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                   
| |   | We commuted our entire
 insured portfolio assumed from Ambac Assurance Corporation effective April 8,
 2009. See Note 27, Subsequent Events, in the notes to our consolidated
 financial statements. We are pursuing further commutations in cases where
 they can be negotiated at acceptable prices. In addition, we are pursuing
 legal actions against our ceding companies in cases where we dispute the validity
 of cessions made under our treaties or ceded losses.                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                   
| |  | Capital preservation and evaluation: We reduced our new business growth in
 2008 and have not written any business to date in 2009. We are evaluating our
 capital position in light of ongoing deterioration in the credit markets to
 determine whether we have sufficient capital in excess of that required to
 pay claims and other obligations under various stress scenarios to pursue
 opportunities to deleverage our capital structure by repurchasing our
 outstanding securities and, in the longer term, new business opportunities.                                                                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                   
| |  | Reducing expenses: In order to reduce our expenses, we are actively considering
 whether to de-list our common shares from trading on NASDAQ and de-register
 our securities under the Securities Exchange Act of 1934 as promptly as
 possible after the filing of this annual report on Form 10-K. If we de-list
 and de-register, we would no longer file annual, quarterly and current
 reports or proxy statements with the U.S. Securities and Exchange Commission.
 We estimate that these actions will reduce our expenses by at least $2
 million per year, although the full effect of this cost savings is not
 expected until 2010. We also requested on March 17, 2009 that Moodys
 withdraw our financial strength rating, which will result in our no longer
 paying an annual fee to Moodys. We are also evaluating other measures to
 reduce expenses.

If
RAM requests delisting from the NASDAQ Global Market, RAM will seek approval
for the Bermuda Stock Exchange to become its primary listing. In addition, if
RAM requests delisting from the NASDAQ Global Market, RAM believes that RAM
Holdings common shares will qualify for trading on the Pink Sheets for
as long as market makers determine to make a market in its common shares.

We
are not seeking to write any new business in the near term, although we believe
that if we are successful in the strategic measures set forth above, it will
improve our position to potentially write new business in the future. We
continue to evaluate our business model and may pursue a different set of
strategies in the future. There can be no assurance that the strategies that
have been implemented or that will be pursued in the future in connection with
this evaluation will improve our business, financial condition, liquidity or
results of operations or will not have a material adverse effect on the
Company. Because we are not writing any new business, our Board may consider
strategic options or determine to wind down the Company. See Item IA. Risk
Factors - We are not seeking to write any new business in the near term, and
the lack of new premiums written could have a material adverse effect on our
business, financial condition, liquidity and results of operations; We may
not be able to execute our business strategy or any other strategic
alternatives the Board may determine to pursue; and If RAM is unable to
execute its business strategy or other strategic alternatives, the Board of
Directors of RAM may determine that the best course of action would be to
commence an orderly winding up and liquidation of RAM Res operations over some
period of time that is not currently determinable.

Customers

Our
customers through December 31, 2007 were the primary monoline financial
guaranty insurers and related reinsurers, namely Ambac Assurance Corporation,
or Ambac, Assured Guaranty Corp., or Assured Guaranty, CIFG IXIS Financial
Guaranty North America, Inc., or CIFG, Financial Guaranty Insurance Company, or
FGIC, Financial Security Assurance Inc., or FSA, MBIA Insurance Corporation, or
MBIA, and Syncora Guaranty Re Ltd. (formerly XL Financial Assurance Ltd. or
XLFA) and Syncora Guaranty Inc. (formerly XL Capital Assurance Inc.), the
financial guaranty reinsurance and insurance subsidiaries, respectively, of
Syncora Holdings Ltd. (formerly Security Capital Assurance Ltd.).

In
2008, we renewed our treaty reinsurance agreements with Assured Guaranty and
FSA, but cancelled or did not renew our treaty reinsurance agreements with our
other customers, because they were not writing significant amounts of new
business due to the downgrades discussed more fully below. During 2008, Assured
Guaranty and FSA accounted for substantially all of the new business written in
the primary market and substantially all of the new business assumed by us
under our treaties. Assured Guaranty expects to close a proposed acquisition of
FSA in the second quarter of 2009. We have not renewed our reinsurance treaties
with any of the primaries in 2009. This means that we do not expect to write
any financial guaranty reinsurance in the current year but this does not reduce
our in-force business, unless the business is commuted or recaptured by the
primaries.

We
commuted our entire insured portfolio assumed from XLFA and MBIA effective July
25, 2008 and November 30, 2008, respectively. See Managements Discussion
and Analysis of Financial Condition and Results of Operations - Results of
operations: Net income - Commutations. As a result, substantially all of
our insured portfolio outstanding as of December 31, 2008 consists of business
assumed from Ambac, Assured Guaranty, FGIC, and FSA. Subsequent to year end,
effective April 8, 2009, we commuted our insured portfolio from Ambac. See Note
27, Subsequent
Events, in
the notes to our consolidated financial statements. Since our downgrade below
AA/Aa in 2008, our customers generally have the right to recapture all of their
business with us without cherry picking, but none of them have exercised
this right to date. See Rating Agencies.

6

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Prior
to the fall of 2007, all of the primaries were rated AAA/Aaa/AAA by S&P,
Moodys and Fitch. Of the seven primaries, MBIA, FSA, FGIC and Ambac
represented a majority of the financial guaranty industrys capitalization and
insurance in force through December 31, 2007. In the fall of 2007, the rating
agencies began to review the capital adequacy of each of the primaries as a
result of their exposure to residential mortgages in structured finance products.
As has been widely reported, residential mortgages have experienced high levels
of delinquencies and defaults in 2007 and 2008, which are expected to continue
through 2009. Since commencing their reviews, the rating agencies have
downgraded the ratings of all of the primaries. As of April 13, 2009, the status of the primaries
ratings is as follows:

|                                                                                                                                                                                                                                                                             |  |                         |  |                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | --------------------------------------
|Company                                                                                                                                                                                                                                                                      |  | S&P                     |  | Moodys                               
|                                                                                                                                                                                                                                                                             |  |                         |  |                                       
|Ambac                                                                                                                                                                                                                                                                        |  | A
 (Negative)           |  | Ba3
 (Outlook Developing)             
|Assured Guaranty                                                                                                                                                                                                                                                             |  | AAA
 (Stable)           |  | Aa2
 (Stable)                         
|Berkshire Assurance                                                                                                                                                                                                                                                          |  | AAA
 (Negative)         |  | Aa1
 (Stable)                         
|CIFG                                                                                                                                                                                                                                                                         |  | BB
 (Developing)        |  | Ba3
 (Developing)                     
|FGIC                                                                                                                                                                                                                                                                         |  | CCC
 (Negative)         |  | Caa3
 (Negative)                      
|FSA                                                                                                                                                                                                                                                                          |  | AAA
 (Watch Negative)   |  | Aa3
 (Developing)                     
|MBIA                                                                                                                                                                                                                                                                         |  | BBB+
 (Negative)        |  | B3
 (Developing)                      
|National*                                                                                                                                                                                                                                                                    |  | AA-
 (Watch Developing) |  | Baa
 1 (Rating under review  Upgrade)
|Syncora                                                                                                                                                                                                                                                                      |  | CC
 (Negative)          |  | Ca
 (Developing)                      
|                                                                                                                                                                                                                                                                            
|* MBIA announced a
 restructuring on February 18, 2009, pursuant to which it established a
 separate public finance bond insurance company, MBIA Insurance Corp of
 Illinois, which is expected to be renamed National Public Finance Guarantee
 Corporation, or National.
|                                                                                                                                                                                                                                                                             |  |                         |  |                                       

Ratings
are an essential part of the primaries ability to provide credit enhancement
and to compete in the financial guaranty business. To date, a triple-A rating
from at least one rating agency has been necessary to provide credit
enhancement to most municipal public finance obligations and provides a
competitive advantage in providing credit enhancement to structured finance
obligations. The triple-A ratings of Assured Guaranty and FSA have been
affirmed by two out of three rating agencies. None of the remaining primaries
is rated triple-A by any rating agencies except for Berkshire Assurance. Based
on public reports, only Assured Guaranty and FSA wrote more than a minimal
amount of new business in the primary market in 2008.

The
primaries have responded to the ratings downgrades that occurred in 2008 in
various ways, including restructuring their businesses. On February 18, 2009,
MBIA announced a restructuring pursuant to which it established a separate
public finance bond insurance company, MBIA Insurance Corp of Illinois, which
is expected to be renamed National Public Finance Guarantee Corporation, or
National. National has not received a triple-A rating, but MBIA has announced
its intent to capitalize National in excess of the level historically required
for a triple-A rating. In the fall of 2008, Ambac announced a similar plan to
capitalize an existing subsidiary to be renamed Everspan to insure public
finance transactions. On February 25, 2009, Ambac announced that they are still
working with regulators and rating agencies and hope to write business in the
second quarter of 2009. Assured Guaranty announced that they expect to close a
proposed acquisition of FSA in the second quarter of 2009. The remaining
primaries have not announced plans to restore their ratings or write new
business. In light of the ongoing nature of ratings actions and announcements
by the rating agencies, you should review announcements by the rating agencies
and the websites of the rating agencies for the then current publicly available
information. However, the information in these announcements and on those
websites does not constitute a part of this annual report on Form 10-K.

Through
December 31, 2007, the primaries insured both public finance and structured
finance obligations covering both U.S. and non-U.S. exposures. Since December
31, 2007, only Assured Guaranty has insured more than a minimal amount of
structured finance obligations as the remainder of the primaries elected to
temporarily suspend or cease writing insurance for structured finance
obligations. Financial guaranty policies require the insurer, pursuant to an
unconditional and irrevocable guarantee, to pay principal and interest as they
become due under an insured obligation in the event of a default by the issuer.
A financial guaranty insurance policy enhances the credit of an insured
obligation or issue because, in addition to the issuers obligation to repay
debt, the insurer stands ready to make payments should a default occur. Insured
obligations attain the benefit of the rating of the primary (which is generally
higher than or equal to the underlying rating of the uninsured obligations) and
this, in turn, usually results in lower financing costs for issuers as well as
improved liquidity of insured debt. However, as a result of the downgrades by
the rating agencies since the fall of 2007, obligations guaranteed by the
primaries have experienced significantly greater price volatility and reduced
liquidity, thereby reducing the benefits of the insurance noted above.

The
primaries use reinsurance for a variety of reasons, including to increase their
capacity to write business, assist in meeting applicable regulatory and rating
agency requirements, in particular those applying to single risk and risk
concentration limits, and for broader risk

7

---



management purposes. The
size and growth of the financial guaranty reinsurance market depends on the size
of the primary insurance market and the percentage of aggregate risk that the
primaries cede to the reinsurers. The ceded percentage can vary due to the
availability of capacity from qualified reinsurers; risk retention limits
imposed on primaries by regulatory, rating agency and other considerations; the
amount of capital credit given to primaries by regulators and rating agencies
as a result of ceded reinsurance; and the price and availability of substitute
highly-rated capital markets or credit facilities. We do not expect a
significant market for financial guaranty reinsurance to resume unless and
until the primaries stabilize their franchises and increase their new business
production substantially.

Reinsurance Agreements

Reinsurance
agreements are in two forms: treaty and facultative. Treaty reinsurance is
an agreement pursuant to which the primary is required to cede, and the
reinsurer is required to assume, identified risks or policies underwritten by
the primary over a specified period of time, typically one year. Facultative
reinsurance is the reinsurance of a part of one or more specific policies and
is subject to separate negotiation for each such cession.

Under
our treaty and facultative reinsurance agreements, the primary cedes us a
portion of its liability under a policy or policies it has issued in
consideration of a portion of the related premium. We generally reinsure
primaries on a quota share, or a pro rata basis, meaning we are ceded a
proportionate share of premiums for the risk we assume. We pay a ceding
commission to the primaries, which is a portion of the premium ceded by the
primary and is intended to compensate the primary for the costs of
underwriting, administration and surveillance of the risks ceded. In the event
of a loss, we pay our share of the loss upon receipt of notice from the primary
insurer. If there is a dispute regarding our liability, the dispute is resolved
following payment. This practice is generally different than other types of reinsurance,
where the reinsurer pays its portion of the loss following its investigation
and confirmation of its liability.

During
2008, substantially all of our new business was assumed under reinsurance
treaties in place with two primary insurers, FSA and Assured Guaranty. Business
ceded pursuant to reinsurance treaties has historically constituted
substantially all of our new business written. We no longer have any treaties
in place under which the primaries are required to cede us new business and we
are not seeking to write new business on a facultative basis in the near term.

Pricing

We
are dependent on the primaries pricing for the risks they underwrite and we
reinsure. The primaries determine premium rates on the basis of the type of
transaction and their assessment of the risk they are guaranteeing. Factors
considered by the primaries in pricing include term to maturity, structure of
the issue and credit and market elements such as security and credit
enhancement features, as well as the interest rate spread between insured and
uninsured obligations and the cost of generating and supporting insured
business.

Prior
to the second quarter of 2007, credit spreads were very narrow because of the
significant amount of global market liquidity and the stable credit environment
characterized by low defaults across nearly all asset sectors. This narrow
credit spread environment also caused financial guaranty premium rates to
decline, as financial guaranty insurance competes with alternative credit
enhancement structures, including senior/subordinated securitizations. Premium
rates were also lower because the seven AAA/Aaa rated primaries at the time
were competing aggressively within the market for financial guaranty insurance,
particularly in the U.S. municipal sector.

Reductions
in housing prices and increasing delinquencies of subprime mortgage loans
caused related credit spreads to widen dramatically by the end of the third
quarter of 2007. In addition, the banking sector began reporting significant
unrealized fair value losses related to their holdings of credit derivatives
backed primarily by subprime residential mortgages loans. In the fall of 2007,
the rating agencies began a review of the capital adequacy of the financial
guaranty industry because of its significant exposure to U.S. residential
mortgages loans. See Customers above. Distress in the current credit
environment has produced credit spread widening beyond U.S. subprime mortgage
loans. We benefitted from increased premium rates obtained by our remaining
customers in 2008, but we wrote only a modest amount of new business in 2008
and have not written any new business in 2009. See Managements Discussion and
Analysis of Financial Condition and Results of Operations - Business
operations.

Products

RAM
operated a single reportable segment in 2008, financial guarantee reinsurance,
in which we generated business in two primary product lines, public finance and
structured finance. The public finance, or municipal, obligations that we
reinsured included primary policies that cover tax-exempt and taxable
indebtedness issued by public entities including states, counties, cities,
utility districts and other political subdivisions, airports, higher education and
hospital facilities, and similar obligations issued by private entities that
finance projects serving a substantial public purpose. The structured finance
and asset-backed obligations covered by policies that we reinsured included
securities that are payable from or which are tied to the performance of a
specified pool of assets, such as residential and commercial mortgages, a
variety of consumer loans, corporate loans and bonds, trade and export
receivables, equipment, aircraft and property leases. Within the structured
finance product line of business, we reinsured certain credit derivative
transactions that are considered an extension of customary financial guaranty
business. Both public finance and structured finance obligations are originated
in the U.S. and internationally. During 2008, we reinsured public finance net
par of $3.0 billion and structured finance net par of $2.4 billion.

8

---



Our gross written premiums
by product line are set forth below:

|                                   |  |                                  |       |      |   |      |  |   |      | 
|---------------------------------- |  | -------------------------------- | ----- | ---- | - | ---- |  | - | ---- | 
|                                   |  | Twelve months ended December 31, |      
|                                   |  |                                  |      
|Gross
 Premiums Written            |  | 2008                             |       | 2007 |   | 2006 | 
|                                   |  |                                  |       |      |   |      |  |   |      | 
|                                   |  | (Dollars in millions)            |      
|Public Finance                     |  | $                                | 24.0  |      | $ | 73.1 |  | $ | 48.4 | 
|Structured Finance                 |  |                                  | 22.8  |      |   | 25.4 |  |   | 24.8 | 
|Premiums returned on
 commutations |  |                                  | (58.0 | )    |   |     |  |   |     | 
|                                   |  |                                  |       |      |   |      |  |   |      | 
|Total                              |  | $                                | (11.2 | )    | $ | 98.5 |  | $ | 73.2 | 
|                                   |  |                                  |       |      |   |      |  |   |      | 

RAM Assumed Portfolio (Portfolio of Reinsured Exposure)

At
December 31, 2008, the net par amount outstanding on RAMs assumed obligations
(obligations reinsured, or assumed, by RAM) was $30.0 billion. Net reinsurance
in force, which includes all debt service assumed, totaled $50.7 billion. We
report our exposure data on a one-quarter lag due to the timing of receipt of
exposure information from our primaries. Exposure data excludes amounts commuted
back to MBIA per the Commutation Agreement dated November 30, 2008.

As
noted above, the primary financial guaranty policies that are reinsured by RAM
generally guaranty the timely payment of amounts due on insured obligations in
accordance with original payments schedules (unless the primary insurer
consents to acceleration) in the event of default by the issuer. Our obligation
is to indemnify a ceding company for a portion of any payments made on ceded
policies in consideration of proportional premiums ceded for such policies.
Thus, in most instances RAM would make claims payments to ceding companies only
as originally scheduled payments on covered policies are made by the primary
insurer following a default.

We
have not written any credit default swap (CDS) contracts on a direct basis,
meaning that we have not written any individual International Swaps and
Derivatives Association, Inc. (ISDA) contracts. However, we have reinsured
quota share portions of CDS insured by our ceding companies. Our ceding companies
generally do not provide us with payment terms of their insured credit
derivatives unless the transaction is on their Watch List. We may also request
the payment information on policies but the primaries are not contractually
obligated to provide this to us and we have not received complete information
from all of the primaries.

Based
on the public reports of our ceding companies, the payment terms of their CDS
contracts are generally pay as you go, meaning they insure payment of timely
interest and ultimate principal or ultimate principal only at final maturity.
However, based on these reports, in some cases payment terms are other than
pay as you go. For example, in some cases payments are required upon
settlement of individual referenced collateral losses in excess of
policy-specific deductibles and subordination. The deductible or loss threshold
is the amount of losses experienced with respect to the underlying or
referenced collateral that would be required to occur before a claim against
the ceding companys insurance policy can be made.

Further,
based on the public reports of our ceding companies, their credit derivative
transactions are governed by ISDA documentation and operate differently from
financial guaranty insurance policies. For example, unlike financial guaranty
insurance policies, a credit derivative may be terminated for a breach of the
ISDA documentation or other specific early termination event, such as
insolvency of or failure to pay by the ceding company. If a credit derivative
is terminated early, a ceding company could be required to make a
mark-to-market payment as determined under the ISDA documentation. We believe
our contractual obligation to indemnify the ceding companies for losses under
our reinsurance contracts only extends to defaults in the underlying
transaction covered by the ISDA documentation and not defaults by the primary
company or its affiliates under the ISDA documentation.

In
determining the timing and terms of potential payments under our insured credit
derivatives, all of our insured credit derivatives are pay as you go, unless
the transaction is on our Watch List and the ceding company states that the
insured credit derivatives have different payment terms. As of the date of this
report, none of the insured credit derivatives on our Watch List have payment
terms other than pay as you go except as set forth under Business 
Surveillance Process and Watch List. We believe that defaults are probable
only with respect to policies in category 4 of our Watch List, and because we
know the payment terms of these transactions, our liquidity risk is mitigated.
However, we are at risk of unanticipated loss payments under insured credit
derivative policies that are not on our Watch List. Such an unanticipated
payment could have an adverse effect on our liquidity. If an unexpected loss
were to arise, we have a highly liquid and short duration investment portfolio
in place to handle any unanticipated losses. See Item IA  Risk Factors Some
of our direct financial guaranty products may be riskier than traditional
financial guaranty insurance.

We
believe the primaries wrote insurance on credit derivative transactions only
for obligations with high levels of subordination and credit enhancement at the
time they were underwritten (for example, most of the credit derivative
transactions that have been reinsured by RAM had underlying ratings of triple-A
before they were insured), but such transactions may experience defaults that exceed
expectations based on historical data, particularly in the case of transactions
with U.S. residential mortgage loan collateral.

9

---



RAMs
portfolio of reinsured obligations is diversified in terms of revenue source,
type of assets insured, industry concentrations, type of bond and geographic
area.

Within
the public finance product line, we reinsured municipal bonds that are
typically supported by taxes, assessments, fees or tariffs related to use of
projects, lease payments, or similar types of revenue streams. This product
line also includes privately issued bonds used for financing public purpose
projects, which are primarily located outside the U.S., and include toll roads,
bridges, public transportation and other infrastructure projects. Although
projects of these types are usually financed through issuance of tax-exempt
bonds in the U.S., the absence of tax-advantaged financing in non-U.S.
jurisdictions as well as other reasons has led to the transfer of many public
purpose projects to the private sector. In these cases, the private entities
typically operate under a concession agreement with a sponsoring government
agency which maintains a level of regulatory oversight and control over the
project. In the U.S. public finance market, insurance premiums are paid
up-front at the time a policy is issued and premiums are usually established as
a percentage of the total principal and interest (debt service or exposure)
that is scheduled to become due during the life of insured bonds. Premiums for
international policies are based on a percentage of either principal or
principal and interest insured and may be collected up-front at policy
inception or periodically (e.g., monthly, quarterly, annually). RAM receives
premiums on the same basis as they are collected by the ceding company.

The
structured finance obligations that we reinsured are generally secured by or
payable from a specific pool of assets having an estimable future cash flow.
These obligations are either undivided interests in the related assets or debt
obligations collateralized by the related assets. Structured finance
obligations are usually structured so that the insured obligations benefit from
some form of credit enhancement to cover credit risks, such as over-collateralization,
subordination, excess cash flow or first-loss protection. Structured finance
transactions are usually structured to insulate investors from the bankruptcy
or insolvency of the entity that originated the underlying assets, as well as from
the bankruptcy or insolvency of the transaction servicer (the entity which is
responsible for collecting cash flows from the asset pool), and to minimize the
likelihood of bankruptcy or insolvency of the issuer of the obligation.
Premiums for structured finance policies are usually based on a percentage of
insured principal and are typically collected periodically from the cash flow
generated by underlying assets but in some instances can be collected in a
single payment at policy inception.

10

---



The following
table sets forth our in-force portfolio net par outstanding as of each of the
years indicated, by product line and bond type for transactions issued both in
the U.S. and internationally.

|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|---------------------------------- |  | ----------------------------------------------------- | ------ | ---- |  | ------ |  | - | ------ | ------ |  | ------ |  | - | ------ |  |  | ------
|(dollars in millions)              |  | Net Par Outstanding of RAM Re (1)
 As of December 31,
|                                   |  |                                                      
|                                   |  | 2008                                                  |        | 2007 |  | 2006  
|                                   |  |                                                       |        |      |  |       
|                                   |  | Volume                                                |        | %    |  | Volume |  | % |        | Volume |  | %     
|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|US Public Finance                  |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|General
 Obligation and Lease      |  | $                                                     | 6,859  |      |  | 22.9%  |  | $ | 7,964  |        |  | 17.5%  |  | $ | 5,692  |  |  | 18.3% 
|Tax-backed                         |  |                                                       | 2,095  |      |  | 7.0%   |  |   | 2,571  |        |  | 5.7%   |  |   | 2,318  |  |  | 7.4%  
|Transportation                     |  |                                                       | 2,803  |      |  | 9.4%   |  |   | 3,078  |        |  | 6.8%   |  |   | 2,478  |  |  | 8.0%  
|Healthcare                         |  |                                                       | 1,672  |      |  | 5.6%   |  |   | 2,570  |        |  | 5.7%   |  |   | 2,203  |  |  | 7.1%  
|Utility                            |  |                                                       | 3,032  |      |  | 10.1%  |  |   | 3,723  |        |  | 8.2%   |  |   | 2,888  |  |  | 9.3%  
|Investor-owned utilities           |  |                                                       | 609    |      |  | 2.0%   |  |   | 769    |        |  | 1.7%   |  |   | 570    |  |  | 1.8%  
|Higher
 education                  |  |                                                       | 639    |      |  | 2.1%   |  |   | 813    |        |  | 1.8%   |  |   | 384    |  |  | 1.2%  
|Housing                            |  |                                                       | 205    |      |  | 0.7%   |  |   | 383    |        |  | 0.8%   |  |   | 359    |  |  | 1.2%  
|Other                              |  |                                                       | 274    |      |  | 0.9%   |  |   | 349    |        |  | 0.8%   |  |   | 145    |  |  | 0.5%  
|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|Total Public Finance               |  | $                                                     | 18,190 |      |  | 60.7%  |  | $ | 22,219 |        |  | 49.0%  |  | $ | 17,037 |  |  | 54.7% 
|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|US Structured Finance              |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|Commercial
 ABS (2)                |  | $                                                     | 4,147  |      |  | 13.8%  |  | $ | 9,221  |        |  | 20.3%  |  | $ | 4,700  |  |  | 15.1% 
|Home equity                        |  |                                                       | 527    |      |  | 1.6%   |  |   | 1,786  |        |  | 3.9%   |  |   | 1,415  |  |  | 4.5%  
|Autos                              |  |                                                       | 326    |      |  | 1.1%   |  |   | 608    |        |  | 1.3%   |  |   | 545    |  |  | 1.8%  
|Mortgage-backed securities         |  |                                                       | 797    |      |  | 2.8%   |  |   | 702    |        |  | 1.6%   |  |   | 274    |  |  | 0.9%  
|Banks and
 Other Corporate         |  |                                                       | 15     |      |  | 0.1%   |  |   | 242    |        |  | 0.5%   |  |   | 127    |  |  | 0.4%  
|Other
 Consumer ABS                |  |                                                       | 671    |      |  | 2.2%   |  |   | 572    |        |  | 1.3%   |  |   | 358    |  |  | 1.2%  
|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|Total Structured Finance           |  | $                                                     | 6,483  |      |  | 21.6%  |  | $ | 13,131 |        |  | 28.9%  |  | $ | 7,420  |  |  | 23.8% 
|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|International                      |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|Commercial
 ABS                    |  | $                                                     | 2,048  |      |  | 6.8%   |  | $ | 4,141  |        |  | 4.1%   |  | $ | 2,732  |  |  | 8.8%  
|Autos                              |  |                                                       | 2      |      |  | 0.0%   |  |   | 27     |        |  | 0.1%   |  |   | 1      |  |  | 0.0%  
|Mortgage-backed securities         |  |                                                       | 432    |      |  | 1.4%   |  |   | 833    |        |  | 1.8%   |  |   | 689    |  |  | 2.2%  
|Other
 Consumer ABS                |  |                                                       | 47     |      |  | 0.2%   |  |   | 51     |        |  | 0.1%   |  |   | 16     |  |  | 0.1%  
|Public
 Finance                    |  |                                                       | 1,575  |      |  | 5.3%   |  |   | 3,119  |        |  | 6.9%   |  |   | 2,226  |  |  | 7.2%  
|Investor-owned utilities and Other |  |                                                       | 1,180  |      |  | 3.9%   |  |   | 1,873  |        |  | 4.1%   |  |   | 998    |  |  | 3.2%  
|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|Total International                |  | $                                                     | 5,284  |      |  | 17.6%  |  | $ | 10,044 |        |  | 22.1%  |  | $ | 6,662  |  |  | 21.4% 
|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|                                   |  |                                                       |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|Total                              |  | $                                                     | 29,957 |      |  | 100.0% |  | $ | 45,394 |        |  | 100.0% |  | $ | 31,119 |  |  | 100.0%

|    |                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All par
 outstanding in this table is reported with a one-quarter lag. Data excludes amounts commuted back to MBIA per the
 Commutation Agreement dated November 30, 2008. Due to rounding, the
 numbers may not add up to the totals.
|    |                                                                                                                                                                                                                                       
|(2) | Asset-backed
 securities (ABS).                                                                                                                                                                                                     

11

---



The following table sets
forth our in-force portfolio net exposure outstanding as of each of the years
indicated, by product line and bond type for transactions issued both in the
U.S. and internationally.

|                                   |  |                                                             |        |      |  |        |   |   |        |        |  |       |   |   |        |  |  |       |  
|---------------------------------- |  | ----------------------------------------------------------- | ------ | ---- |  | ------ | - | - | ------ | ------ |  | ----- | - | - | ------ |  |  | ----- | -
|(dollars in millions)              |  | Net
 Exposure Outstanding of RAM Re (1)
 As of December 31, |       
|                                   |  |                                                             |       
|                                   |  | 2008                                                        |        | 2007 |  | 2006   |  
|                                   |  |                                                             |        |      |  |        |  
|                                   |  | Volume                                                      |        | %    |  | Volume |   | % |        | Volume |  | %     |  
|US Public Finance                  |  |                                                             |        |      |  |        |   |   |        |        |  |       |   |   |        |  |  |       |  
|General
 obligation and Lease      |  | $                                                           | 11,284 |      |  | 22.2   | % | $ | 13,160 |        |  | 18.3  | % | $ | 9,228  |  |  | 18.1  | %
|Tax-backed                         |  |                                                             | 3,921  |      |  | 7.7    | % |   | 4,742  |        |  | 6.6   | % |   | 3,912  |  |  | 7.7   | %
|Transportation                     |  |                                                             | 4,942  |      |  | 9.7    | % |   | 5,799  |        |  | 8.1   | % |   | 4,592  |  |  | 9.0   | %
|Healthcare                         |  |                                                             | 3,179  |      |  | 6.3    | % |   | 4,885  |        |  | 6.8   | % |   | 4,168  |  |  | 8.2   | %
|Utility                            |  |                                                             | 5,490  |      |  | 10.8   | % |   | 6,586  |        |  | 9.2   | % |   | 4,927  |  |  | 9.7   | %
|Investor-owned utilities           |  |                                                             | 1,338  |      |  | 2.6    | % |   | 1,601  |        |  | 2.2   | % |   | 1,126  |  |  | 2.2   | %
|Higher
 education                  |  |                                                             | 1,123  |      |  | 2.2    | % |   | 1,482  |        |  | 2.1   | % |   | 691    |  |  | 1.4   | %
|Housing                            |  |                                                             | 411    |      |  | 0.8    | % |   | 790    |        |  | 1.1   | % |   | 736    |  |  | 1.5   | %
|Other                              |  |                                                             | 834    |      |  | 1.6    | % |   | 984    |        |  | 1.4   | % |   | 313    |  |  | 0.6   | %
|Total Public Finance               |  | $                                                           | 32,522 |      |  | 64.1   | % | $ | 40,028 |        |  | 55.7  | % | $ | 29,693 |  |  | 58.3  | %
|                                   |  |                                                             |        |      |  |        |   |   |        |        |  |       |   |   |        |  |  |       |  
|US Structured Finance              |  |                                                             |        |      |  |        |   |   |        |        |  |       |   |   |        |  |  |       |  
|Commercial
 ABS (2)                |  | $                                                           | 5,475  |      |  | 10.8   | % | $ | 11,296 |        |  | 15.7  | % | $ | 7,188  |  |  | 14.1  | %
|Home equity                        |  |                                                             | 606    |      |  | 1.1    | % |   | 2,013  |        |  | 2.8   | % |   | 1,634  |  |  | 3.2   | %
|Autos                              |  |                                                             | 371    |      |  | 0.7    | % |   | 663    |        |  | 0.9   | % |   | 587    |  |  | 1.2   | %
|Mortgage-backed securities         |  |                                                             | 915    |      |  | 1.9    | % |   | 770    |        |  | 1.1   | % |   | 314    |  |  | 0.6   | %
|Banks and
 Other Corporate         |  |                                                             | 16     |      |  | 0.0    | % |   | 249    |        |  | 0.3   | % |   | 138    |  |  | 0.3   | %
|Other
 Consumer ABS                |  |                                                             | 1,385  |      |  | 2.7    | % |   | 996    |        |  | 1.4   | % |   | 652    |  |  | 1.3   | %
|Total Structured Finance           |  | $                                                           | 8,768  |      |  | 17.3   | % | $ | 15,987 |        |  | 22.2  | % | $ | 10,513 |  |  | 20.6  | %
|                                   |  |                                                             |        |      |  |        |   |   |        |        |  |       |   |   |        |  |  |       |  
|International                      |  |                                                             |        |      |  |        |   |   |        |        |  |       |   |   |        |  |  |       |  
|Commercial
 ABS                    |  | $                                                           | 2,835  |      |  | 5.6    | % |   | 4,879  |        |  | 6.8   | % |   | 3,092  |  |  | 6.1   | %
|Autos                              |  |                                                             | 2      |      |  | 0.0    | % |   | 33     |        |  | 0.1   | % |   | 1      |  |  | 0.0   | %
|Mortgage-backed securities         |  |                                                             | 518    |      |  | 1.0    | % |   | 904    |        |  | 1.3   | % |   | 748    |  |  | 1.5   | %
|Other
 Consumer ABS                |  |                                                             | 47     |      |  | 0.1    | % |   | 52     |        |  | 0.1   | % |   | 17     |  |  | 0.0   | %
|Public
 Finance                    |  |                                                             | 2,977  |      |  | 5.9    | % |   | 5,650  |        |  | 7.8   | % |   | 3,840  |  |  | 7.5   | %
|Investor-owned utilities and Other |  |                                                             | 3,062  |      |  | 6.0    | % |   | 4,377  |        |  | 6.1   | % |   | 3,041  |  |  | 6.0   | %
|Total International                |  | $                                                           | 9,441  |      |  | 18.6   | % | $ | 15,895 |        |  | 22.1  | % | $ | 10,739 |  |  | 21.1  | %
|                                   |  |                                                             |        |      |  |        |   |   |        |        |  |       |   |   |        |  |  |       |  
|Total                              |  | $                                                           | 50,731 |      |  | 100    | % | $ | 71,911 |        |  | 100.0 | % | $ | 50,944 |  |  | 100.0 | %

|    |                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All exposure outstanding in
 this table is reported with a one-quarter lag. Data excludesamounts commuted back to
 MBIA per the Commutation Agreement dated November 30, 2008.Due to rounding, the
 numbers may not add up to the totals.
|    |                                                                                                                                                                                                                                          
|(2) | Asset-backed securities
 (ABS).                                                                                                                                                                                                        

12

---



The following
table sets forth the net par amount of our reinsurance business written, for
each of the years indicated, by product line and bond type for transactions
issued both in the U.S. and internationally.

|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|----------------------------------- |  | ---------------------------------------------------------- | ------ | ------------------ |  | ------ |  | - | ----- | ------ |  | ------ |  | ------ | ------ | - |  | ------ |  | - | ----- |  |  | ------
|(dollars in millions)               |  | Net Par Written of RAM Re
 For the Year Ended December 31,
|                                    |  |                                                            |        |                    | 
|                                    |  | 2008                                                       |        | 2007               |  | 2006  
|                                    |  |                                                            |        |                    |  |       
|                                    |  | After Commutation                                          |        | Before Commutation |  |        |  |   |       |        |  |       
|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |       
|                                    |  | Volume                                                     |        | %                  |  | Volume |  | % |       | Volume |  | %      |  | Volume |        | %
|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|US Public
 Finance                  |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|General obligation and
 Lease       |  | $                                                          | (439   | )                  |  | 4.5%   |  | $ | 803   |        |  | 14.9%  |  | $      | 2,761  |   |  | 15.2%  |  | $ | 873   |  |  | 10.6% 
|Tax-backed                          |  |                                                            | (326   | )                  |  | 3.3%   |  |   | 89    |        |  | 1.6%   |  |        | 483    |   |  | 2.7%   |  |   | 462   |  |  | 5.6%  
|Transportation                      |  |                                                            | (46    | )                  |  | 0.5%   |  |   | 596   |        |  | 11.0%  |  |        | 838    |   |  | 4.6%   |  |   | 208   |  |  | 2.5%  
|Healthcare                          |  |                                                            | (33    | )                  |  | 0.3%   |  |   | 353   |        |  | 6.5%   |  |        | 459    |   |  | 2.5%   |  |   | 446   |  |  | 5.4%  
|Utility                             |  |                                                            | (306   | )                  |  | 3.1%   |  |   | 443   |        |  | 8.2%   |  |        | 1,109  |   |  | 6.1%   |  |   | 387   |  |  | 4.7%  
|Investor-owned utilities            |  |                                                            | 33     |                    |  | -0.3%  |  |   | 142   |        |  | 2.6%   |  |        | 249    |   |  | 1.4%   |  |   | 62    |  |  | 0.7%  
|Higher education                    |  |                                                            | (119   | )                  |  | 1.2%   |  |   | 98    |        |  | 1.8%   |  |        | 459    |   |  | 2.5%   |  |   | 80    |  |  | 1.0%  
|Housing                             |  |                                                            | (115   | )                  |  | 1.2%   |  |   | 64    |        |  | 1.2%   |  |        | 41     |   |  | 0.2%   |  |   | 41    |  |  | 0.5%  
|Other                               |  |                                                            | 22     |                    |  | -0.2%  |  |   | 52    |        |  | 1.0%   |  |        | 210    |   |  | 1.2%   |  |   | 63    |  |  | 0.8%  
|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|Total US
 Public Finance            |  | $                                                          | (1,330 | )                  |  | 13.6%  |  | $ | 2,640 |        |  | 48.8%  |  | $      | 6,608  |   |  | 36.4%  |  | $ | 2,621 |  |  | 31.8% 
|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|US
 Structured Finance              |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|Commercial ABS                      |  | $                                                          | (4,654 | )                  |  | 47.4%  |  | $ | 671   |        |  | 12.4%  |  | $      | 5,254  |   |  | 28.9%  |  | $ | 2,304 |  |  | 27.9% 
|Home equity                         |  |                                                            | (703   | )                  |  | 7.6%   |  |   | 32    |        |  | 0.6%   |  |        | 1,063  |   |  | 5.8%   |  |   | 672   |  |  | 8.1%  
|Autos                               |  |                                                            | (1     | )                  |  | 0.0%   |  |   | 340   |        |  | 6.3%   |  |        | 381    |   |  | 2.1%   |  |   | 299   |  |  | 3.6%  
|Mortgage-backed securities          |  |                                                            | (59    | )                  |  | 0.2%   |  |   | 147   |        |  | 2.7%   |  |        | 555    |   |  | 3.1%   |  |   | 126   |  |  | 1.5%  
|Banks and Other Corporate           |  |                                                            | (63    | )                  |  | 0.6%   |  |   | 0     |        |  | 0.0%   |  |        | 127    |   |  | 0.7%   |  |   | 50    |  |  | 0.6%  
|Other Consumer ABS                  |  |                                                            | 189    |                    |  | -1.9%  |  |   | 338   |        |  | 6.2%   |  |        | 283    |   |  | 1.6%   |  |   | 55    |  |  | 0.7%  
|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|Total US
 Structured Finance        |  | $                                                          | (5,290 | )                  |  | 53.9%  |  | $ | 1,529 |        |  | 28.3%  |  | $      | 7,663  |   |  | 42.2%  |  | $ | 3,506 |  |  | 42.5% 
|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|International                       |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|Asset-backed                        |  | $                                                          | (1,337 | )                  |  | 13.6%  |  | $ | 841   |        |  | 15.6%  |  | $      | 2,113  |   |  | 11.6%  |  | $ | 986   |  |  | 12.0% 
|Public finance                      |  |                                                            | (1,563 | )                  |  | 15.9%  |  |   | 340   |        |  | 6.3%   |  |        | 1,026  |   |  | 5.6%   |  |   | 690   |  |  | 8.4%  
|Investor-owned utilities
 and Other |  |                                                            | (291   | )                  |  | 3.0%   |  |   | 57    |        |  | 1.1%   |  |        | 767    |   |  | 4.2%   |  |   | 443   |  |  | 5.4%  
|Total
 International                |  | $                                                          | (3,191 | )                  |  | 32.5%  |  | $ | 1,238 |        |  | 22.9%  |  | $      | 3,905  |   |  | 21.4%  |  | $ | 2,119 |  |  | 25.7% 
|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       
|Total                               |  | $                                                          | (9,810 | )                  |  | 100.0% |  | $ | 5,406 |        |  | 100.0% |  | $      | 18,176 |   |  | 100.0% |  | $ | 8,246 |  |  | 100.0%
|                                    |  |                                                            |        |                    |  |        |  |   |       |        |  |        |  |        |        |   |  |        |  |   |       |  |  |       

13

---



The following
table sets forth our in-force portfolio by percent of net par outstanding as of
the years indicated by underlying rating assigned by RAM Re.

|                                |  |                                                               |       |   |      |  |       |      |  |  |       |  
|------------------------------- |  | ------------------------------------------------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                |  | RAM Re Percent of Net Par Outstanding (1)
 As of December 31, |      
|                                |  |                                                               |      
|RAM Re
 Rating                  |  | 2008                                                          |       |   | 2007 |  |       | 2006 | 
|                                |  |                                                               |       |   |      |  |       |      | 
|AAA                             |  |                                                               | 16.0  | % |      |  | 25.3  | %    |  |  | 18.6  | %
|AA                              |  |                                                               | 31.9  | % |      |  | 25.6  | %    |  |  | 25.5  | %
|A                               |  |                                                               | 31.9  | % |      |  | 28.1  | %    |  |  | 33.4  | %
|BBB                             |  |                                                               | 15.9  | % |      |  | 18.3  | %    |  |  | 21.8  | %
|Below
 Investment Grade (BIG) |  |                                                               | 4.2   | % |      |  | 2.6   | %    |  |  | 0.8   | %
|                                |  |                                                               |       |   |      |  |       |      |  |  |       |  
|Total Percent of Net Par        |  |                                                               | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|                                |  |                                                               |       |   |      |  |       |      |  |  |       |  

|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(1) | Due to
 rounding, the percentages in the table above may not add up to the totals.

The following
table sets forth our in-force portfolio net par outstanding as of the years
indicated by geographic distribution.

|                      |  |                                                                    |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|--------------------- |  | ------------------------------------------------------------------ | ------ | ---- |  | ------ |  | - | ------ | ------ |  | ------ |  | - | ------ |  |  | ------
|(dollars in millions) |  | Net Par Outstanding
            of RAM Re
      As of December 31,
|                      |  |                                                                    |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|                      |  | 2008                                                               |        | 2007 |  | 2006  
|                      |  |                                                                    |        |      |  |        | 
|                      |  | Volume                                                             |        | %    |  | Volume |  | % |        | Volume |  | %     
|                      |  |                                                                    |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|United States         |  |                                                                    |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|California            |  | $                                                                  | 3,111  |      |  | 10.4%  |  | $ | 3,618  |        |  | 8.0%   |  | $ | 2,300  |  |  | 7.4%  
|New York              |  |                                                                    | 2,161  |      |  | 7.2%   |  |   | 2,652  |        |  | 5.8%   |  |   | 1,841  |  |  | 5.9%  
|Illinois              |  |                                                                    | 1,247  |      |  | 4.2%   |  |   | 1,358  |        |  | 3.0%   |  |   | 1,040  |  |  | 3.3%  
|Florida               |  |                                                                    | 1,201  |      |  | 4.0%   |  |   | 1,559  |        |  | 3.4%   |  |   | 1,345  |  |  | 4.3%  
|Texas                 |  |                                                                    | 1,038  |      |  | 3.5%   |  |   | 1,291  |        |  | 2.8%   |  |   | 1,068  |  |  | 3.4%  
|Massachusetts         |  |                                                                    | 815    |      |  | 2.7%   |  |   | 957    |        |  | 2.1%   |  |   | 616    |  |  | 2.0%  
|Michigan              |  |                                                                    | 731    |      |  | 2.4%   |  |   | 707    |        |  | 1.6%   |  |   | 655    |  |  | 2.1%  
|Pennsylvania          |  |                                                                    | 696    |      |  | 2.3%   |  |   | 730    |        |  | 1.6%   |  |   | 620    |  |  | 2.0%  
|Washington            |  |                                                                    | 687    |      |  | 2.3%   |  |   | 785    |        |  | 1.7%   |  |   | 692    |  |  | 2.2%  
|New Jersey            |  |                                                                    | 561    |      |  | 1.9%   |  |   | 794    |        |  | 1.7%   |  |   | 591    |  |  | 1.9%  
|Other States          |  |                                                                    | 6,620  |      |  | 22.1%  |  |   | 8,040  |        |  | 17.7%  |  |   | 6,254  |  |  | 20.1% 
|Multi-State           |  |                                                                    | 5,804  |      |  | 19.4%  |  |   | 12,859 |        |  | 28.3%  |  |   | 7,434  |  |  | 23.9% 
|                      |  |                                                                    |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|US Sub-total          |  | $                                                                  | 24,673 |      |  | 82.4%  |  | $ | 35,350 |        |  | 77.9%  |  | $ | 24,456 |  |  | 78.6% 
|                      |  |                                                                    |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|International         |  |                                                                    |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|United Kingdom        |  | $                                                                  | 2,345  |      |  | 7.8%   |  | $ | 3,872  |        |  | 8.5%   |  | $ | 2,098  |  |  | 6.7%  
|Australia             |  |                                                                    | 543    |      |  | 1.8%   |  |   | 1,084  |        |  | 2.4%   |  |   | 625    |  |  | 2.0%  
|Italy                 |  |                                                                    | 457    |      |  | 1.5%   |  |   | 660    |        |  | 1.5%   |  |   | 416    |  |  | 1.3%  
|Canada                |  |                                                                    | 180    |      |  | 0.6%   |  |   | 310    |        |  | 0.7%   |  |   | 181    |  |  | 0.6%  
|Japan                 |  |                                                                    | 172    |      |  | 0.6%   |  |   | 181    |        |  | 0.4%   |  |   | 104    |  |  | 0.3%  
|France                |  |                                                                    | 95     |      |  | 0.3%   |  |   | 159    |        |  | 0.3%   |  |   | 117    |  |  | 0.4%  
|Turkey                |  |                                                                    | 95     |      |  | 0.3%   |  |   | 175    |        |  | 0.4%   |  |   | 110    |  |  | 0.4%  
|Austria               |  |                                                                    | 77     |      |  | 0.3%   |  |   | 33     |        |  | 0.1%   |  |   | 27     |  |  | 0.1%  
|Germany               |  |                                                                    | 54     |      |  | 0.2%   |  |   | 413    |        |  | 0.9%   |  |   | 432    |  |  | 1.4%  
|Peru                  |  |                                                                    | 50     |      |  | 0.2%   |  |   | 50     |        |  | 0.1%   |  |   | 10     |  |  | 0.0%  
|Other Countries       |  |                                                                    | 229    |      |  | 0.8%   |  |   | 756    |        |  | 1.7%   |  |   | 598    |  |  | 1.9%  
|Multinational         |  |                                                                    | 988    |      |  | 3.3%   |  |   | 2,351  |        |  | 5.2%   |  |   | 1,945  |  |  | 6.3%  
|                      |  |                                                                    |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|Int. Sub-total        |  | $                                                                  | 5,284  |      |  | 17.6%  |  | $ | 10,044 |        |  | 22.1%  |  | $ | 6,663  |  |  | 21.4% 
|                      |  |                                                                    |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       
|Total Par             |  | $                                                                  | 29,957 |      |  | 100.0% |  | $ | 45,394 |        |  | 100.0% |  | $ | 31,119 |  |  | 100.0%
|                      |  |                                                                    |        |      |  |        |  |   |        |        |  |        |  |   |        |  |  |       

14

---



The following
table sets forth our ten largest obligor exposures for each of our product
lines as of December 31, 2008 by net par outstanding. The table also indicates
the country domicile of the transaction and the RAM Re rating assigned to the
obligor.

|   |  |  |                                                 |  |                                                     |     |     |   |                 |  |  |     | 
|-- |  |  | ----------------------------------------------- |  | --------------------------------------------------- | --- | --- | - | --------------- |  |  | --- | 
|   |  |  | (dollars in millions)                           |  | RAM Re Net Par Outstanding
 as of December 31, 2008
|   |  |  |                                                 |  |                                                    
|   |  |  | Top 10
 Largest Public Finance Exposures:       |  | Country                                             |     | NPO |   | RAM Re Rating 1
|   |  |  |                                                 |  |                                                    
|1  |  |  | Chicago, IL                                     |  |                                                     | US  |     | $ | 274             |  |  | A+  | 
|2  |  |  | Los Angeles,
 CA - SD                           |  |                                                     | US  |     |   | 269             |  |  | AA  | 
|3  |  |  | Washington
 (State of) - GO/Appropriation       |  |                                                     | US  |     |   | 264             |  |  | AA  | 
|4  |  |  | Massachusetts
 (State of)  GO/Appropriation    |  |                                                     | US  |     |   | 246             |  |  | AA  | 
|5  |  |  | Clark County
 SD, NV - GO                       |  |                                                     | US  |     |   | 236             |  |  | AA- | 
|6  |  |  | Port
 Authority of New York and New Jersey      |  |                                                     | US  |     |   | 224             |  |  | AA- | 
|7  |  |  | Region of
 Campania                             |  |                                                     | ITA |     |   | 224             |  |  | A-  | 
|8  |  |  | Kentucky
 (State of)  GO/Appropriation         |  |                                                     | US  |     |   | 211             |  |  | AA- | 
|9  |  |  | Puerto Rico
 Highway & Transportation Authority |  |                                                     | US  |     |   | 204             |  |  | BBB | 
|10 |  |  | New York
 City, NY Muni Water Finance Authority |  |                                                     | US  |     |   | 200             |  |  | AA  | 
|   |  |  |                                                 |  |                                                     |     |     |   |                 |  |  |     | 
|   |  |  |                                                 |  |                                                     |     |     |   |                 |  |  |     | 
|   |  |  | Total                                           |  |                                                     |     |     | $ | 2,354           |  |  |     | 
|   |  |  |                                                 |  |                                                     |     |     |   |                 |  |  |     | 

|   |  |  |                                                                    |  |         |       |     |   |                 |  |  |      | 
|-- |  |  | ------------------------------------------------------------------ |  | ------- | ----- | --- | - | --------------- |  |  | ---- | 
|   |  |  |                                                                    |  |        
|   |  |  | Top 10
 Largest Structured Finance Exposures:                      |  | Country |       | NPO |   | RAM Re Rating 1
|   |  |  |                                                                    |  |        
|1  |  |  | Market Value
 CLO                                                  |  |         | US    |     | $ | 163             |  |  | AAA  | 
|2  |  |  | Private
 Residential Mortgage-Backed Securities                    |  |         | GBR   |     |   | 143             |  |  | AAA  | 
|3  |  |  | National
 Collegiate Student Loan 2007-3                           |  |         | US    |     |   | 142             |  |  | BBB- | 
|4  |  |  | National
 Collegiate Student Loan 2007-4                           |  |         | US    |     |   | 142             |  |  | BBB- | 
|5  |  |  | Telereal
 Securitisation plc                                       |  |         | GBR   |     |   | 122             |  |  | AA-  | 
|6  |  |  | First-lien
 Adjustable-Rate Residential Mortgage-Backed Securities |  |         | US    |     |   | 117             |  |  | BIG  | 
|7  |  |  | Pooled
 Actuarial Insurance Policy Securitization  Reg XXX        |  |         | US    |     |   | 108             |  |  | BIG  | 
|8  |  |  | Super Senior
 Static Emerging Market Sovereign CDO                 |  |         | MULTI |     |   | 103             |  |  | AAA  | 
|9  |  |  | Market Value
 CLO                                                  |  |         | US    |     |   | 102             |  |  | AAA  | 
|10 |  |  | High-yield
 CLO                                                    |  |         | US    |     |   | 100             |  |  | AAA  | 
|   |  |  |                                                                    |  |         |       |     |   |                 |  |  |      | 
|   |  |  | Total                                                              |  |         |       |     | $ | 1,242           |  |  |      | 
|   |  |  |                                                                    |  |         |       |     |   |                 |  |  |      | 

|  |                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 | RAM Re
 ratings are current as of RAM Res ratings review on February 27, 2009. These
 ratings are assigned by RAM Re based on managements judgment and taking into
 consideration the ratings assigned by the primaries and the rating agencies.
 RAM Re undertakes no obligation to update its ratings, and such ratings do
 not constitute investment advice.

Underwriting and Risk Management

RAM
maintains various processes and controls intended to develop the portfolio of
risks and to monitor and manage credit risk, including formal underwriting
guidelines that are administered by RAMs Credit Committee, comprised of senior
management, and reviewed and approved by the Risk Management Committee of the
Board of Directors. These guidelines establish, among other things, exposure
limits and underwriting criteria for sectors, countries, single risks and
servicers.

The
policies that we reinsured were underwritten to a remote-loss standard, which
means that at the time a policy on any particular transaction was issued (and
when we reinsure it), no losses were expected for the entire term of the
policy. Prior to assuming reinsurance exposures from any new primary insurer,
we reviewed the operations of the primary insurer to determine adherence by the
primary to a remote-loss underwriting standard. In addition to our own views on
the quality of the risks we assumed, such investment grade quality standard was
independently established by Moodys and S&P for substantially all of the
transactions reinsured. In limited instances, the investment grade standard was
only available from one of these two rating agencies or, if the primary insurer
deemed the credit to be of high investment grade, from neither rating agency.

15

---



The
following discussion of our underwriting guidelines applies to the business we
underwrote in 2008 and prior, and would apply to any new financial guaranty
business we write in 2009. We are not seeking to write any new business in the
near term.

Our
underwriting guidelines are based on those aspects of credit quality that we deem
important for the category of bond being considered for reinsurance. In
addition, our underwriting guidelines take into consideration primary insurer
and rating agency criteria established for the category. Such guidelines are
updated periodically as appropriate to reflect changes in risk profiles,
additional knowledge obtained and changes in the structure of the transactions
being reinsured. Our underwriting is performed by a team of experienced
analysts and all treaties and facultative transactions and changes to our
underwriting guidelines are approved by the Credit Committee. In addition, all
changes to our underwriting guidelines and treaties are approved by our Risk
Management Committee of the Board of Directors and the Board of Directors.

Underwriting
guidelines for facultative reinsurance of public finance exposure consider such
risk factors as the credit quality of the issuer, the type of issue, repayment
source, the maturity of an issue, the financial strength and stability of the
issuer, and various legal and structural features that bear on obligation to
repay debt and sources of repayment. For structured finance obligations,
underwriting considerations for facultative reinsurance include the amount and
quality of assets underlying an issue, historical performance of the asset
class, over-collateralization or other credit enhancement, servicer performance
risk, and legal structure. In addition to factors such as those above,
international transactions involve assessment of sovereign risk, political risk
and the laws affecting the underlying assets that support structured finance
obligations.

We
consider all types of investment grade public finance and structured finance
securities for reinsurance, as well as limited types of corporate obligations
(primarily obligations of secured investor-owned utilities and short-term bank
deposits). We concentrate on selecting those credit sectors and obligations
that we believe are fundamentally sound and that provide the most potential for
profitability from within the total pool of available obligations in compliance
with our underwriting and pricing guidelines, rather than limiting reinsurance
activity to specific types of obligations. We seek to avoid any substantial
concentration of exposure by specific type of bond, geographic area, issuer or
maturity. An essential element of our risk management is that we focus on those
primary insurers which, in our opinion, adhere to stringent underwriting
guidelines consistent with a triple-A rating or which are triple-A rated. See
Customers above.

We
seek to limit our exposures to single risks, which generally means obligations
of an issuer that are payable from the same revenue stream or are secured by a
common pool of assets, based upon an evaluation of the relative level of risk
present in the particular reinsured transaction. Our single-risk guidelines
therefore apply to the type of transaction being ceded as well as to a
transactions uninsured rating. As we have executed commutations in 2008 and
incurred losses since late 2007, our capital base has been reduced, while our
individual single-risk exposures have remained relatively constant1.
This has resulted in certain exposures exceeding our internal single-risk
limits. Although the rating agencies are not anticipated to treat single-risk
exposure as a central issue for our ratings, we continue to manage single-risk
exposures in considering commutations and facultative transactions to avoid
excess concentration in any single risks.

We
base our single-risk guidelines for public finance transactions on S&P
limits, with the highest limits for the lowest risk product lines, such as
general obligation bonds and water and sewer transactions. To manage our
exposure to risks in large public finance transactions, we maintained a
retrocessional facility with a reinsurer under which we were able to cede
certain public finance risks that exceed our internal single-risk limits
subject to limits by risk categories. This retrocessional agreement does not
relieve RAM Re from its obligation to a reinsured. During 2008 we retroceded
$1.0 million of premiums written and had $0.5 million premium returned as the
underlying policies reinsured by RAM had been commuted. We retroceded $0.8
million and $2.1 million during 2007 and 2006, respectively, of premiums
written under this agreement. This retrocessional agreement was terminated on a
run off basis effective December 31, 2008.

For
structured finance transactions our single-risk guidelines are based upon the
S&P capital charge and credit gap methodology, with such capital charges
and related credit gaps being further adjusted for bond sector and underlying
transaction rating. Our application of that methodology for structured finance
transactions, however, typically results in our having retentions that are
significantly below the amounts that the S&P methodology would allow
without adjustment. In addition to limiting single risks for structured finance
transactions, we also seek to limit our aggregate risk to particular
originators/servicers. We do this by aggregating our total exposure to
originators/servicers and discounting this aggregate exposure by an assumed
correlation factor. The result of this calculation is then compared to an aggregate
originator/servicer risk limit that is sensitive to the ceded transactions
underlying ratings. We also limit our RMBS exposures by vintage.

The
substantial majority of our business was ceded pursuant to reinsurance treaties
under which we committed to reinsure specified business from a ceding company
for a period of time, usually a one-year period. Although we had the ability to
exclude certain categories of risk from a treaty, and even certain issues or
issuers, we had limited ability to control the individual risk ceded pursuant
to the terms of a treaty. In recognition of this, before we entered into a
treaty and periodically thereafter, we conducted due diligence on a primary.
This included review and assessment of the quality of a primarys insured
portfolio, including ratings, diversification, loss experience, and watch
lists; meetings with senior underwriting management to review strategy,
practices and controls; review of pricing, capital charges, risk levels,
ratings, product line and geographic location of the obligations; and a review
of financial strength and profitability. We actively monitor ceded

|                                                                                                                                                         
|---------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                         
|1 Some
exposures are denominated in foreign currencies, which have appreciated
versus the dollar, resulting in an increased single-risk exposure for RAM.

16

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exposures to
assess ceded risk and conduct periodic underwriting and surveillance reviews of
ceding companies to assure that these meet our expectations.

We
also reinsure facultative transactions with each of the primaries and, on
occasion, with other financial guaranty reinsurance companies. Similar to our
general practice with respect to our treaty reinsurance business, our
facultative transactions are assumed by us on a proportional or quota share
basis under which our customers retain a portion of the risk. Unlike treaty
reinsurance, however, each facultative transaction is individually evaluated.
The nature and extent of that evaluation depends upon the transactions product
line, size, underlying credit ratings and whether or not it is a repeat
transaction that has been reviewed in the past. In all instances, the primary
insurer will have provided us with its own internal underwriting report that
assesses the creditworthiness of the transaction, provides pricing and capital
charge information and proposes any recommendations regarding changes in the
transaction terms that the primary insurer is seeking prior to offering to
insure it. For more complex transactions, the underlying transaction documents,
feasibility studies, database search results and rating agency reports are also
provided as applicable. In addition to evaluating the particular transaction
for creditworthiness and appropriate pricing, we also evaluate the extent to
which participating in a particular facultative transaction will assist in
attaining our diversification objectives. On occasion, otherwise acceptable
transactions are not reinsured because they would be detrimental to those
diversification objectives.

Surveillance Process and Watch List

Our
underwriters and risk management staff perform reviews of our reinsured
portfolio in order to ensure continued compliance with our general risk
diversification guidelines, which include, for example, limits on bond sector,
originator/servicer and geographic concentrations. In addition, during these
reviews our portfolio profile is also compared to those of our competitors and
to the ceding primary companies to verify that our underwriting standards are
effectively maintaining the credit quality of our portfolio compared to the
industry as a whole. Surveillance reviews are also used to identify trends or
issues in particular industries or sectors that may serve to alter or limit our
reinsurance activities in those sectors.

In
terms of reviews on individual transactions, we rely heavily upon the
surveillance activities of the primary insurers, and supplement these reviews
with rating agency and general market information. Each of the primary insurers
maintains a watch list for credits that have been identified as requiring
greater than the usual level of ongoing scrutiny and/or intervention. The
primary insurer is required to notify us when any transaction it has reinsured
has been placed on such a watch list.

We
maintain a Watch List the purpose of which is to identify those transactions
requiring increased monitoring. Transactions on our Watch List are divided into
four categories generally based upon the following definitions. Category 1
includes transactions for which performance of the issue or that of an issuance
participant is sufficiently below expectations that increased monitoring is
required; however, the risk of loss remains remote. Category 2 transactions
include those for which performance of an issue or that of an issuance
participant is sufficiently below expectations that increased monitoring is
required and remedial intervention by the primary insurer is either planned or
already in progress. If performance has deteriorated to the point where
concerns about the issuers continued ability to meet debt service requirements
on a timely basis are substantial, such transaction would be classified as a
Category 3 transaction. Category 4 transactions include those for which claims
or loss adjustment expense payments are likely. Designation of a transaction as
Category 4 generally coincides with the establishment of a case-basis loss
reserve.

17

---



As of December
31, 2008, our Watch List consisted of 208 credits, comprising aggregate par
amount outstanding of $2,066.1 million. The par amount of the credits in each
category is shown in the table below:

|                                                                   |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 
|------------------------------------------------------------------ |  | ------------------------------------------------- | ------- | ---- |  | ------ |  | - | ------- | ------ |  | ------ |  | - | ----- |  |  | ------ | 
|(dollars in millions)                                              |  | Net Par Outstanding of RAM Re
 As of December 31, |        
|                                                                   |  |                                                   |        
|                                                                   |  | 2008                                              |         | 2007 |  | 2006   | 
|                                                                   |  |                                                   |         |      |  |        | 
|                                                                   |  | Volume                                            |         | %    |  | Volume |  | % |         | Volume |  | %      | 
|                                                                   |  |                                                   |         |      |  |        |  |   |         |        |  |        | 
|Public finance & Investor-owned
 utilities                         |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 
|Category 1                                                         |  | $                                                 | 228.4   |      |  | 11.1%  |  | $ | 73.2    |        |  | 3.3%   |  | $ | 138.1 |  |  | 23.8%  | 
|Category 2                                                         |  |                                                   | 3.3     |      |  | 0.2%   |  |   | 29.0    |        |  | 1.3%   |  |   | 41.9  |  |  | 7.2%   | 
|Category 3                                                         |  |                                                   | 13.3    |      |  | 0.6%   |  |   | 7.8     |        |  | 0.4%   |  |   | 20.9  |  |  | 3.6%   | 
|Category 4                                                         |  |                                                   | 130.9   |      |  | 6.3%   |  |   | 52.9    |        |  | 2.4%   |  |   | 15.0  |  |  | 2.6%   | 
|                                                                   |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 
|Total Public Finance                                               |  | $                                                 | 375.9   |      |  | 18.2%  |  | $ | 162.9   |        |  | 7.3%   |  | $ | 215.8 |  |  | 37.2%  | 
|                                                                   |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 
|                                                                   |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 
|Structured
      finance & Non-Investor-owned
 utilities Corporate |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 
|Category 1                                                         |  | $                                                 | 290.7   |      |  | 14.1%  |  | $ | 458.7   |        |  | 20.7%  |  | $ | 295.3 |  |  | 50.9%  | 
|Category 2                                                         |  |                                                   | 521.1   |      |  | 25.2%  |  |   | 417.0   |        |  | 18.8%  |  |   | 15.9  |  |  | 2.7%   | 
|Category 3                                                         |  |                                                   | 170.6   |      |  | 8.3%   |  |   | 255.6   |        |  | 11.5%  |  |   | 31.8  |  |  | 5.5%   | 
|Category 4                                                         |  |                                                   | 707.8   |      |  | 34.3%  |  |   | 923.5   |        |  | 41.6%  |  |   | 21.2  |  |  | 3.6%   | 
|                                                                   |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 
|Total Structured Finance                                           |  | $                                                 | 1,690.2 |      |  | 81.8%  |  | $ | 2,054.9 |        |  | 92.7%  |  | $ | 364.2 |  |  | 62.8%  | 
|                                                                   |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 
|Total                                                              |  | $                                                 | 2,066.1 |      |  | 100.0% |  | $ | 2,217.8 |        |  | 100.0% |  | $ | 580.0 |  |  | 100.0% | 
|                                                                   |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 
|                                                                   |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 
|Total as a % of Total Portfolio Net Par                            |  |                                                   | 6.90%   |      |  |        |  |   | 4.89%   |        |  |        |  |   | 1.86% |  |  |        | 
|                                                                   |  |                                                   |         |      |  |        |  |   |         |        |  |        |  |   |       |  |  |        | 

In
2008, the par amount of credits on our Watch List decreased by a net $151.7
million, or 6.8%, from $2,217.8 million to $2,066.1 million; however, the
significant decrease in outstanding par was due largely to the MBIA
commutation. As a percent of our total outstanding portfolio, the par amount on
the Watch List increased from 4.89% to 6.90%. Additions to the Watch List
consisted primarily of residential mortgage-backed securities (RMBS) and
student loans.. Additions of 2005 to 2007 vintage RMBS totaled $543.3 million,
while additions of student loans totaled $299.4 million.

As
of December 31, 2008, the 2005 to 2007 vintage RMBS on our Watch List primarily
consists of securitizations backed by Alt-A first-lien loans (Alt-A)
amounting to $317.6 million, home equity lines of credit (HELOCs) amounting
to $236.4 million, closed-end second-lien mortgages (CES) amounting to $164.8
million and subprime mortgages of $128.2 million. In Category 4, we currently
have $214.5 million of Alt-A, $202.5 million of HELOCs, $94.9 million of CES
and $62.1 million of subprime mortgages from the 2005 to 2007 vintages. Our
case reserves for these exposures total $48.2 million.

Over
90% of the Collateralized Debt Obligations (CDOs) added to the Watch
list were high-yield corporate, 2005 vintage transactions. Of the total $126.2
million added, $121.5 million was added to our Watch List in Category 1 and no
credit impairments, a non-GAAP measure, were allocated to them. We have
recognized credit impairments, a non-GAAP measure, totaling $0.2 million for
CDOs that were previously on the list, which is included as a part of net
change in fair value of credit derivatives on the statement of operations.

Most
of our Category 4 transactions as of December 31, 2008 and 2007 were related to
ABS transactions. The transactions in Category 4 have been examined to
determine the likelihood, timing and severity of expected losses. Although
there can be no assurance that actual experience will not vary from our loss
expectation, our existing case reserves represent our best estimate of likely
future losses on our Category 4 transactions, with such estimates updated
quarterly. All of our current Category 4 transactions include losses that are
probable and estimable.

As
of December 31, 2008, 15 policies, with $356.7 million outstanding par, on our
Watch List were insured credit derivatives, of which 13 policies with $318.3
million par amount (89.2% of the total par of credit derivatives on our Watch
List) provide for payment only of shortfalls of principal and interest as such
shortfalls occur (referred to as pay as you go), one policy with $0.9 million
par amount (or 0.3% of the total par of credit derivatives on our Watch List)
provides for payment upon settlement of individual referenced collateral losses
in excess of policy specific deductibles or subordination amounts, and one
policy with $37.5 million par amount (or 10.5% of total par of credit
derivatives on our Watch List) provides for payment of an amount generally
equal to 100% of the outstanding par upon the occurrence of certain credit
events (these credits generally include, but are not limited to, a failure of
the security issuer to make a payment of principal or interest when due or a
bankruptcy of the security issuer).

18

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Loss Reserves

Our
liability for losses and loss adjustment expenses consists of case-basis
reserves and an unallocated reserve. Case-basis reserves are established based
on primary insurer reports and internal review and evaluation of obligations that
either have already defaulted or have a high probability of default. Case-basis
reserves are established based on the present value of the expected ultimate
losses and loss adjustment expense that we expect to pay less estimated
recoveries offset by the present value of the installment premiums expected to
be received. Our current case-basis reserves consist of the estimated losses on
our Watch List Category 4 transactions, which means that an unrecoverable claim
is payable or a claim is probable and estimable. Individual primaries began
recording remediation benefits with respect to expected recoveries from RMBS
originators in their case reserves in mid-2008, with all of our ceding
companies recording remediation benefits at year end. Prior to the fourth
quarter we did not have access to sufficient information to assess the
reliability of the remediation benefits ceded by the primaries. In the fourth
quarter, we began to record our pro rata share of the remediation benefits in
the ceded case reserves as a result of additional supporting information
received from the primaries,

We
maintain an unallocated reserve based on the unallocated reserve amounts
established by primary insurers for their portfolios and the relative size and
credit risk of our in-force portfolio, taking into account the rating agencies
views of credit quality, as well as management judgment. The unallocated loss
reserve is calculated using the primaries loss ratio of unallocated loss
reserves to par outstanding, adjusted for RAMs weighted average capital charge
compared to the primaries. The unallocated reserve is reviewed periodically by
the Management Committee and the estimate may be modified if industry
experience or company specific-developments are judged to warrant such an
adjustment. As at December 31, 2008, some of the primaries increased the
unallocated reserves for residential mortgage-backed securities, which have
also been reflected in our unallocated loss reserve calculation. For a further
discussion of loss reserving and the assumptions used in the assessment of the
adequacy of the loss factor, see Managements Discussion and Analysis 
Critical Accounting Policies  Loss and Loss Expense Reserves in Part II, Item
7.

Problem
credits are identified initially by the primary insurers at least on a
quarterly basis. Our risk management staff uses this input to identify and
assess the status of individual credits. Quarterly, the Management Committee,
comprised of our senior officers, formally reviews case and unallocated
reserves. The Committee establishes reserves that it believes are adequate to
cover the ultimate liability for losses and loss adjustment expenses. These
reserves are necessarily based on estimates and may vary materially from actual
results. Adjustments based on actual loss experience will be recorded in the
periods in which they become known.

As
of December 31, 2008, our losses and loss expense reserves were $95.8 million
compared to total reserves of $63.8 million at December 31, 2007 and $14.5
million as of December 31, 2006. The following table sets forth the balances
for the previous three years of losses and loss expense reserves, including
case-basis reserves and unallocated reserves:

|                           |  |                        |        |      |   |        |  |   |        | 
|-------------------------- |  | ---------------------- | ------ | ---- | - | ------ |  | - | ------ | 
|                           |  | As of December 31,     |       
|                           |  |                        |       
|Loss
 Reserves             |  | 2008                   |        | 2007 |   | 2006   | 
|                           |  |                        |        |      |   |        | 
|                           |  | (Dollars in thousands) |       
|Case-basis
 reserves       |  | $                      | 81,787 |      | $ | 30,447 |  | $ | 3,010  | 
|Unallocated
 loss reserves |  |                        | 14,007 |      |   | 33,351 |  |   | 11,496 | 
|                           |  |                        |        |      |   |        |  |   |        | 
|                           |  |                        |        |      |   |        |  |   |        | 
|Total                      |  | $                      | 95,794 |      | $ | 63,798 |  | $ | 14,506 | 
|                           |  |                        |        |      |   |        |  |   |        | 

Since
mid-2007, there has been considerable stress in the U.S. residential mortgage
market, particularly related to mortgage loans originated during 2005, 2006 and
2007. The Company is exposed to U.S. residential mortgages through our reinsurance
of RMBS, and indirectly through our guarantees of CDOs. CDOs are securities
backed by portfolios of assets that may include a combination of bonds, loans,
asset-backed securities, tranches of other collateralized debt obligations or
credit derivatives representing any of the former. As of December 31, 2008, we
have established $48.2 million of case reserves relating to the 2005-2007 RMBS
and an additional $8.9 million of our unallocated loss reserve relates to RMBS
losses that are probable to occur on the 2005-2007 RMBS exposures.
Additionally, the Company has been ceded credit impairments, a non-GAAP
measure, relating to CDOs amounting to $6.0 million at December 31, 2008 ($44.4
million at December 31, 2007 and $Nil at December 31, 2006).

Rating Agencies

The
major rating agencies have developed and published rating guidelines for rating
financial guaranty reinsurers. The financial strength ratings assigned by the
rating agencies are based upon factors and criteria including consideration of
the sufficiency of our capital resources to meet projected growth (as well as
access to such additional capital as may be necessary to continue to meet
applicable capital adequacy standards), our overall financial strength, and
demonstrated management expertise in financial guaranty and traditional
reinsurance, credit analysis, systems development, investment operations and
franchise value, or business prospects.

Through
December 31, 2007, RAM Re had been assigned a AAA (Extremely Strong) rating
with a negative outlook from S&P and a Aa3 (Excellent) rating with a
stable outlook from Moodys. In the fall of 2007, both S&P and Moodys
began a review of the capital

19

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adequacy of
the financial guaranty industry including both primary and reinsurance
companies, as a result of their residential mortgage-related exposures. S&P
and Moodys took the following ratings actions with respect to RAM Re in 2008:

| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |           On
 February 1, 2008, Moodys placed the Aa3 financial strength rating of RAM Re
 on review for downgrade                                        
|
| |           On
 February14, 2008, S&P placed the AAA financial strength and financial
 enhancement rating of RAM Re on CreditWatch with negative implications
|
| |           On
 March 7, 2008, Moodys confirmed the Aa3 financial strength rating of RAM Re
 with a negative outlook                                        
|
| |           On
 June 4, 2008, S&P lowered the financial strength and financial
 enhancement ratings on RAM Re from AAA to AA with a negative outlook         
|
| |           On
 August 7, 2008, Moodys lowered the financial strength rating of RAM Re from
 Aa3 to A3, on review for further possible downgrade            
|
| |           On
 September 24, 2008, S&P lowered its financial strength rating on RAM Re
 from AA to A+ with a negative outlook                               
|
| |           On
 December 4, 2008, Moodys lowered its financial strength rating on RAM Re
 from A3 to Baa3, outlook developing                               

In
their most recent ratings actions downgrading RAM Res ratings to A+ and Baa3,
S&P and Moodys, respectively, based their actions on a number of factors,
with the primary factors being the potential for increased losses among RAM
Res mortgage exposures and our significantly constrained business prospects.
In connection with the September 24, 2008 downgrade, S&P stated
that the A+ rating reflects its view that the diversity and scope of RAM Res
reinsurance relationships have suffered as more of the primary insurers new
business production has declined in the current environment. These changes
raise the likelihood in S&Ps view that RAM Res new business generation will
be limited until the primary insurers can stabilize their franchises. The
rating changes also reflect the difficulty S&P believes RAM Re may face, in
light of the current environment, toward improving its historically
below-average return on equity (ROE). Finally, S&P stated that the rating
changes reflect S&Ps view of RAM Res weakened capital adequacy position,
which is the result of a significant amount of projected losses relating
primarily to reinsured subprime and second-lien RMBS and, secondarily, CDOs of
ABS. Although the Companys capital adequacy margin of safety in S&Ps
analysis was at the low end of the range of 1.0x -1.1x, which exceeds S&Ps
A criteria of 0.8x, it has declined from prior years when the margin of
safety was in excess of 1.25x. In connection with the December 4, 2008
downgrade, Moodys stated that the Baa3 rating, with developing outlook,
reflected Moodys views on RAM Res overall credit profile in the current
environment, including the potential for increased losses among its
mortgage-related exposures and significantly constrained new business
prospects. Moodys stated that the downgrade resulted from three primary
factors, the first being Moodys expectations of greater losses on
mortgage-related exposures, reflecting continued adverse delinquency trends.
Moodys stated that although RAM Re has reduced the size of its RMBS and ABS
CDO portfolios through recent commutation transactions with MBIA and XLFA, loss
expectations relating to RAM Res direct RMBS portfolio were material relative
to capital. The second factor was Moodys view of diminished business prospects
as reflected by low underwriting volume. The third factor, according to
Moodys, was the Companys impaired financial flexibility.

In
assessing capital adequacy of the primaries, the rating agencies will grant
credit against a primary insurers capital requirements and single-risk limits
for insurance ceded to a reinsurer in an amount that is a function of the
financial strength rating of the reinsurer. The rating agencies currently allow
the greatest credit to a primary insurers capital requirements and single-risk
limits for reinsurance ceded to a monoline reinsurer with a financial strength
rating of AAA. We currently have a financial strength rating of A+ on
negative outlook from S&P. S&P has established the following
reinsurance credit for business ceded to a monoline reinsurer:

|                        |  |                           |     |    |  |    |   |     |    |   |  |           |  
|----------------------- |  | ------------------------- | --- | -- |  | -- | - | --- | -- | - |  | --------- | -
|                        |  | Monoline Reinsurer Rating |    
|Primary
 Insurer Rating |  | AAA                       |     | AA |  | A  |   | BBB |   
|                        |  |                           |     |    |  |    |   |     |   
|AAA                     |  |                           | 100 | %  |  | 70 | % |     | 50 | % |  | no credit |  
|AA                      |  |                           | 100 | %  |  | 75 | % |     | 70 | % |  | 50        | %
|A                       |  |                           | 100 | %  |  | 80 | % |     | 75 | % |  | 70        | %

As
a result of the downgrade of our rating from AAA to A+, S&P capital credit
provided to the AAA-rated primaries for our reinsurance has been reduced from
100% to 50%. Moodys does not publish a similar table that would indicate the
exact amount of capital credit received by rating. We requested the withdrawal
of our Moodys rating on March 17, 2009. We maintain trust accounts for the
benefit of our customers located in the U.S. in order for them to receive
statutory capital credit for our reinsurance from their regulators, and we
believe that the rating agencies may also take into consideration the benefit
provided by these trust accounts in assigning capital credit for our
reinsurance.

The
downgrades of RAM Res ratings by Moodys and S&P in 2008 have had a
material adverse effect on our business, financial condition, results of
operations and prospects. As at December 31 2008, we have accrued or paid additional
ceding commissions related to the S&P downgrade totaling $20.3 million,
which are being expensed as the related premiums are earned. In
addition, our ceding companies generally have the right to recapture their
insured portfolios from us, although to date none of them have elected to do
so. The commutations negotiated during the year were not as a result of the
treaty recapture terms. Further, we have not renewed any of our treaties in
2009, in part

20

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due to our
lowered ratings and in part due to the primaries greatly reduced need for
reinsurance capacity as their own business generation has decreased. This means
that we do not expect to write any financial guaranty reinsurance in the
current year but this will not reduce our in-force business, unless the
business is commuted or recaptured by the primaries.

While
S&P and Moodys have not taken any further ratings actions with respect to
RAM Re in 2009, they may take further actions at any time, particularly since
mortgage exposures have continued to deteriorate in 2009 as a result of the
ongoing economic and credit crises. Further, our decision not to seek to write
any new business in the near term may have an adverse effect on our ratings from
S&P.

There
have been a number of recent developments with respect to ratings actions by
the rating agencies. In light of the ongoing nature of ratings actions or
announcements by the rating agencies, you should consult announcements by the
rating agencies and the websites of the rating agencies for the then current
publicly available information. However, the information in these announcements
and on those websites does not constitute a part of this annual report on Form
10-K.

Investments

Our
investment objectives include preservation of principal, maintaining a high
quality, liquid investment portfolio within a prescribed duration range, and
achieving stable net investment income. As of December 31, 2008, the duration of
our portfolio was 4.8 years and the weighted portfolio credit quality was a
AA+ rating by S&P.

Our
invested assets are managed by the professional asset management firm New
England Asset Management. Investment decisions are constrained and guided by
investment policy and guidelines developed by RAM Re and adopted by our Board
of Directors. Our investment portfolio consists of fixed maturities and
short-term investments. The portfolio is reported at fair value based upon
quoted market prices provided by either independent pricing services or, when
such prices are not available, by reference to broker or underwriter bid
indications.

The following
table summarizes our investment portfolio by security type:

|                                     |  |                         |                        |                  |  |            |         |  |   |         | 
|------------------------------------ |  | ----------------------- | ---------------------- | ---------------- |  | ---------- | ------- |  | - | ------- | 
|                                     |  | As of December 31, 2008 |                       
|                                     |  |                         |                       
|Fixed
 Income Securities             |  | Book 
 Yield            |                        | Amortized 
 Cost |  | Fair Value |        
|                                     |  |                         |                        |                  |  |            |        
|                                     |  |                         | (Dollars in thousands) |                 
|Agencies                             |  |                         | 4.5                    | %                |  | $          | 34,272  |  | $ | 37,395  | 
|U.S. government obligations          |  |                         | 4.0                    |                  |  |            | 89,930  |  |   | 104,061 | 
|Corporate debt securities            |  |                         | 4.6                    |                  |  |            | 97,243  |  |   | 93,456  | 
|Municipal securities                 |  |                         | 4.1                    |                  |  |            | 46,995  |  |   | 47,863  | 
|Mortgage and asset-backed securities |  |                         | 5.0                    |                  |  |            | 147,119 |  |   | 139,115 | 
|                                     |  |                         |                        |                  |  |            |         |  |   |         | 
|                                     |  |                         |                        |                  |  |            |         |  |   |         | 
|Total                                |  |                         | 4.5                    | %                |  | $          | 415,559 |  | $ | 421,890 | 
|                                     |  |                         |                        |                  |  |            |         |  |   |         | 

The following
table summarizes our investment portfolio by ratings:

|                    |  |                           |        |   | 
|------------------- |  | ------------------------- | ------ | - | 
|Rating
 Profile (1) |  | As of
 December 31,
 2008 |       
|                    |  |                           |       
|                    |  |                           |        |   | 
|AAA (2)             |  |                           | 74.6   | % | 
|AA                  |  |                           | 5.1    | % | 
|A                   |  |                           | 16.4   | % | 
|Cash                |  |                           | 3.7    | % | 
|BIG                 |  |                           | 0.2    | % | 
|                    |  |                           |        |   | 
|Total               |  |                           | 100.00 | % | 
|                    |  |                           |        |   | 

|    |                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Ratings
 represent S&P classifications. If unavailable, Moodys ratings are used.                                                        
|    |                                                                                                                                          
|(2) | Includes
 U.S. Treasury and agency obligations, which comprised approximately 33.5% of
 the investment portfolio as of December 31, 2008.

21

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The following
table summarizes our investment portfolio by maturity category:

|                                       |  |                         |         |            |   |         | 
|-------------------------------------- |  | ----------------------- | ------- | ---------- | - | ------- | 
|                                       |  | As of December 31, 2008 |        
|                                       |  |                         |        
|Fixed
 Income Securities               |  | Amortized
 Cost         |         | Fair Value |  
|                                       |  |                         |         |            |  
|                                       |  | (Dollars in thousands)  |        
|                                       |  |                         |        
|Less than one year                     |  | $                       | 28,974  |            | $ | 29,147  | 
|Due after one year through five years  |  |                         | 99,044  |            |   | 98,545  | 
|Due after five years through ten years |  |                         | 61,003  |            |   | 66,740  | 
|Due after ten years                    |  |                         | 79,419  |            |   | 88,343  | 
|Mortgage and asset-backed securities   |  |                         | 147,119 |            |   | 139,115 | 
|                                      
|                                       |  |                         |         |            |   |         | 
|Total                                  |  | $                       | 415,559 |            | $ | 421,890 | 
|                                       |  |                         |         |            |   |         | 

Competition

Primary
financial guaranty companies choose reinsurance providers based upon several
factors, including overall financial strength, financial strength ratings by
the major rating agencies, single-risk capacity, and, to a lesser extent, level
of service quality and whether or not the reinsurer competes with the primary
company. There has been limited demand for reinsurance on new business since
late 2007, and reinsurance activity in 2008 consisted primarily of transactions
in which the primaries reinsured substantial portions of their existing insured
portfolio of public finance transactions for regulatory capital purposes.
Primaries with excess capital for their current ratings were the only
reinsurers of these portfolio transactions. We did not compete for these
transactions because we did not have sufficient capacity for these large
transactions. We are not currently competing in the financial guaranty
reinsurance market.

Regulation in Bermuda

As
a holding company, we are not subject to Bermuda insurance regulations. The
Bermuda Insurance Act 1978 (the Bermuda Insurance Act), which regulates the
insurance business of RAM Re, provides that no person shall carry on an
insurance business in or from within Bermuda unless registered as an insurer
under the Bermuda Insurance Act by the Bermuda Monetary Authority (BMA).
Under the Bermuda Insurance Act insurance business includes reinsurance. The
BMA, in deciding whether to grant registration, has broad discretion to act as
it believes is in the public interest. The BMA is required by the Bermuda
Insurance Act to determine whether the applicant is a fit and proper body to be
engaged in the insurance business and, in particular, whether (a) it has
fulfilled the minimum criteria with respect to the body corporate, (b) it has,
or has available to it, adequate knowledge and expertise to operate an
insurance business and (c) the premises intended to be used in the business are
adequate for the conduct of the business. The continued registration of an
applicant as an insurer is subject to its complying with the terms of its
registration and such other conditions as the BMA may impose from time to time.

An
Insurance Advisory Committee appointed by the Bermuda Minister of Finance
advises the BMA on matters connected with the discharge of the BMAs functions.
Sub-committees of the Insurance Advisory Committee supervise and review the law
and practice of insurance in Bermuda, including reviews of accounting and
administrative procedures. The day-to-day supervision of insurers is the
responsibility of the BMA.

The
Bermuda Insurance Act also imposes on Bermuda insurance companies solvency and
liquidity standards, as well as auditing and reporting requirements and grants
to the BMA powers to supervise, investigate and intervene in the affairs of
insurance companies. Certain significant aspects of the Bermuda insurance
regulatory framework are set forth below.

In
July 2008 the Insurance Amendment Act 2008 (the Amendment Act) was
promulgated, which among other things, introduced new Class 3A and Class 3B
insurance licenses and created a new supervisory framework for Bermuda insurers
by establishing new risk-based regulatory capital adequacy and solvency margin
requirements. The implementation of the new supervisory framework is to occur
in phases, commencing with Class 4 insurers before being extended to certain
commercial Class 3, Class 3A and Class 3B insurers. The new model which is
expected to be extended to certain Class 3, Class 3A and Class 3B insurers,
inter alia, mandates that an insurer to which the new supervisory framework is
to apply, shall have an Enhanced Capital Requirement (ECR) which will be
calculated by either (a) applying a BMA model; or (b) applying an internal
capital model which the BMA has approved for use for this purpose. More
information on the ECR and the new risk-based regulatory capital adequacy and
solvency margin regime introduced under the Amendment Act and which is to be
made applicable to certain Class 3, Class 3A and Class 3B insurers, can be found
in the section entitled Enhanced Capital Requirement, Minimum Solvency Margin
and Restrictions on Dividends and Distributions.

On
December 11, 2008, the Bermuda House of Assembly approved amendments to
Bermudas existing insurance regulations (the Regulations). The amended
Regulations, which came into effect on December 31, 2008, compliment and in
certain respects, are consequential to the changes instituted under the
Amendment Act.

22

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The
BMA utilizes a risk-based approach when it comes to licensing and supervising
insurance companies in Bermuda. As part of the BMAs risk-based system, an
assessment of the inherent risks within each particular class of insurer is
utilized in the first instance to determine the limitations and specific
requirements which may be imposed. Thereafter the BMA keeps its analysis of
relative risk within individual institutions under review on an ongoing basis,
including through the scrutiny of regular audited statutory financial
statements, and, as appropriate, meeting with senior management during onsite
visits. The initial meetings with senior management and any proposed onsite
visit will primarily focus upon companies that are licensed as Class 4, Class
3, Class 3A and Class 3B insurers. The BMA has also recently adopted guidance
notes, or the Guidance Notes, in order to ensure those operating in Bermuda
have a good understanding of the nature of the requirements of, and the BMAs
approach in implementing, the Bermuda Insurance Act.

Classification
of Insurers. The Bermuda Insurance Act distinguishes
between insurers carrying on long-term business and insurers carrying on
general business. There are six classifications of insurers carrying on general
business, Classes 1 to 4 with Class 3 insurers subdivided into three
categories, Class 3, Class 3A and Class 3B. Class 4 insurers are subject to the
strictest regulation and Class 3, Class 3A and Class 3B insurers subject to the
next strictest regulation. RAM Re is registered as a Class 3B insurer effective
January 1, 2009 and is regulated as such under the Bermuda Insurance Act. Prior
to January 1, 2009, RAM Re was registered as a Class 3 reinsurer. RAM Re may,
in the future, seek to change its registration from Class 3B to Class 3A
because Class 3B registration applies to companies that write at least BMD $50
million of total net premiums per year, RAM Re did not write total net premiums
of BMD $50 million in 2008, and RAM Re does not expect to write any new
business in the near term; consequently RAM Res future total net premiums
is expected to be below the BMD $50 million threshold. The BMA may determine
not to permit RAM Re to change its registration or may impose additional requirements
on RAM Re related to its business license. RAM Re is not licensed to carry on
long-term business.

Cancellation
of Insurers Registration. An insurers registration
may be cancelled by the Supervisor of Insurance of the BMA, on certain grounds
specified in the Bermuda Insurance Act, including failure of the insurer to
comply with its obligations under the Bermuda Insurance Act or, if in the
opinion of the BMA after consultation with the Insurance Advisory Committee,
the BMA believes that the insurer has not been carrying on business in
accordance with sound insurance principles.

Principal
Representative. An insurer is required to maintain a
principal office in Bermuda and to appoint and maintain a principal
representative in Bermuda. For the purpose of the Bermuda Insurance Act, the
principal office of RAM Re is at RAM Re House, 46 Reid Street, Hamilton HM12
Bermuda, and Vernon Endo has been appointed by the RAM Re Board of Directors as
the principal representative of RAM Re and has been approved by the BMA.
Without a reason acceptable to the BMA, an insurer may not terminate the
appointment of its principal representative, and the principal representative
may not cease to act as such unless 30 days notice in writing to the BMA is
given of the intention to do so. A principal representative shall forthwith notify
the BMA, in such a manner as it may direct, (a) on his reaching a view that
there is a likelihood of the insurer for which he acts becoming insolvent; (b)
on its coming to his knowledge, or his having reason to believe, that an event
to which the applicable section of the Bermuda Insurance Act applies has
occurred. Within 14 days of such notification, the principal representative
shall furnish the BMA with a report in writing setting out all the particulars
of the case that are available to him. Examples of such a reportable event
include failure by the insurer to comply substantially with a condition imposed
upon the insurer by the BMA relating to a solvency margin or a liquidity or
other ratio, or the insurers ceasing to carry on insurance business in or from
within Bermuda and under the Amendment Act these events now include a
significant loss which is likely to render the insurer unable to comply with
its ECR.

Independent
Approved Auditor. Every registered insurer must
appoint an independent auditor who will annually audit and report on the
statutory financial statements and the statutory financial return of the
insurer. RAM Res statutory financial statements, as a Class 3B insurer, must
be filed annually with the BMA. The independent auditor of the insurer must be
approved by the BMA and may be the same person or firm that audits the
insurers financial statements under generally accepted accounting principles
and reports for presentation to its shareholders. RAM Res independent auditor
is PricewaterhouseCoopers (Bermuda).

Loss
Reserve Specialist. As a registered Class 3B insurer,
RAM Re is required to submit an opinion of its approved loss reserve specialist
with its statutory financial return in respect of its loss and loss expense
provisions. The loss reserve specialist will normally be a qualified casualty
actuary and must be approved by the BMA. Simon Lambert FIA, MAAA , an employee
of PricewaterhouseCoopers (Bermuda), has been appointed by the RAM Re Board of
Directors as RAM Res loss reserve specialist and has been approved by the BMA.

Annual
Statutory Financial Statements. An insurer must
prepare annual statutory financial statements. The Bermuda Insurance Act
prescribes rules for the preparation and substance of such statutory financial
statements, which include, in statutory form, a balance sheet, income
statement, a statement of capital and surplus and notes thereto. The insurer is
required to give detailed information and analysis regarding premiums, claims,
reinsurance and investments. The statutory financial statements are not
prepared in accordance with U.S. generally accepted accounting principles
(U.S. GAAP). They are distinct from the financial statements prepared for
presentation to the insurers shareholders under the Bermuda Companies Act
1981, which may be prepared in accordance with U.S. GAAP. As a general business
insurer, RAM Re is required to submit the annual statutory financial statements
as part of its annual statutory financial return. The statutory financial
statements and the statutory financial return do not form part of the public
records maintained by the BMA or the Registrar of Companies of Bermuda.

Annual
Statutory Financial Return. RAM Re, as a registered
Class 3B insurer, is required to file with the BMA a statutory financial return
no later than four months after its financial year-end, (unless specifically
extended upon application to the BMA). The statutory financial

23

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return for a
Class 3B insurer includes, among other matters, a report of the approved
independent auditor on the statutory financial statements of the insurer, a
general business solvency certificate, the statutory financial statements, and
the opinion of the loss reserve specialist in respect of the loss and loss
expense provisions. The general business solvency certificate must be signed by
the principal representative and at least two directors of the insurer
certifying that the minimum solvency margin and minimum liquidity ratio has
been met and whether the insurer complied with the conditions attached to its
certificate of registration. The independent auditors report states whether,
in its opinion, (a) the statutory financial statements, the general business
solvency certificate, and the declaration of statutory ratios comply, in all
material respects, with criteria established by the Bermuda Insurance Act and
Regulations; and (b) the opinions expressed by the directors in the general
business solvency certificate are reasonable insofar as they relate to
accounting matters and financial reporting. If an insurers accounts have been
audited for any purpose other than compliance with the Bermuda Insurance Act, a
statement to that effect must be filed with the statutory financial return.

Enhanced
Capital Requirement, Minimum
Solvency Margin and Restrictions on Dividends and Distributions. The
new risk-based regulatory capital adequacy and solvency margin regime
introduced under the Amendment Act, which came into effect for Class 4 insurers
on December 31, 2008, provides a risk-based capital model as a tool to assist
the BMA both in measuring risk and in determining appropriate levels of
capitalization (termed the Bermuda Solvency Capital Requirement (BSCR)). BSCR
employs a standard mathematical model that correlates the risk underwritten by
Bermuda insurers to the capital that is dedicated to their business. The new
model is expected to be extended to certain Class 3, Class 3A and Class 3B
insurers in the future, at a time to be determined by the BMA. The framework
that has been developed for the Class 4 insurers, all or part of which
framework is likely to be applied to certain Class 3, Class 3A and Class 3B
insurers in the future, applies a standard measurement format to the risk
associated with an insurers assets, liabilities and premiums, including a
formula to take account of the catastrophe risk exposure.

Under
the new supervisory model, where the insurer believes that its own internal
model for measuring risk and determining appropriate levels of capital better
reflects the inherent risk of its business, it may make application to the BMA
for approval to use its internal capital model in substitution for the BSCR
model. The BMA may approve an insurers internal model provided certain
conditions have been established and may revoke approval of an internal model
in the event that the conditions are no longer met or where it feels that the
revocation is appropriate. The BMA will review the internal model regularly to
confirm that the model continues to meet the conditions.

In
order to minimise the risk of a shortfall in capital arising from an unexpected
adverse deviation and in moving towards the implementation of a risk-based
capital approach, the BMA seeks that Class 4 insurers operate at or above a
threshold capital level (termed the Target Capital Level (TCL)), which
exceeds the BSCR or approved internal model minimum amounts.

The
Amendment Act also introduced prudential standards in relation to the ECR and
Capital and Solvency Return (CSR). The ECR is determined using the BSCR or an
approved internal model, provided that at all times the ECR must be an amount
equal to, or exceeding the minimum margin of solvency. The CSR is the return
setting out the insurers risk management practises and other information used
by the insurer to calculate its approved internal model ECR.

The
new Class 4 capital requirements, which requirements may be extended in a
modified or unmodified form to Class 3, Class 3A and Class 3B insurers in the
future, require Class 4 insurers to hold available statutory capital and
surplus equal to or exceeding ECR and set TCL at 120% of ECR. The BMA also has
a degree of discretion enabling it to adjust ECR on insurers in particular
cases. In those cases, the new risk-based capital model should be supplemented
by a requirement for the affected insurers to conduct certain stress and
scenario testing in order to assess their potential vulnerability to defined
extreme events. Where the results of scenario and stress-testing indicated
potential capital vulnerability, the BMA would be able to require a higher
solvency cushion by increasing the 120% TCL figure. In circumstances where an
insurer has failed to comply with an ECR given by the BMA in respect of that
insurer, such insurer is prohibited from declaring or paying any dividends
until the failure is rectified and the insurer is obliged to (i) provide the
BMA, within fourteen days of the failure, with a written report as to why the failure
occurred and remedial steps to be taken; and (ii) within forty five days of the
failure to provide the BMA with unaudited interim financial statements, the
opinion of the loss reserve specialist, a general business solvency certificate
in respect of the unaudited financials, and a CSR reflecting an ECR prepared
using post-failure data.

Undergirding
the new risk-based solvency capital regime described above is the minimum
solvency margin test set out in the Insurance Returns and Solvency Amendment
Regulations 1980 (as amended, in particular by the Insurance Returns and
Solvency Amendment Regulations 2008, which provide for general amendments to
include reference to the new Class 3A and Class 3B insurers, where relevant).
In applying the new risk-based solvency capital approach to certain Class 3,
Class 3A and Class 3B insurers in the future, such insurers are likely to be
required to calculate their ECR annually by reference to either the BSCR or an
approved internal model, notwithstanding this, a Class 3B insurer such as RAM
Re must also ensure that, at all times, its ECR is at least equal to the
minimum solvency margin for a Class 3, Class 3A or Class 3B insurer in respect
of its general business, which is the greater of:

| |  |   |                                                                                                                                                                      
| |  | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | US$1,000,000;                                                                                                                                                        
| |  |   |                                                                                                                                                                      
| |  |  | 20% of the
 first US$6,000,000 of net premiums written (being premiums written less any
 reinsurance premiums ceded during the same period) and 15% of the remainder;
| |  |   |                                                                                                                                                                      
| |  |  | 15% of net
 loss and loss expense provisions and other general business insurance
 reserves.                                                                         

As
of December 31, 2008, RAM Re exceeded the BMAs minimum solvency margin by
$143.1 million.

24

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In
addition, under the Bermuda Insurance Act, Class 4 and Class 3B insurers are
prohibited from declaring or paying any dividends of more than 25% of total
statutory capital and surplus, as shown on their respective previous financial
year statutory balance sheet, unless at least seven days before payment of the
dividends, such insurers file with the BMA an affidavit that they will continue
to meet required solvency margins. Class 3, Class 3A and Class 3B insurers must
obtain the BMAs prior approval before reducing total statutory capital, as
shown on their respective previous financial year statutory balance sheets, by
15% or more.

Furthermore,
under the Bermuda Companies Act 1981, RAM Re may only declare or pay a dividend
if RAM Re has no reasonable grounds for believing that it is, or would after
the payment be, unable to pay its liabilities as they become due, or if the
realizable value of its assets would not be less than the aggregate of its
liabilities and its issued share capital and share premium accounts.

The
BMA requires that the loss and loss expense provision reflects the present value
of future cash flows associated with all financial guaranty contracts (which,
for statutory reporting purposes, includes those contracts written as credit
default swaps) attaching prior to the balance sheet date where anticipated
losses are estimated over the lifetime of contracts, with appropriate
probabilistic allowance for potential adverse scenarios.

Minimum
Liquidity Ratio. The Bermuda Insurance Act provides a
minimum liquidity ratio for general business insurers. An insurer engaged in
general business (as is the case for RAM Re) is required to maintain the value
of its relevant assets at not less than 75% of the amount of its relevant liabilities.
Relevant assets include, but are not limited to, cash and time deposits, quoted
investments, unquoted bonds and debentures, first liens on real estate,
investment income due and accrued, accounts and premiums receivable, and
reinsurance balances receivable. There are certain categories of assets, which,
unless specifically permitted by the BMA, do not qualify as relevant assets,
such as, unquoted equity securities, investments in and advances to affiliates,
and real estate and collateral loans. The relevant liabilities are total
general business insurance reserves and total other liabilities less deferred
income tax and sundry liabilities (by interpretation, those not specifically
defined).

Supervision,
Investigation and Intervention. The BMA may appoint an
inspector with extensive powers to investigate the affairs of an insurer if the
BMA believes that an investigation is required in the interest of the insurers
policyholders or potential policyholders. In order to verify or supplement
information otherwise provided to the BMA, the BMA may direct an insurer to
produce documents or information relating to matters connected with the
insurers business. In addition, the BMA has the power to require the
production of documents from any person who appears to be in possession of such
documents. Further, the BMA has the power, in respect of a person registered
under the Bermuda Insurance Act, to appoint a professional person to prepare a
report on any aspect of any matter about which the BMA has required or could
require information. If it appears to the BMA to be desirable in the interests
of the clients of a person registered under the Bermuda Insurance Act, the BMA
may also exercise these powers in relation to any company which is or has at
any relevant time been (a) a parent company, subsidiary company or related
company of that registered person, (b) a subsidiary company of a parent company
of that registered person, (c) a parent company of a subsidiary company of that
registered person or (d) a company in the case of which a shareholder
controller of that registered person, either alone or with any associate or
associates, holds 50 percent or more of the shares or is entitled to exercise,
or control the exercise, of more than 50 percent of the voting power at a
general meeting. If it appears to the BMA that there is a risk of an insurer
becoming insolvent, or that the insurer is in breach of the Bermuda Insurance
Act or any conditions imposed upon its registration, the BMA may, among other
things, direct the insurer (i) not to effect further contracts of insurance, or
any contract of insurance of a specified description; (ii) to limit the
aggregate of the premiums to be written by it during a specified period
beginning not earlier than 28 days after the direction is given; (iii) not to
vary any contract of insurance in force when the direction is given, if the
effect of the variation would be to increase the liabilities of the insurer;
(iv) not to make any investment of a specified class; (v) before the expiration
of a specified period (or such longer period as the BMA may allow) to realize
any existing investment of a specified class; (vi) not to declare or pay any
dividends or any other distributions, or to restrict the making of such
payments to such extent as the BMA thinks fit; (vii) not to enter into any
specified transaction with any specified person or persons of a specified
class; (viii) to remove a controller or officer; (ix) to provide such written
particulars relating to the financial circumstances of the insurer as the BMA
thinks fit; and (x) to obtain the opinion of a loss reserve specialist with
respect to general business, or an actuarial opinion with respect to long-term
business, and to submit it to the BMA within a specified time. The BMA intends
to meet with each Class 3B insurance company on a voluntary basis, every two
years.

Disclosure
of Information. In addition to powers under the
Bermuda Insurance Act to investigate the affairs of an insurer, the BMA may
require certain information from an insurer or certain other persons to be
produced to the BMA. Further, the BMA has been given powers to assist other
regulatory authorities with their investigations involving insurance and
reinsurance companies in Bermuda, subject to restrictions. For example, the BMA
must be satisfied that the assistance being requested is in connection with the
discharge of regulatory responsibilities of the foreign regulatory authority.
Further, the BMA must consider whether to cooperate is in the public interest.
The grounds for disclosure are limited and the Bermuda Insurance Act provides
sanctions for breach of the statutory duty of confidentiality. Under the
Bermuda Companies Act, the Bermuda Minister of Finance has been given powers to
assist a foreign regulatory authority which has requested assistance in
connection with enquiries being carried out by it in the performance of its
regulatory functions. The Bermuda Minister of Finances powers include
requiring a person to furnish him/her with information, to produce documents to
him/her, to attend and answer questions and to give assistance in connection
with enquiries. The Bermuda Minister of Finance must be satisfied that the
assistance requested by the foreign regulatory authority is for the purpose of
its regulatory functions and that the request is in relation to information in
Bermuda which a person has in his possession or under his control. The Bermuda
Minister of Finance must consider, among other things, whether it is in the
public interest to give the information sought.

25

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Controller
Notification.Each shareholder or prospective
shareholder will be responsible for notifying the BMA in writing within 45 days
of his becoming a controller, directly or indirectly, of 10%, 20%, 33% or 50%
of the Company and ultimately RAM Re. The BMA may serve a notice of objection
on any controller of RAM Re if it appears to the BMA that the person is no
longer fit and proper to be such a controller. RAM Re will be responsible for
giving written notice to the BMA of the fact that any person has become or
ceases to be 10%, 20%, 33% or 50% controller of RAM Re. The Notice has to be
given within 45 days of becoming aware of the relevant facts.

RAM
Re is also required to notify the BMA in writing in the event of any person
ceasing to be a controller, a controller being a managing director, chief
executive or other person in accordance with whose directions or instructions
the directors of RAM Re are accustomed to act, including any person who holds,
or is entitled to exercise, 10% or more of the voting shares or voting power or
is able to exercise a significant influence over the management of RAM Re.

Certain
Other Bermuda Law Considerations. RAM Re must comply
with the provisions of the Bermuda Companies Act 1981 regulating the payment of
dividends and making of distributions from contributed surplus. A company is
prohibited from declaring or paying a dividend, or making a distribution out of
contributed surplus, if there are reasonable grounds for believing that: (a)
the company is, or would after the payment be, unable to pay its liabilities as
they become due; or (b) the realizable value of the companys assets would
thereby be less than the aggregate of its liabilities and its issued share
capital and share premium accounts. Although RAM Re is incorporated in Bermuda,
it is classified as a non-resident of Bermuda for exchange control purposes by
the BMA. Pursuant to its non-resident status, RAM Re may engage in transactions
in currencies other than Bermuda dollars and there are no restrictions on its
ability to transfer funds (other than funds denominated in Bermuda dollars) in
and out of Bermuda or to pay dividends to U.S. residents who are holders of its
ordinary shares.

RAM
Re has been incorporated in Bermuda as an exempted company. Under Bermuda
law, exempted companies are companies formed for the purpose of conducting
business outside Bermuda from a principal place in Bermuda. As a result, they
are exempt from Bermuda laws restricting the percentage of share capital that
may be held by non-Bermudians, but they may not participate in certain business
transactions, including (1) the acquisition or holding of land in Bermuda
(except as may be required for their business and held by way of lease or
tenancy terms of not more than 50 years) without the express authorization of
the Bermuda legislature, (2) the taking of mortgages on land in Bermuda to
secure an amount in excess of BMD$50,000 without the consent of the Bermuda
Minister of Finance, (3) the acquisition of any bonds or debentures secured by
any land in Bermuda, other than certain types of Bermuda government securities
or (4) the carrying on of business of any kind in Bermuda, except in
furtherance of their business carried on outside Bermuda or under license
granted by the Minister of Finance. While an insurer is permitted to reinsure
risks undertaken by any company incorporated in Bermuda and permitted to engage
in the insurance and reinsurance business, generally it is not permitted
without a special license granted by the Minister of Finance, to insure Bermuda
domestic risks or risks of persons of, in or based in Bermuda. RAM Re does not
have such a special license.

Exempted
companies, such as RAM Re, must comply with Bermuda resident representation
provisions under the Bermuda Companies Act 1981. Under Bermuda law,
non-Bermudians (other than spouses of Bermudians or holders of a permanent
residents certificate) may not engage in any gainful occupation in Bermuda
without an appropriate governmental work permit. A work permit may be granted
or extended upon showing that, after proper public advertisement, no Bermudian
(or spouse of a Bermudian, or holder of a permanent residents certificate) is
available who meets the minimum standards reasonably required by the employer.
The current policy of the Bermuda government is to place a six-year term limit
on individuals with work permits, subject to certain exemptions for key
employees. There are employee protection laws and social security laws in
Bermuda that apply to our employees based in Bermuda.

Regulation Outside Bermuda

RAM
Re is registered as an insurer in Bermuda and permitted to write reinsurance.
We are not permitted to conduct business in any jurisdiction in the U.S., or in
any other country.

The
insurance laws of each state of the U.S. and of many non-U.S. jurisdictions
regulate the sale of insurance and reinsurance therein by alien insurers, such
as RAM Re, which are not authorized or admitted to do business within such
jurisdiction. We do not maintain an office, solicit insurance business,
advertise, settle claims or conduct other insurance activities in any
jurisdiction other than Bermuda where the conduct of such activities would
require that we be so authorized or admitted. We conduct our U.S. business in a
manner similar to that employed by other non-admitted reinsurers that provide
reinsurance to U.S. primary insurers. Moreover, we have developed operating
guidelines to assist our personnel in conducting business in conformity with
the laws of U.S. jurisdictions and we do not believe that our operations would
result in any violation of the insurance laws of any U.S. or non-U.S.
jurisdiction.

An
unlicensed reinsurers business operations may also be affected by regulatory
requirements governing credit for reinsurance which are imposed on its
primary insurers. Where a primary insurer has obtained reinsurance from a
reinsurer that is licensed, accredited or approved by the jurisdiction or state
in which a U.S. primary insurer files statutory financial statements, it is
permitted to reflect in its statutory financial statement a credit in an
aggregate amount equal to the liability for unearned premiums and loss reserves
and LAE reserves ceded to the reinsurer. Although we are an unlicensed
reinsurer for U.S. regulatory purposes and therefore are not licensed,
accredited or approved by any U.S. jurisdiction or state, our U.S. primary
insurers will generally be permitted a credit to their statutory financial
statements for reinsurance provided by us where we provide a qualifying letter
of credit, a deposit of assets in trust or other acceptable security
arrangement and meet certain other financial and regulatory requirements. In
addition, a U.S. primary insurer is required to establish and maintain a
contingency

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reserve
pursuant to the California, Connecticut, Florida, Iowa and New York insurance
laws and to make contributions to its contingency reserve equal to the greater
of 50% of written premiums for the relevant category of insurance or a
percentage of the principal guaranteed or outstanding, depending upon the type
of obligation. A U.S. primary insurer is permitted to reduce its contingency
reserves by an amount of the contingency reserve that a reinsurer is required
to establish and maintain pursuant to a reinsurance agreement between the
parties.

In
general, the Bermuda statutes and regulations applicable to us are less
restrictive than those that would be applicable to us were we subject to the
insurance laws of any state in the U.S..

Employees

We
have 15 employees and believe that our employee relations are good.

Available Information

The
Company files annual, quarterly and current reports, proxy statements and other
information with the U.S. Securities and Exchange Commission (SEC). The
public can read and copy any materials the Company files with the SEC at the
SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. The
public can obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers, including the Company, that file electronically with the
SEC. The address of the SECs website is http://www.sec.gov.

The
Company maintains a website at www.ramre.com , through which it makes
available all of its SEC filings as soon as it is reasonably practicable after
materials have been filed with the SEC. We believe that all such filings were
timely posted to the website in 2008. Nothing on our website should be
considered incorporated by reference in this report.

We
are actively considering whether to de-list our common shares from trading on
NASDAQ and de-register our securities under the Securities Exchange Act of 1934
as promptly as possible after the filing of this annual report on Form 10-K to
reduce our expenses. If we de-list and de-register, we would no longer file
annual, quarterly and current reports or proxy statements with the U.S.
Securities and Exchange Commission. We have obtained a secondary listing on the
Bermuda Stock Exchange (BSX) which we would convert to a primary listing upon
de-listing from NASDAQ. We intend to comply with the reporting requirements of
the BSX and to continue to make our financial reports available on our website
at www.ramre.com.

|         |             
|-------- | ------------
|Item 1A. | Risk Factors

Risks Related to Our Company

If any of
the risks discussed below occur, our business, financial condition, liquidity
and/or results of operations could be materially and adversely affected. If
this were to happen, the price of our shares could decline significantly, and
our shareholders could lose all or part of their investment.

We
are not seeking to write any new business in the near term, and the lack of new
premiums written could have a material adverse effect on our business,
financial condition, liquidity and results of operations.

During
2008, we depended on our treaties with Assured Guaranty and FSA for substantially
all of our new business, and we reinsured only a modest amount of business
under these treaties in 2008. We have suspended writing any new business in
2009. We continue to earn premiums and pay claims on our existing insured
portfolio until the expiration, termination or recapture of the policies. To
the extent the unearned premium reserve is depleted over a sustained period of
time or recaptured, the absence of new premiums written could have a material
adverse effect on our business, financial condition, liquidity and results of
operations.

We
may not be able to execute our business strategy or any other strategic
alternatives the Board may determine to pursue.

We
may not be able to execute our business strategy of reducing our insured
portfolio if additional commutations cannot be negotiated on acceptable terms.
Further, if we determine to pursue deleveraging of our capital structure, we
may not succeed in repurchasing debt or preference shares on acceptable terms
or at all. Although we are actively considering whether to de-list from NASDAQ
and de-register under the Securities Exchange Act of 1934 to reduce expenses,
we may not realize the expected expense reductions if, for example, these
actions result in litigation against the Company. Although we believe that if
we are successful in our business strategy, it will improve the position of the
Company to potentially write new business in the future, there may not be
demand for our reinsurance capacity in the future, particularly if we cannot
maintain or restore our ratings from S&P or raise new capital. If we are
unable to execute on these strategies, our Board of Directors may determine to
explore other strategic alternatives for RAM Re such as a merger or sale of the
Company. We may not be able to identify or complete any alternatives that our
Board of Directors determines to be in the best interests of the shareholders.
Even if we are successful in identifying and completing a merger or sale of RAM
Re or some other strategic alternative, we cannot provide any assurance about
the financial impact or timing of the implementation of such strategic
alternative or that any individual shareholder will determine that such
strategic alternative is in his, her or its best interests.

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We
are actively considering whether to de-list from NASDAQ and de-register under
the Securities Exchange Act of 1934. If we de-list and de-register, we would no
longer be subject to the periodic reporting requirements of the SEC and our
common shares would no longer be quoted on NASDAQ.

We
are actively considering whether to de-list our common shares from trading on
NASDAQ and de-register our securities under the Securities Exchange Act of 1934
as promptly as possible after the filing of this annual report on Form 10-K to
reduce our expenses. If we de-list and de-register, we would no longer be
subject to public reporting requirements under the Securities Exchange Act of
1934, including any requirements to file annual reports on Form 10-K, quarterly
reports on Form 10-Q, or current reports on Form 8-K. Consequently, following
any such de-listing and de-registration, there will not be made available to
the public current financial or other information concerning our company,
except such information as we may choose to voluntarily disclose or be required
to disclose pursuant to applicable legal or contractual requirements. In
addition, the de-listing of our common shares would result in our common shares
no longer being listed on NASDAQ, although we expect our common shares would
continue to be listed on the BSX.

If
RAM is unable to execute its business strategy or other strategic alternatives,
the Board of Directors of RAM may determine that the best course of action is
to commence an orderly winding up and liquidation of RAM Res operations over
some period of time that is not currently determinable.

If
RAM is unable to execute its business strategy and our Board of Directors
concludes that there is no feasible strategic alternative that would be in the
best interests of RAMs shareholders, it may determine that the best course of
action is to wind up the business of RAM Re. Once in runoff, there are various
options available to bring RAM Res business to a conclusion including pursuing
an arrangement with its policyholders in which it estimates and pays out all
existing and contingent liabilities with a view to liquidating RAM Re in
accordance with a procedure which is approved by a statutory majority of
policyholders. Under Bermuda law, this is referred to as a solvent scheme of
arrangement and is, in effect, a global commutation of RAM Res business.
Alternatively, a program of individual commutations could be pursued with a
similar result.

Following
either a scheme or an individual commutation program, if RAM Re is then solvent
under GAAP and Bermuda statutory accounting standards, and RAM Res directors
declare that the company will be able to pay its debts in full within a period
not exceeding twelve months from the commencement of the winding up, RAM Re
could be placed into liquidation as a solvent entity (a voluntary liquidation
approved by shareholders). In the event that RAM Re were to become insolvent,
RAM Re would have to be liquidated under supervision of the Bermuda Supreme
Court during which a court-appointed liquidator of RAM Re may or may not pursue
a scheme of arrangement to shorten the time otherwise required to wind up RAM
Res business.

In
a winding up or liquidation as described above, a liquidator would be appointed
and would sell or otherwise dispose of our remaining assets, consisting
primarily of our investment portfolio, pay our existing liabilities, including
contingent obligations (which would have to be estimated in advance of payment)
and distribute net proceeds, if any, to our shareholders in one or more
liquidating distributions. In liquidation, we may not receive any material
amounts for the sale or other disposition of our assets. Further, in
liquidation, we will have significant obligations, including the costs incurred
by the independent liquidator appointed and the work required to estimate
liabilities and realize assets. Additionally, if we do not generate sufficient
revenue to support our continued operations, we will be required to reduce our
cash balance to support our continued operations and the amount of any
liquidation proceeds available for distribution to our shareholders would
thereby be reduced. Accordingly, the amount and timing of distributions, if
any, to shareholders in a liquidation cannot be determined because such would
depend on a variety of factors, including the amount of proceeds received from
any asset sales or dispositions the time and amount required to resolve
outstanding obligations and the amount of any reserves for future
contingencies. If RAM Re were to become insolvent, there will be no
distributions payable to our shareholders.

Continuing
adverse developments in the global economy and credit markets and their
negative impact on RAMs insured portfolio may continue to materially and
adversely affect our financial condition, results of operations and future
business.

RAM
is exposed to credit risks in its insured portfolio that arise from
deterioration in the credit markets, wherein such deterioration in credit
performance has lead to erosion in the quality of assets and also the
collection of cash flows from such assets within structured finance securities
that it has reinsured. The primaries and the Company have recorded substantial
case-basis loss reserves with respect to RMBS. We may incur additional material
losses beyond the losses we have already reserved in view of the current
significantly higher rates of delinquency, foreclosure and loss being observed
among residential homeowners. Performance of these structured finance
transactions can be adversely affected by general economic conditions,
including recession, rising unemployment rates, declining house prices and
unavailability of consumer credit; mortgage product attributes, such as
interest rate adjustments and balloon payment obligations; financial difficulty
experienced by mortgage servicers; and transaction-specific factors such as the
lack of control of the underlying collateral security which can result in a senior
creditor determining to liquidate underlying assets to the disadvantage of
mezzanine and subordinated creditors and disputes between creditors with
respect to the interpretation of legal documents governing the particular
transaction. Further, the effects of deterioration in the housing market has
spread to the U.S. and international credit and interbank money markets
generally, and a wide range of financial institutions and markets, asset
classes and sectors. During the fourth quarter of 2008, disruptions and
volatility in the credit markets reached unprecedented levels. During 2008 (and
continuing into 2009), partly as a result of concerns about exposure to these
assets, some of the largest companies in the financial sector have received
government support, been acquired by stronger firms or been allowed to fail.
The extent and duration of the continued deterioration of the credit markets is
unknown, as is the impact, if any, on potential claim payments and ultimate

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losses of the
securities within RAMs insurance portfolio. In addition, there can be no
assurance that any of the governmental or private sector initiatives designed
to address such credit deterioration in the markets will be implemented, and
there is no way to know the effect that any such initiatives could have on the
credit performance over time of the actual securities that RAM Re reinsures.

We
rely on the primary insurers for remediation of problem credits and have
reflected the expected benefits of their remediation efforts in our case
reserves; if these benefits are not realized, our loss reserves may be
inadequate to cover potential claims.

We
rely on the primary insurers for remediation of problem credits, and there can
be no assurance that the primaries would be successful, or that they would not
be delayed, in their remediation efforts. In particular, our ceding companies
are engaging in efforts to cause the originators of loans to repurchase loans
that allegedly breach representations and warranties in the documents by which
these loans were included in RMBS securitizations. The primaries have
significantly reduced their case-basis reserves for RMBS for the expected
benefit of these remediation efforts. In the fourth quarter, we gave credit of
$28.8 million in our case reserves for the benefit of expected recoveries in 18
RMBS transactions resulting from required repurchases by the originators due to
contractual breaches of representations and warranties in the RMBS
securitization agreements. The $28.8 million of credit given matches the credit
reported to us by the primaries. Each primary has evaluated the potential
remediation benefit in a different manner, and although we have determined that
the remediation benefits reflected in the reserves ceded to us by each primary
were reasonable, there is substantial management judgment involved in
estimating remediation benefits and the actual benefits realized may be
substantially less than those estimated. The originators of the mortgage loans
may refuse to repurchase the loans, may have defenses to the repurchase
obligations, or may be unable to repurchase the loans due to deterioration in
its financial condition. Further, the primaries may seek to enforce the
subordination provisions, credit enhancements or other contractual provisions
of the RMBS and CDOs of ABS in our portfolio in the event of litigation or the
bankruptcy of other parties to the transaction. Many of the subordination
provisions, credit enhancements and other contractual provisions of the RMBS and
CDOs of ABS in our portfolio are untested in the market and, therefore, it is
uncertain how such subordination provisions, credit enhancements and other
contractual provisions will be interpreted in the event of an action for
enforcement. If the expected remediation benefits by which we have reduced our
case-basis loss reserves for RMBS are not realized, our loss reserves may be
inadequate to cover potential claims, which would have a material adverse
effect on our business, financial condition and results of operations.

If
the current difficult conditions in the national and world-wide financial
markets continue for an extended period or intensify, our business, financial
condition, liquidity, results of operations and share price may be adversely
affected.

The
volatility and disruption in the global financial markets have reached
unprecedented levels. The availability and cost of credit has been materially
affected. These factors, combined with volatile oil prices, depressed home
prices and increasing foreclosures, falling equity market values, declining
business and consumer confidence and the risks of increased inflation and
unemployment, have precipitated a global economic slowdown and recession. These
conditions may adversely affect our business, financial condition, liquidity,
results of operations and profitability, investment portfolio, cash flow,
statutory capital and share price.

Issuers
or borrowers whose securities or loans we hold in our investment portfolio may
default on their obligations due to bankruptcy, insolvency, lack of liquidity,
adverse economic conditions, operational failure, fraud or other reasons.
Additionally the underlying assets supporting structured securities may
deteriorate causing those securities to incur losses.

The
Companys access to funds under its contingent capital facilities is dependent
on the ability of the banks to meet their funding commitments. Those banks may
not be able to meet their funding commitments to the Company if they experience
shortages of capital and liquidity or if they experience excessive volumes of
borrowing requests from the Company and other borrowers within a short period
of time. In addition, consolidation of financial institutions could lead to an
increased credit risk.

There
can be no assurance that actions of the U.S. government, Federal Reserve and
other governmental and regulatory bodies for the purpose of stabilizing the
financial markets and stimulating the economy will achieve the intended results

In
response to the financial crisis affecting the banking system, financial
markets, investment banks and other financial institutions, on October 3, 2008,
the Emergency Economic Stabilization Act of 2008 (the EESA) was signed into law.
Pursuant to the EESA, the U.S. Treasury has the authority to, among other
things, make equity investments in certain financial institutions and purchase
mortgage-backed and other securities from financial institutions for an
aggregate amount of up to $700.0 billion. On February 17, 2009, the American
Recovery and Reinvestment Act of 2009 (the ARRA) was signed into law. The
stated purpose of the ARRA is making supplemental appropriations for job
preservation and creation, infrastructure investment, energy efficiency and
science, assistance to the unemployed, and State and local fiscal
stabilization through an estimated $787 billion of government spending and tax
cuts. Furthermore, on February 18, 2009 President Obama proposed a housing plan
to assist homeowners refinance or modify mortgages, with an estimated cost of
$275 billion. There can be no assurance that the housing plan will be adopted
in its current form or at all. In addition, on March 23, 2009, the U.S.
Treasury announced an up to $1 trillion public-private investment program to
repurchase real estate related loans from banks and securities from the broader
markets.

There
can be no assurance as to what impact these or any other actions taken by the
U.S. federal government, Federal Reserve or other governmental or regulatory
bodies will have on the financial markets, including the extreme levels of
volatility experienced in recent months, the level of defaults in the fixed
income markets, in particular in the subprime sector of the RMBS market, and
the lack of available credit.

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Such continued
volatility, defaults and illiquidity could materially and adversely affect our
business, financial condition and results of operations.

Some
of the state and local governments that issue obligations we insure are
experiencing unprecedented budget shortfalls that could result in increased
credit losses on those obligations.

We
have historically experienced low levels of defaults in our public finance
insured portfolio, including during the ongoing financial crisis that began in
mid-2007. However, in recent months, state and local governments that issue
some of the obligations we reinsure have reported unprecedented budget
shortfalls that will require them to significantly raise taxes and/or cut
spending in order to satisfy their obligations. While there have been some
proposals by the U.S. federal government designed to provide aid to state and
local governments, there can be no assurance that any of these proposals will be
adopted. If the issuers of the obligations in our public finance portfolio are
unable to raise taxes, decrease spending, or receive federal assistance, we may
experience losses or impairments on those obligations, which would materially
and adversely affect our business, financial condition and results of
operations.

The
adverse rating actions previously taken concerning RAM Res ratings allow the
primaries to increase ceding commissions or recapture their insured portfolio
from us, which would have a material adverse effect on our business, financial
condition, liquidity and results of operations.

RAM
Re currently has a financial strength rating of A+ from S&P,
with a negative outlook, as a result of a downgrade on September 24, 2008, and
a financial strength rating of Baa3, outlook developing, from Moodys,
as a result of a downgrade on December 4, 2008. RAM Re requested the withdrawal
of its Moodys rating on March 17, 2009. These downgrades negatively affect
the value of our reinsurance to the extent of the decreased rating agency credit
for our reinsurance. For example, the downgrade from AAA to A resulted
in a 50% decrease in the credit the AAA-rated financial guarantors receive from
ceding business to us based on S&P model. The downgrade of our ratings has
had and may continue to have negative effects on future business. In addition,
as at December 31 2008, we have accrued or paid additional ceding commissions
related to the S&P downgrade totaling $20.3 million which is being expensed
as the related premiums are earned. The further downgrade of our S&P rating
below the A-level would allow one of our ceding companies to increase ceding
commissions by an additional $290,000, but pro forma for our commutation with
Ambac, there would be a net reduction in the accrual of additional ceding commissions
of $4.27 million. See Note 27, Subsequent Events, in the notes to our consolidated
financial statements. The primaries generally have the right to
terminate their treaties with us and recapture their existing business with us.
In some cases, the primaries may have the right to select specific years of
business written to recapture, and a decision by a primary to recapture, for
example, all business written prior to 2006 could have a material adverse
effect on us because of the projected losses associated with the business
written in the last three years. Financial strength ratings do not refer to RAM
Res ability to meet non-reinsurance obligations and are not a market
rating
or a recommendation to buy, hold or sell any security. We cannot assure you
that any of RAM Res current financial strength ratings will remain in effect
for any given period of time or that a rating will not be further downgraded
by a rating agency.

We
are subject to credit risk throughout our businesses, including large single
risks, and correlated risks

We
are exposed to the risk that issuers of debt which we have reinsured (or with
respect to which we have reinsured primary insurers obligations under credit
derivatives) and issuers of debt which we hold in our investment portfolio may
default in their financial obligations, whether as the result of insolvency,
lack of liquidity, operational failure or other reasons. These credit risks
could cause increased losses and loss reserves and unrealized fair value losses
with respect to credit derivatives in our financial guarantee business; and we
could experience losses and decreases in the value of our investment portfolio
and, therefore, reduce our financial strength. Such credit risks may be in the
form of large single-risk exposures to particular issuers, or counterparties;
losses caused by catastrophic events (including terrorist acts and natural
disasters); or losses in respect of different, but correlated, credit
exposures.

Some
of the financial guaranty products we reinsure may be riskier than traditional
financial guaranty insurance, principally because these less traditional
products may require us to make payments of the full guaranteed amount earlier
than, or upon the occurrence of events not covered by, traditional products.

Some
of the financial guarantee exposures we reinsure have been written by ceding
companies as credit derivatives rather than financial guarantee insurance
policies. Traditional financial guarantee insurance provides an unconditional
and irrevocable guarantee that protects the holder of a municipal finance or
structured finance obligation against non-payment of principal and interest. In
contrast, credit derivatives provide protection from the occurrence of
specified credit events, which usually include non-payment of principal and
interest, or pay as you go terms, but may also include other terms such as
settlement of individual referenced collateral losses in excess of policy
specific deductibles or subordination amounts. We are not aware of any insured
credit derivatives on our Watch List that do not have pay as you go terms,
except as stated in the Business - Surveillance Process and Watch List. We
consider the occurrence of such payments to be unlikely but we are at risk of
unanticipated loss payments under insured credit derivative policies that are
not on our Watch List, which could have an adverse effect on our liquidity.
Further, based on their public reports, our ceding companies write credit
derivatives using standard ISDA documentation which includes events of default
related to the primary insurer itself, such as insolvency of or a failure to
pay by the primary insurer, that would not typically trigger a payment
obligation under traditional products. If a credit derivative is terminated
upon an event of default, the primary could be required to make a
mark-to-market payment as determined under the ISDA documentation. While we do
not believe that our reinsurance contracts obligate us to indemnify the primary
insurers for mark-to-market payments resulting from their default under the
ISDA

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documentation,
the primary insurer or its regulator may allege that we are liable for our pro
rata share of such payments and withdraw funds to pay such claims from the
trust account for the benefit of that primary insurer, if that primary insurer
has a trust account.

Our
inability to access capital could adversely affect liquidity and impact RAM
Res ability to pay large, unexpected claims or write new business in the
future.

Our
capital requirements depend on many factors, including our ability to establish
reserves at levels sufficient to cover losses and requirements to pay claims.
We believe that we have sufficient liquidity to pay our projected claims when
due, but large, unexpected claims could strain our liquidity and require us to
seek new capital to pay claims or liquidate the Company. We do not believe we
would be able to access additional capital on acceptable terms, if at all, in
the current market. Further, we are actively considering whether to delist from
NASDAQ and de-register with the SEC as soon as possible after filing this
annual report on Form 10-K, and consequently would no longer have access to the
public market for our securities in the U.S. If we are successful in our
business strategy to reduce our insured exposure, deleverage and reduce
expenses, we may seek new capital to write new business in the future. Our
failure to obtain the necessary capital on favorable terms or at all would
adversely affect our business, ratings, operating results and financial
condition.

RAMs trust accounts for the
benefit of its ceding companies limit RAMs liquidity including its ability to
pay claims.

At
December 31, 2008, the Company had $438.9 million of cash and investments, of
which $378.9 million was held in trust for the benefit of our U.S. regulated
ceding companies, leaving $60.0 million cash and investments available for the
cost of ongoing business. See Note 3 in our consolidated financial
statements contained elsewhere herein. RAM is required to fund each trust
account with an amount equal to the loss reserves, unearned premium reserves
and contingency reserves ceded by applicable primary insurer. Contingency
reserves are calculated by formula under applicable state law and are not equal
to RAMs unallocated reserves. The primaries have the right to require RAM to
adjust the amounts in the trust accounts on a quarterly basis but typically
only request adjustment on an annual basis. To the extent that ceded loss
reserves increase, the primary has the right to require RAM to increase the
amount retained in the trust account. As such, increased ceded losses could
eventually deplete RAMs cash available for its operations. To the extent a
primary ceases writing new business and RAM earns the applicable unearned
premium, or to the extent RAM pays claims with respect to which loss reserves
were ceded, the amount required to be maintained in the trust account will
decrease and RAM may request that any excess over the required amount be
returned to RAM. However, when RAM is required to pay a claim, the amount of
the claim payment is either deducted from the premium paid by the primary to
RAM or paid by RAM out of its own available funds not held in trust. RAM needs
the consent of the applicable primary to withdraw funds from a trust account,
and to date the primaries have not permitted RAM to withdraw amounts from the
trust accounts to pay claims. Consequently, the amounts held in trust have not
been available for claims payments and are not otherwise available to RAM
without the consent of the primary, decreasing RAMs liquidity.

We
could be adversely affected by the loss of one or more principal employees or
by an inability to retain staff.

We
currently have 15
employees and our success depends upon our ability to retain qualified
employees and upon the ability of our senior management and other key employees
to implement our business strategy. All of the option awards previously granted
to our executive employees are underwater, meaning the exercise price is
substantially above the market price of our common shares, and we have reduced
our incentive compensation payments as a result of negative company
performance. We have 761,236 shares remaining available for issuance under our
2006 Equity Plan and would need shareholder approval to increase the shares
authorized for issuance under the plan. We may have difficulty retaining our
employees to the extent our employees are offered more attractive compensation
by prospective employers. We have entered into employment agreements with
members of our senior management team but they can voluntarily terminate their
employment on thirty-days notice under these agreements. The loss of key
personnel could prevent us from implementing our business strategy and could
negatively affect our ability to operate efficiently.

Our
ability to conduct our business may be adversely affected by Bermuda employment
restrictions.

Our
location in Bermuda may serve as an impediment to retaining experienced
personnel. Under Bermuda law, non-Bermudians (other than spouses of Bermudians
or holders of a permanent residents certificate) may not engage in any gainful
occupation in Bermuda without an appropriate governmental work permit. Work
permits may be granted or extended by the Bermuda government upon showing that,
after proper public advertisement in most cases, no Bermudian (or spouse of a
Bermudian, holder of a permanent residents certificate or holder of a working
residents certificate) is available who meets the minimum standard
requirements for the advertised position. The Bermuda government limits the
duration of work permits to six years, with certain exemptions for key
employees. All but one of our officers is working in Bermuda under work permits
with expiry dates. The work permits for our senior management will expire at
various dates beginning in 2009. It is possible that we could lose the services
of one or more of these people if we are unable to obtain or renew their work
permits, which could interrupt our ability to execute our business strategy and
require us to seek replacement personnel at a higher cost. In the event we are
unable to obtain sufficient work permits to allow our operations to continue in
Bermuda, we might seek to maintain our business model in another tax efficient
jurisdiction and could incur significant costs in relocating our operations.

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We
may incur liabilities because of the unconditional nature of our financial
guaranty reinsurance policies.

Issuers
of obligations insured by the financial guarantors whose obligations we
reinsured may default on those obligations because of fraudulent or other
intentional misconduct on the part of such issuers, their officers or
directors, employees, agents or outside advisers or, in the case of public
finance obligations, public officials. Financial guaranty reinsurance provided
by us is unconditional and does not provide for any exclusion of liability
based on fraud or other misconduct. Despite the risk analysis conducted by us
or by the financial guarantors we reinsured, it is impossible to predict which,
if any, of the obligations reinsured by us will result in claims against us
because of such fraudulent or other intentional misconduct involving the issuer,
or whether or to what extent we will have any remedy available to us against
any party in connection with such conduct. Any such claims could have a
material adverse effect on our financial condition and results of operations.

The
performance of our investment portfolio may be adversely affected by economic
conditions and by decisions of our investment manager.

Investment
income is one of the primary sources of cash flow supporting our operations and
claim payments. The success of our investment activity is influenced by general
economic conditions that may adversely affect the markets for interest rate
sensitive securities, including the extent and timing of investor participation
in such markets, the level and volatility of interest rates and, consequently,
the value of such fixed-income securities. In addition, if our claims exceed
our cash flow, we could have unexpected losses resulting from forced
liquidation of investments before their maturity. Our portfolio is managed by
an outside professional asset management firm in accordance with specific
investment policies approved by our Board of Directors. Our investment managers
have discretionary authority over our investment portfolio, subject to the
investment guidelines adopted by us and periodic review by the Risk Management
Committee of our Board of Directors. As a result, the performance of our
investment portfolio depends to a great extent on the ability of our investment
managers to select and manage appropriate investments. Although our investment
policies stress diversification of risks and conservation of principal and
liquidity, our investments are subject to market-wide risks and fluctuations,
as well as to risks inherent in any particular security or security position.
Investment losses could significantly decrease our assets and surplus, which is
the amount remaining after all liabilities, including loss reserves, are
subtracted from all admitted assets, resulting in a material adverse effect on
our financial condition and results of operations.

Changes
in interest rates could adversely affect our financial condition and future
business

Increases
in prevailing interest rate levels could adversely affect the value of RAMs
investment portfolio and, therefore, our financial condition. In the event that
investments must be sold in order to make payments on insured exposures, such
investments would likely be sold at discounted prices. Additionally, increasing
interest rates could lead to increased credit stress on consumer asset-backed
transactions in our insured portfolio (as the securitized assets supporting a
portion of these exposures are floating rate consumer obligations); slower
prepayment speeds and resulting extension risk relative to such consumer asset-backed
transactions in our insured portfolio and in our investment portfolio; and
decreased volume of capital markets activity and, correspondingly, decreased
volume of insured transactions.

Market
risks which impact assets in our investment portfolio could adversely affect
our business.

Our
investment portfolio may be adversely affected by events and developments in
the capital markets, including decreased market liquidity for investment
assets; market perception of increased credit risk with respect to the types of
securities held in our investment portfolio and corresponding credit
spread-widening with respect to our investment assets; and extension of the
duration of investment assets. Our investment portfolio may be further adversely
affected by these and other events and developments in capital markets
including interest rate movements, as discussed above, or downgrades of credit
ratings of issuers of investment assets.

To
the extent that we are required to liquidate large blocks of investment assets
in order to pay claims under financial guarantee insurance policies we have
reinsured, collateralize our obligations under reinsurance agreements, or make
commutation payments, such investment assets may be sold at discounted prices
which could be less than the December 31, 2008 fair values.

Our financial results may be
volatile because a portion of the credit risk we assume is in the form of
credit derivatives that are accounted for under Statement of Financial
Accounting Standards No. 133, or FAS 133, which requires that these instruments
be revalued quarterly and Statement of Financial Accounting Standards No. 157,
which requires us to take our own credit-worthiness into account in fair
valuing these instruments.

Reinsurance
contracts covering credit derivatives are classified as derivatives under FAS
133. Derivatives must be accounted for either as assets or liabilities on the
balance sheet and measured at fair market value. Any event causing credit
spreads (that is, the difference in interest rates between comparable
securities having different credit risk) on an underlying security referenced
in a credit derivative in our portfolio either to widen or to narrow may affect
the fair value of the credit derivative and may increase the volatility of our
earnings. Although there is no cash flow effect from this marking to market
of our book, net changes in the fair market value of the derivative are
reported in our statement of operations and therefore will affect our reported
earnings. If the derivative is held to maturity and no credit loss is incurred,
any losses or gains previously reported would be offset by corresponding gains
or losses during the term of the derivative such that they would cumulatively
net to zero at maturity, absent any credit impairments.

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Common
events that may cause credit spreads on an underlying municipal or corporate
security referenced in a credit derivative to fluctuate include changes in the
state of national or regional economic conditions, industry cyclicality,
changes to a companys competitive position within an industry, management
changes, changes in the ratings of the underlying security, movements in
interest rates, default or failure to pay interest, or any other factor leading
investors to revise expectations about the issuers ability to pay principal
and interest on its debt obligations. Similarly, common events that may cause
credit spreads on an underlying structured finance security referenced in a
credit derivative to fluctuate may include the occurrence and severity of
collateral defaults, changes in demographic trends and their impact on the
levels of credit enhancement, rating changes, changes in interest rates or
prepayment speeds, or any other factor leading investors to revise expectations
about the risk of the collateral or the ability of the servicer to collect
payments on the underlying assets sufficient to pay principal and interest. As
changes in fair value can be caused by factors unrelated to the performance of
RAMs business and credit portfolio, including general market conditions and
perceptions of credit risk, as well as market use of credit derivatives for
hedging purposes unrelated to the specific referenced credits in addition to
events that affect particular credit derivative exposure, the application of
fair value accounting may cause our earnings to be more volatile than would be
suggested by the actual performance of RAMs business operations and credit
portfolio.

Through
June 30, 2007, RAM valued its credit default swap portfolio using an internally
developed model. While the model estimated an appropriate fair value during
normal market conditions, the internal model output would not fully reflect the
effect of market conditions and the large changes in credit spreads being
experienced. Management therefore determined that a more appropriate basis for
our estimate of fair value was to use as a key input, from September 30, 2007
onward, the valuation information provided to us by our ceding companies. RAM
participates in credit default swaps through a reinsurance treaty with a ceding
company and therefore the contract to be valued is a reinsurance contract on a
derivative. This contract is not identical to the underlying credit default
swaps. In particular, although RAMs contract allows it to share in the
economic results of the underlying contracts, it does not provide rights to the
same information that the ceding companies have access to. Under FAS 157, the
fair value of RAMs contract represents the exit price that would be paid to a
market participant to assume the reinsurance contract as written; that is, the
amount the market participant would require to assume RAMs potential
obligations under the contract with the same contractual rights and
obligations, including those which limit the information about the ceding
companies underlying contracts that are being reinsured. Given the contractual
terms that exist, RAM believes that an exit market participant would look to the
information that is available from the ceding companies to determine the exit
value of RAMs reinsurance contract. The primary insurers underwrite each of
the transactions underlying the reinsurance contract and they have access to
all the underlying data related to the transactions. The ceding companies use
their own internal valuation models where market prices are not available. RAM
employs procedures to test the reasonableness of the mark both in process and
absolute terms because we believe that an exit market participant would perform
similar procedures when determining an exit price for our reinsurance contract.
If it appears that the fair values generated by the ceding companies internal
models and reported to RAM are consistent with macro spread movements and
general market trends, and RAM believes that the modeling and assumptions that
drive the modeling are reasonable (based on RAMs ceding company audits and
review of publicly available information), RAM will use the mark provided by
the ceding company as a key input in the determination of the fair value of
reinsurance contract. There is no single accepted model for fair valuing credit
default swaps and there is generally not an active market for the type of
credit default swaps insured by ceding companies and reinsured by us.
Therefore, due to the limited availability of quoted market prices for these
derivative contracts and the inherent uncertainties in the assumptions used in
models, different valuation models may produce materially different results and
be materially different from actual experience. In addition, due to the
complexity of fair value accounting and the application of FAS 133 and FAS 157,
future amendments or interpretations of FAS 133 and FAS 157 may cause us to
modify our accounting methodology in a manner which may have an adverse impact
on our financial results.

On
January 1, 2008, the Company adopted Statement of Financial Accounting Standard
No. 157 Fair Value Measurement (FAS 157). FAS 157 requires RAM to adjust
the estimated fair values of its derivative liabilities to incorporate the
Companys own non-performance risk. As a result, RAM applies a discount (see
Note 4 in our interim consolidated financial statements contained elsewhere
herein), in estimating the fair value of its credit derivative liability. The
effect of the Companys discount for its own credit risk on fair value can vary
widely from period to period dependent largely on the perception of RAM as a
counterparty and may contribute further to volatility in the Companys
earnings. For example, a gross unrealized loss on credit derivatives due to
widening of credit spreads may be partially offset or result in a net
unrealized gain after applying the discount for a period in which RAMs
credit-worthiness is perceived to have deteriorated.

We
could face unanticipated losses from war, terrorism, business failures,
political unrest and natural disasters, and these or other unanticipated losses
could have a material adverse effect on our financial condition and results of
operations.

We
may have exposure to large, unexpected losses resulting from future man-made
and natural catastrophic events, such as acts of war, acts of terrorism,
political instability, hurricanes, earthquakes and floods. These risks are
inherently unpredictable and recent events may lead to increased frequency and
severity of defaults under the policies we reinsure. It is difficult to predict
the timing of these events with statistical certainty or to estimate the amount
of loss that any given occurrence will generate. To the extent that losses from
these risks occur in excess of amounts we have reserved, our financial
condition and results of operations could be materially adversely affected.

Our
holding company structure and certain regulatory and other constraints affect
our ability to pay dividends and make other payments.

RAM
Holdings is a holding company and as such has no substantial operations of its
own or assets other than its ownership of the shares of its only subsidiary,
RAM Re. For the near future, dividends and other permitted distributions from
RAM Re are expected to be RAM Holdings only source of funds to meet ongoing
cash requirements, including debt service payments and other expenses, and to
pay dividends,

33

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if any, to shareholders. Bermuda law and regulations,
including but not limited to Bermuda insurance regulations, restrict the
declaration and payment of dividends and the making of distributions by RAM Re,
unless certain regulatory requirements are met. In addition, certain treaty
obligations incurred by RAM Re in the course of its business require it to post
collateral in trusts and those funds are unavailable for dividend or
distribution to RAM Holdings. The inability of RAM Re to pay dividends in an
amount sufficient to enable RAM Holdings to meet its cash requirements at the
holding company level could affect RAM Holdings ability to repay debt or have
a material adverse effect on its operations.

RAM
Holdings is also subject to regulatory constraints in Bermuda that will affect
its ability to pay dividends on its common shares and make other payments. In
addition, payments of principal to the holders of our $40.0 million aggregate
principal amount of 6.875% Senior Notes due 2024, payments of dividends on our
$75.0 million of Series A Preference Shares and payments of dividends on the
$50.0 million Class B Preference Shares of RAM Re, will receive priority over
any payments of dividends on our common shares. See Risks Related to Our
Status as a Bermuda Company  Our ability to pay dividends may be limited by
Bermuda law, Managements Discussion and Analysis of Financial Condition and
Results of Operations  Liquidity and Capital Resources, and Regulation.

Loss
reserve estimates are subject to uncertainties and loss reserves may not be
adequate to cover potential paid claims

Our
results of operations and financial condition depend upon our ability to assess
accurately and manage the potential losses associated with the risks that we
reinsure. There is a diversity of practice within the financial guaranty
industry in loss reserving practices and setting our loss reserves involves
significant reliance on estimates of the likelihood, magnitude and timing of
anticipated losses from our primary insurers. We establish both case-basis and
unallocated reserves for losses. We establish case-basis reserves when we
determine a default has occurred or there is a high probability of a default.
We also maintain unallocated reserves to reflect our estimate of general
deterioration in our insured credits. While we use the most current information
available to us and our best judgment in setting reserve estimates, this is an
inherently subjective process. Accordingly, actual claims and claim expenses
paid will deviate from the reserve estimates reflected in our consolidated
financial statements, and such deviations could be material. If our loss
reserves at any time are determined to be inadequate, we will be required to
increase loss reserves at the time of such determination. This could
significantly adversely impact our financial results.

In
estimating our loss reserves, we rely substantially on reports from the
primaries of ceded case reserves and performance of the underlying obligations.
Each of the primaries employs various methodologies in determining its loss
reserves and the case-basis loss reserves ceded to us. The financial guarantees
issued by the primaries insure the financial performance of the obligations
guaranteed over an extended period of time, in some cases over 30 years, under
policies that the primaries have, in most circumstances, no right to cancel. As
a result of the lack of statistical paid-loss data due to the low level of paid
claims in their respective businesses and in the financial guarantee industry
in general, particularly, until recently, in the structured finance
asset-backed area, the primaries do not use traditional actuarial approaches to
determine their loss reserves. There can be no assurance that the future loss
projections based on the models used by the primaries or our own internal
models are accurate. For example, the sample period for observed occurrences
may not be adequate, or the underlying conditions from which historical loss
data were derived may be inadequate. Actual cash flows may also deviate
significantly from assumptions, and such deviations could have a material
adverse effect on our financial condition and operating results. Credit risk
modeling contains uncertainty over ultimate outcomes which make it difficult to
estimate potential paid claims and loss reserves.

Several
of our founding shareholders may have conflicts of interest with us and they
may take actions with respect to their ownership interests that have an adverse
effect on us or on our other shareholders.

Some
of our shareholders engage in commercial activities and enter into transactions
or agreements with us or in competition with us, which may give rise to conflicts
of interest. For example, our shareholders who are or who have ownership
interests in other companies offering financial guaranty insurance or
reinsurance may provide business or capital to our competitors. We do not have
any agreement or understanding with our shareholders regarding the resolution
of potential conflicts of interest and these parties may take actions that are
not in our other shareholders best interests. For more discussion of these
issues, please see the information under the caption Certain Relationships and
Related Transactions in Part III of this annual report on Form 10-K. In
addition, we may not be in a position to influence any partys decision to
engage in activities that would give rise to a conflict of interest. For
example, PMI Mortgage Insurance, a subsidiary of The PMI Group, Inc. (PMI)
has more than 20% of the voting power of our shares and therefore has the
ability to elect two directors through cumulative voting. PMI could use its
influence in a manner adverse to our other shareholders best interests, such
as with respect to votes on matters requiring shareholder approval such as the
election of directors, amendments to our bye-laws and mergers and acquisitions.

Revenues would be adversely impacted due to a
decline
in realization of installment premiums

Due
to the installment nature of a significant percentage of RAM Res premium
income, RAM Re has an embedded future revenue stream. The amount of installment
premiums actually realized by RAM Re could be reduced in the future due to
factors such as early termination of insurance contracts, accelerated
prepayments of underlying obligations or recapture of our existing portfolio by
our primary customers. Such a reduction would result in lower revenues and
would have an adverse effect on RAMs future financial position.

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Our
underwriting and risk management policies and practices in the past have not
anticipated unforeseen risks and/or the magnitude of potential for loss as the
result of unforeseen risks.

As
described in BusinessRisk Management, we have established underwriting and
risk management policies and practices which seek to mitigate our exposure to
credit risk in our insured portfolio. These policies and practices in the past
have not insulated us from risks that were unforeseen and which had
unanticipated loss severity, and such policies and practices may not do so in
the future. We also rely on complex financial models, which have been
internally developed by the primaries and by third parties to analyze and
predict performance of the insured obligations. Flaws in these financial models
and/or faulty assumptions used by these financial models could lead to
increased losses and loss reserves.

We
are subject to a variety of operational risks which could have a material
adverse impact on our business results.

We
depend on internal processes, risk models, various systems and our employees in
the conduct of our business. Any failure of such processes, models and systems
and/or employee misconduct or fraud could have an adverse impact on our
business results. We are also subject to external operational risks, including
fraud, settlement risk and the failure of risk models or other analytical tools
provided by third parties. Any such external fraud or failure could have an
adverse impact on our business results.

We
are subject to the risk of litigation and regulatory inquiries or
investigations, and the outcome of proceedings we may become involved in could
have an adverse effect on our business, operations, financial position,
profitability or cash flows.

The
market price of our common shares has fallen over 95% from its high of $17.13
on June 19, 2007. In addition, we have experienced other material adverse
events, including material losses, downgrades of our ratings, and non-renewal
of our treaties in 2009. As a result, we believe we are at risk of shareholder
lawsuits and regulatory investigations. It is not possible to predict whether lawsuits
will be filed or whether inquiries or requests for information will be made,
and it is also not possible to predict the outcome of litigation, inquiries or
requests for information. It is possible that there could be unfavorable
outcomes in these or other proceedings. Management is unable to make a
meaningful estimate of the amount or range of any loss that could result from
any unfavorable outcomes but, under some circumstances, adverse results in
legal proceedings or the cost of defending legal proceedings could be material
to RAMs business, operations, financial position, profitability or cash flows.

Risks
Related to Our Industry

If any of the primaries that
RAM has reinsured are subject to rehabilitation or liquidation proceedings as a
result of insolvency RAM would be adversely affected.

If a primarys insurance
regulator finds the primary to be insolvent, the regulator may apply to the
applicable state court to rehabilitate or liquidate the insurer. In either
case, under RAMs agreements with its customers as required by U.S. regulation,
RAM is obligated to pay its quota share of claims when due whether or not
claims are paid by the primary subject to the proceeding. Further, the
regulator or other successor in interest would have the right to access the
trust account RAM has in place for the benefit of the affected primary to pay
claims. See Note 3 in our consolidated financial statements contained elsewhere
herein regarding RAMs trust accounts. According to published reports, the primaries
have insured credit default swaps documented on standard ISDA documentation
which allow the counterparty to terminate the swap early and receive an
accelerated payment based on the then market value of the swap if, among other
events, the primary becomes insolvent or becomes subject to regulatory control.
If early termination were to occur, the primary or insurance regulator would
likely seek a quota share payment of the accelerated payment from RAM and if
RAM disputes its liability for that payment, withdraw the payment from RAMs
trust account. RAM would have to bring a legal action in the U.S. to seek to
recover any such payment for which RAM believes it is not liable under the
terms of the applicable treaty.

Changes to accounting rules
related to loss reserve and premium revenue recognition practices in the
financial guaranty insurance and reinsurance industry could have a material
adverse effect on the industry.

On May 23, 2008, the
Financial Accounting Standards Board (FASB) issued FASB statement No.163
Accounting for Financial Guarantee Insurance Contracts (FAS 163). FAS 163
clarifies how FASB Statement No.60 Accounting and reporting by Insurance
Enterprises applies to financial guarantee insurance contracts. FAS 163 is
focused on the recognition and measurement of premium revenue and claims
liabilities, along with additional disclosure requirements for financial
guarantee contracts. The significant elements of the standard are as follows:

| |    |                                                                                                                                                                                                                                                                                                         
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Premium revenue will be recognized as a function of
 the amount of insurance protection provided over the contract term.                                                                                                                                                                                
| |   
| | 2. | The standard requires that the present value of
 installment premiums due pursuant to the terms of a financial guarantee
 insurance contract be recognized at inception of the contract as unearned
 premiums and premiums receivable, which is inconsistent with current industry
 accounting practice.
| |   
| | 3. | A claim liability will be established on a financial
 guarantee contract when the probability weighted net present value of an
 expected                                                                                                                                                                

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| |    |                                                                                                                                                                                                                              
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | claim loss is estimated to exceed the related unearned premium
 revenue. Provision of unallocated reserves is not permitted under the
 standard.                                                                             
| |   
| | 4. | Additional disclosures will be required on financial
 guarantee contracts, the accounting and risk management activities used to
 evaluate credit deterioration in the Companys insured obligations and
 surveillance lists.

FAS 163 is effective for fiscal years beginning after
December 15, 2008, and all interim periods within those fiscal years, with the
exception of certain risk management disclosures which are effective for the
first period beginning after issuance of FAS 163 (i.e. the Companys September
30, 2008 interim financial statements). Early application is not permitted. The
standard does not apply to derivatives. The Company is currently assessing the
potential impact, which is likely to be material, of applying FAS 163 and at
this time is unable to quantify the effect of the adoption of this standard.

Risks Related to our Common
Shares

There are provisions in our bye-laws that may reduce
or increase the voting rights of our common shares.

In
general, and except as provided below, shareholders have one vote for each
common share held by them and are entitled to vote at all meetings of
shareholders. However, if, and so long as, the shares of a shareholder are
treated as controlled shares of any U.S. Person (as defined in Risks Related
to Taxation  Holders of 10% or more of our shares may be subject to U.S.
federal income taxation under the controlled foreign corporation rules) other
than PMI, and such controlled shares constitute more than 9.9% of the votes
conferred by our issued shares, the voting rights with respect to the
controlled shares of such U.S. Person (that is, a 9.9% U.S. Shareholder)
shall be limited, in the aggregate, to a voting power of 9.9%, under a
procedure specified in our bye-laws. The procedure is applied repeatedly until
the voting power of all 9.9% U.S. Shareholders has been reduced to 9.9%. In
addition, our Board of Directors may limit a shareholders voting rights where
it deems appropriate to do so to (i) avoid the existence of any 9.9% U.S.
Shareholders or 24.5% U.S. Shareholders (as defined below), and (ii) avoid
non-de minimis adverse tax, legal or regulatory consequences to us, any direct
or indirect holder of our shares or its affiliates. Controlled shares
include, among other things, all of our shares that a U.S. Person is deemed to
own directly, indirectly or constructively (within the meaning of sections 957
and 958 of the Internal Revenue Code of 1986, as amended, which we refer to as
the Code). In addition, at any time that the controlled shares of PMI
constitute (i) more than 9.9% of the voting power conferred by our issued
shares and (ii) 24.5% or more of either the voting power or value of our issued
shares (that is, a 24.5% U.S. Shareholder), the voting rights with respect to
the controlled shares owned by PMI will be limited to a voting power of 9.9%.

For
example, the voting power of shares owned by an investor may be reduced or in
certain cases eliminated, if, pursuant to certain constructive ownership rules,
shares owned or deemed to be owned by the investor are attributed to another
investor or shares owned or deemed owned by another investor are attributed to
the investor or the investor is invested in an entity in which another investor
invests.

In
the event the above voting limitations must be applied as described above, the
voting limitation shall apply to PMI only after the limitation has been applied
to all other shareholders whose votes are subject to reduction and the voting
power held by PMI shall not be reduced to below 9.9% by operation of these
provisions. This would likely have the effect of eliminating the voting power
of all other shareholders whose votes are subject to reduction.

Under
these provisions, certain shareholders may have their voting rights limited to
less than one vote per share, while other shareholders may have voting rights
in excess of one vote per share. Moreover, these provisions could have the
effect of reducing the votes of certain shareholders who would not otherwise be
subject to the 9.9% limitation by virtue of their direct share ownership. Our bye-laws
provide that we will endeavor to notify shareholders of their voting interests
prior to any vote taken by them.

We
also have the authority under our bye-laws to request specified information
from any shareholder for the purpose of determining whether a shareholders
voting rights are to be reallocated under the bye-laws. If a shareholder fails
to respond to our request for information or submits incomplete or inaccurate
information in response to a request by us, we may, in our sole discretion,
eliminate such shareholders voting rights.

Our
Board of Directors may be more likely to exercise their right under our
bye-laws to decline to approve a transfer of common shares because of potential
adverse tax, legal or regulatory consequences, and that may require
shareholders to sell their common shares.

Our
Board of Directors may decline to approve or register a transfer of any common
shares (1) if it appears to the Board of Directors, after taking into account
the limitations on voting rights contained in our bye-laws, that a non-de
minimis adverse tax, regulatory or legal consequence to us, any direct or
indirect holder of our shares or its affiliates may occur as a result of such
transfer, or (2) subject to any applicable requirements of or commitments to
any exchange or trading system for our common shares, if a written opinion from
counsel supporting the legality of the transaction under U.S. securities laws
has not been provided or if any required governmental approvals have not been
obtained.

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Our
Board of Directors may be more likely to exercise their right under our
bye-laws to decline to approve a repurchase of our own shares and an issuance
of any of our unissued shares because of potential adverse tax, legal or
regulatory consequences.

Under
our bye-laws and subject to Bermuda law, our Board of Directors may decline to
approve a repurchase of our shares or an issuance of any of our unissued shares
(including the issuance of any shares or class of shares with preferred,
deferred or other special rights) if the Board of Directors determines that it
may result in a non-de minimis adverse tax, legal or regulatory consequence to
us, any direct or indirect holder of our shares or its affiliates.

Risks Related
to Our Status as a Bermuda Company

If
we do not meet minimum solvency and liquidity requirements imposed by Bermuda
law, we may become subject to regulatory control or forced to liquidate RAM Re
under supervision of the Bermuda courts.

As
at December 31, 2008, RAM Re had statutory capital and surplus under Bermuda
law of $158.4 million.

As
at December 31, 2008, RAM Re exceeded the minimum solvency margin required
under Bermuda law by $143.1 million. The applicable minimum solvency margin is
the greater of:

| |  |   |                                                                                                                                                                      
| |  | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | US$1,000,000;                                                                                                                                                        
| |  |   |                                                                                                                                                                      
| |  |  | 20% of the first US$6,000,000 of net premiums
 written (being premiums written less any reinsurance premiums ceded during
 the same period) and 15% of the remainder;
| |  |   |                                                                                                                                                                      
| |  |  | 15% of net loss and loss expense provisions and
 other general business insurance reserves.                                                                          

As
at December 31, 2008, RAM Re exceeded the minimum liquidity ratio for general
business insurers required under Bermuda law by $226.9 million. An insurer
engaged in general business (as is the case for RAM Re) is required to maintain
the value of its relevant assets at not less than 75% of the amount of its
relevant liabilities. Relevant assets include, but not limited to, cash and
time deposits, quoted investments, unquoted bonds and debentures, first liens
on real estate, investment income due and accrued, accounts and premiums
receivable, and reinsurance balances receivable. There are certain categories
of assets, which, unless specifically permitted by the BMA, do not qualify as
relevant assets, such as, unquoted equity securities, investments in and
advances to affiliates, and real estate and collateral loans. The relevant
liabilities are total general business insurance reserves and total other
liabilities less deferred income tax and sundry liabilities (by interpretation,
those not specifically defined).

Substantial
increases in our loss reserves and impairments (a non-GAAP measure) could cause
us to have negative statutory capital and surplus or fail to meet the minimum
solvency and liquidity ratios required by Bermuda law. If it appears to the BMA
that there is a risk of an insurer becoming insolvent, or that the insurer is
in breach of the Bermuda Insurance Act or any conditions imposed upon its registration,
the BMA may, among other things, direct the insurer (i) not to effect further
contracts of insurance, or any contract of insurance of a specified
description; (ii) to limit the aggregate of the premiums to be written by it
during a specified period beginning not earlier than 28 days after the
direction is given; (iii) not to vary any contract of insurance in force when
the direction is given, if the effect of the variation would be to increase the
liabilities of the insurer; (iv) not to make any investment of a specified
class; (v) before the expiration of a specified period (or such longer period
as the BMA may allow) to realize any existing investment of a specified class;
(vi) not to declare or pay any dividends or any other distributions, or to
restrict the making of such payments to such extent as the BMA thinks fit;
(vii) not to enter into any specified transaction with any specified person or
persons of a specified class; (viii) to remove a controller or officer; (ix) to
provide such written particulars relating to the financial circumstances of the
insurer as the BMA thinks fit; and (x) to obtain the opinion of a loss reserve
specialist with respect to general business, or an actuarial opinion with
respect to long-term business, and to submit it to the BMA within a specified
time. Further, if RAM Re were to become insolvent, we could be required to
liquidate RAM Re under supervision of the Bermuda courts.

Risks
of operating as a foreign corporation could adversely affect our ability to
conduct business in the U.S.

We
do not maintain an office or solicit insurance business, advertise, settle
claims or conduct other insurance activities in any jurisdiction other than
Bermuda where the conduct of such activities would require us to be so
authorized or admitted. We believe we conduct our U.S. business in a manner
similar to that employed by other non-admitted reinsurers that provide
reinsurance to U.S. primary insurers. We believe that, to the extent that these
operating guidelines are followed, our activities comply with applicable
insurance laws and regulations. While we are not admitted to do business in any
jurisdiction except Bermuda, insurance departments in the U.S. or elsewhere
might take the position that our activities violate the prohibitions on the
transaction of insurance by a non-admitted insurer. The insurance laws of each
state of the U.S. and of many non-U.S. jurisdictions regulate the sale of
insurance and reinsurance within that jurisdiction by alien insurers and
reinsurers, such as us, which are not authorized or admitted to do business
within such jurisdiction. If a state insurance department were to raise this
issue and prevail, it could argue further that we are transacting insurance in
that state without appropriate licenses or approvals. In that event, the
insurance department could attempt to take any of several actions, including
imposing fines or penalties on us. There can be no assurance that our location,
regulatory status or restrictions on our activities resulting from our
regulatory status would not adversely affect our ability to conduct our
business. In the event such issues or disputes arise, we may be required to
consider various alternatives to our operations, including modifying or
restricting the manner of conducting our business or, with respect to cessions
by primary insurers in the U.S., applying

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to conduct business as an admitted or approved
reinsurer, establishing trust funds to secure our reinsurance performance or
having to comply with the various financial and other requirements necessary to
operate on an admitted or approved basis, either directly or by subjecting us
to U.S. taxation.

Bermuda
insurance regulations may adversely affect our ability to write reinsurance
policies.

We
are registered and licensed to conduct insurance and reinsurance from within
Bermuda, and the statutes, regulations and policies of Bermuda may affect our
ability to write reinsurance policies and to make certain investments or
distributions. Bermuda statutes and regulations applicable to us require that
we, among other things: maintain minimum levels of capital and surplus, satisfy
solvency standards, restrict dividends and distributions (including returns of
capital), and cooperate with certain periodic and other examinations by the BMA
of our financial condition. We are unable to predict what additional government
regulations, if any, affecting our business may be promulgated in Bermuda in
the future or how such regulations may be interpreted. In addition, no
assurances can be given that, if we were to become subject to any insurance
laws of the U.S. or any state thereof or of any other country at any time in
the future, we would be in compliance with such laws.

Our
ability to pay dividends may be limited by Bermuda law.

Any
dividends paid on our common shares are subject to limitations imposed on
dividends under Bermuda law and regulations. Under the Bermuda Insurance Act
1978, as amended, which we refer to as the Bermuda Insurance Act, and related
regulations, RAM Re is required to maintain certain minimum solvency levels and
RAM Re will be prohibited from declaring or paying dividends that would result
in noncompliance with such requirement. In addition, under the Bermuda
Insurance Act, RAM Re is prohibited from declaring or paying any dividends of
more than 25% of its total statutory capital and surplus, as shown on its
previous financial year statutory balance sheet, unless at least seven days
before payment of the dividends it files with the BMA an affidavit that it will
continue to meet its required solvency margins. The BMA requires that the loss
and loss expense provision reflect the present value of future cash flows
associated with all financial guaranty contracts (which, for statutory
reporting purposes, includes those contracts written as credit default swaps)
attaching prior to the balance sheet date where anticipated losses are
estimated over the lifetime of contracts, with appropriate probabilistic allowance
for potential adverse scenarios. As such, estimated losses on insured credit
derivatives contracts reduce statutory capital. In addition, under the Bermuda
Companies Act, we may only declare or pay a dividend if, among other matters,
there are reasonable grounds for believing that we are, and will be after any
such payment, able to pay our liabilities as they become due and that the
realizable value of our assets will not thereby be less than the sum of our
aggregate liabilities and our issued share capital and share premium accounts.
These restrictions may limit the amount of funds available for distribution to
holders of our common shares.

U.S. Persons who own our common
shares may have more difficulty in protecting their interests than if they held
shares of a U.S. corporation.

The
Bermuda Companies Act, which applies to us, differs in certain material
respects from laws generally applicable to U.S. corporations and their
shareholders. Set forth below is a summary of certain significant provisions of
the Bermuda Companies Act which includes, where relevant, information on
modifications thereto adopted pursuant to our bye-laws, applicable to us, which
differ in certain respects from provisions of Delaware corporate law. Because the
following statements are summaries, they do not discuss all aspects of Bermuda
law that may be relevant to us and our shareholders.

Interested
Directors. Bermuda law and our bye-laws provide that we
cannot void any transaction we enter into in which a director has an interest,
nor can such director be liable to us for any profit realized pursuant to such
transaction, provided the nature of the interest is disclosed at the first
opportunity at a meeting of directors, or in writing, to the directors. Under
Delaware law such transaction would not be voidable if: (i) the material facts
as to such interested directors relationship or interests were disclosed or
were known to the board of directors and the board had in good faith authorized
the transaction by the affirmative vote of a majority of the disinterested
directors, (ii) such material facts were disclosed or were known to the
stockholders entitled to vote on such transaction and the transaction was
specifically approved in good faith by vote of the majority of shares entitled
to vote thereon, or (iii) the transaction was fair as to the corporation as of
the time it was authorized, approved or ratified. Under Delaware law, the
interested director could be held liable for a transaction in which the
director derived an improper personal benefit.

Business
Combinations with Large Shareholders or Affiliates. As a
Bermuda company, we may enter into business combinations with our large
shareholders or affiliates, including asset sales and other transactions in
which a large shareholder or affiliate receives, or could receive, a financial
benefit that is greater than that received, or to be received, by other
shareholders, with prior approval from our Board of Directors but without
obtaining prior approval from our shareholders. Amalgamations require the
approval of the Board of Directors and, except in the case of certain types of
amalgamations, a resolution of the shareholders approved by at least 66% of the
votes cast. If we were a Delaware corporation, we would need prior approval
from our Board of Directors or a supermajority of our shareholders to enter
into a business combination with an interested shareholder for a period of
three years from the time the person became an interested shareholder, unless
we opted out of the relevant Delaware statute.

Shareholders
Suits. The rights of shareholders under Bermuda law are not
as extensive as the rights of shareholders in many U.S. jurisdictions. Class
actions and derivative actions are generally not available to shareholders
under the laws of Bermuda. However, the Bermuda courts ordinarily would be
expected to follow English case law precedent, which would permit a shareholder
to commence an action

38

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in the name of the company to remedy a wrong done to
the company where an act is alleged to be beyond the corporate power of the
company, is illegal or would result in the violation of our memorandum of
association or bye-laws. Furthermore, consideration would be given by the court
to acts that are alleged to constitute a fraud against the minority
shareholders or where an act requires the approval of a greater percentage of
our shareholders than actually approved it. The winning party in such an action
generally would be able to recover a portion of attorneys fees incurred in
connection with such action. When the affairs of a company are being conducted
in a manner which is oppressive or prejudicial to the interests of some part of
the shareholders, one or more shareholders may apply to the Supreme Court of
Bermuda, which may make such order as it sees fit, including an order
regulating the conduct of the companys affairs in the future or ordering the
purchase of the shares of any shareholders by other shareholders or by the company.
Our bye-laws provide that shareholders waive all claims or rights of action
that they might have, individually or in the right of the company, against any
director or officer for any act or failure to act in the performance of such
directors or officers duties, except with respect to any fraud or dishonesty
of such director or officer. Class actions and derivative actions generally are
available to stockholders under Delaware law for, among other things, breach of
fiduciary duty, corporate waste and actions not taken in accordance with
applicable law. In such actions, the court has discretion to permit the winning
party to recover attorneys fees incurred in connection with such action.

Indemnification of Directors and Officers.
We will indemnify our directors or officers or any person appointed to any
committee by the Board of Directors acting in their capacity as such in
relation to any of our affairs for any loss arising or liability attaching to
them by virtue of any rule of law in respect of any negligence, default, breach
of duty or breach of trust of which such person may be guilty in relation to
the company other than in respect of his own fraud or dishonesty. Under
Delaware law, a corporation may indemnify a director or officer of the corporation
against expenses (including attorneys fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in defense of an action, suit or
proceeding by reason of such position if such director or officer acted in good
faith and in a manner he or she reasonably believed to be in or not be opposed
to the best interests of the corporation and, with respect to any criminal
action or proceeding, such director or officer had no reasonable cause to
believe his or her conduct was unlawful.

Because
we are a Bermuda company, it may be difficult to effect service of process on
our directors and executive officers to enforce judgments against us or against
our directors and executive officers.

We
are organized under the laws of Bermuda and our business is based in Bermuda.
In addition, certain of our directors and officers reside in Bermuda, and a
portion of our assets and the assets of such persons may be located in
jurisdictions outside the U.S.. As such, it may be difficult or impossible to
effect service of process within the U.S. upon us or those persons, or to
enforce court judgments obtained in the U.S. against us or them based on the
civil liability provisions of the federal or state securities laws of the U.S. in
Bermuda or in countries other than the U.S. where we or they have assets. In
addition, there is some doubt as to whether the courts of Bermuda and other
countries would recognize or enforce judgments of U.S. courts obtained against
us or our directors or officers based on the civil liabilities provisions of
the federal or state securities laws of the U.S., or would hear actions against
us or those persons based on those laws. We have been advised by our legal
advisors in Bermuda that the U.S. and Bermuda do not currently have a treaty
providing for the reciprocal recognition and enforcement of judgments in civil
and commercial matters. Therefore, a final judgment for the payment of money
rendered by any federal or state court in the U.S. based on civil liability,
whether or not based solely on U.S. federal or state securities law, would not
automatically be enforceable in Bermuda. There are grounds upon which a Bermuda
court may not enforce the judgments of U.S. courts and some remedies available
under the laws of U.S. jurisdictions, including some remedies available under
U.S. federal securities laws, may not be permitted under Bermuda courts as
contrary to public policy in Bermuda. Similarly, those judgments may not be
enforceable in countries other than the U.S. where we have assets. Further, no
claim may be brought in Bermuda by or against us or our directors and officers
in the first instance for violation of U.S. federal securities laws because
these laws have no extraterritorial application under Bermuda law and do not
have force of law in Bermuda; however, a Bermuda court may impose civil
liability, including the possibility of monetary damages, on us or our
directors and officers if the facts alleged in a complaint constitute or give
rise to a cause of action under Bermuda law.

Risks
Related to Taxation

We may become subject to taxes in
Bermuda after 2016, which may have a material adverse effect on our financial
condition and operating results and on an investment in our shares.

The
Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act
1966, as amended, of Bermuda, has given each of RAM Holdings and RAM Re an
assurance that if any legislation is enacted in Bermuda that would impose tax
computed on profits or income, or computed on any capital asset, gain or
appreciation, or any tax in the nature of estate duty or inheritance tax, then
the imposition of any such tax will not be applicable to RAM Holdings, RAM Re
or any of their respective operations or their respective shares, debentures or
other obligations (except insofar as such tax applies to persons ordinarily
resident in Bermuda or to any taxes payable by them in respect of real property
or leasehold interests in Bermuda held by them) until March 28, 2016. Given the
limited duration of the Minister of Finances assurance, we cannot be certain
that we will not be subject to any Bermuda tax after March 28, 2016. Since we
are incorporated in Bermuda, we will be subject to changes of law or regulation
in Bermuda that may have an adverse impact on our operations, including
imposition of tax liability.

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The
impact of Bermudas letter of commitment to the Organization for Economic
Cooperation and Development, or the OECD, to eliminate harmful tax practices is
uncertain and could adversely affect our tax status in Bermuda.

The
OECD has published reports and launched a global dialogue among member and
non-member countries on measures to limit harmful tax competition. These
measures are largely directed at counteracting the effects of tax havens and
preferential tax regimes in countries around the world. In the OECDs report
dated April 18, 2002 and updated as of June 2004, November 2005 and September
2006 via a Global Forum; Bermuda was not listed as an uncooperative tax
haven because it had previously committed to eliminate harmful tax practices
and to embrace international tax standards for transparency, exchange of
information and the elimination of any aspects of the regimes for financial and
other services that attract business with no substantial domestic activity. We
are not able to predict what changes will arise from the commitment or whether
such changes will subject us to additional taxes.

We
may be subject to U.S. federal income tax, which would have an adverse effect
on our financial condition and results of operations and on an investment in
our shares.

If
either RAM Holdings or RAM Re were considered to be engaged in a trade or
business in the U.S., it could be subject to U.S. federal income and additional
branch profits taxes on the portion of its earnings that are effectively
connected to such U.S. business or in the case of RAM Re, if it is entitled to
benefits under the U.S. income tax treaty with Bermuda and if RAM Re were
considered engaged in a trade or business in the U.S. through a permanent
establishment, RAM Re could be subject to U.S. federal income tax on the
portion of its earnings that are attributable to its permanent establishment in
the U.S., in which case its results of operations could be materially adversely
affected. RAM Holdings and RAM Re are Bermuda companies. We intend to manage
our business so that each of these companies should operate in such a manner
that neither of these companies should be treated as engaged in a U.S. trade or
business and, thus, should not be subject to U.S. federal taxation (other than
U.S. federal excise tax on insurance and reinsurance premium income
attributable to insuring or reinsuring U.S. risks and U.S. federal withholding
tax on certain U.S. source investment income). However, because there is
considerable uncertainty as to the activities which constitute being engaged in
a trade or business within the U.S., we cannot be certain that the IRS will not
contend successfully that we are engaged in a trade or business in the U.S.

Holders
of 10% or more of our shares may be subject to U.S. income taxation under the
controlled foreign corporation rules.

If
you are a 10% U.S. Shareholder of a foreign corporation (defined as a U.S.
Person who owns (directly, indirectly through foreign entities or
constructively (as defined below) at least 10% of the total combined voting
power of all classes of stock entitled to vote) that is a controlled foreign
corporation, which we refer to as a CFC, for an uninterrupted period of 30 days
or more during a taxable year, and you own shares in the CFC directly or
indirectly through foreign entities on the last day of the CFCs taxable year,
you must include in your gross income for U.S. federal income tax purposes your
pro rata share of the CFCs
subpart F income, even if the subpart F income is not distributed. Subpart F
income of a foreign insurance corporation typically includes foreign personal
holding company income (such as interest, dividends and other types of passive
income), as well as insurance and reinsurance income (including underwriting
and investment income).

A
foreign corporation is considered a CFC if 10% U.S. Shareholders own (directly,
indirectly through foreign entities or by attribution by application of the
constructive ownership rules of section 958(b) of the Code) (that is,
constructively) more than 50% of the total combined voting power of all
classes of voting stock of that foreign corporation or the total value of all
stock of that corporation. For purposes of taking into account insurance
income, a CFC also includes a foreign insurance company in which more than 25%
of the total combined voting power of all classes of stock (or more than 25% of
the total value of the stock) is owned (directly, indirectly through non-U.S.
entities or constructively) by 10% U.S. Shareholders on any day during the
taxable year of such corporation.

For
purposes of this discussion, the term U.S. Person means: (i) an individual
citizen or resident of the U.S., (ii) a partnership or corporation created or
organized in or under the laws of the U.S., or under the laws of any State
thereof (including the District of Columbia), (iii) an estate, the income of
which is subject to U.S. federal income taxation regardless of its source, (iv)
a trust if either (x) a court within the U.S. is able to exercise primary
supervision over the administration of such trust and one or more U.S. Persons have
the authority to control all substantial decisions of such trust or (y) the
trust has a valid election in effect to be treated as a U.S. Person for U.S.
federal income tax purposes or (v) any other person or entity that is treated
for U.S. federal income tax purposes as if it were one of the foregoing.

We
believe, subject to the discussion below, that because of the anticipated
dispersion of our share ownership, provisions in our organizational documents
that limit voting power and other factors, no U.S. Person other than PMI who
owns our common shares directly or indirectly through one or more foreign
entities should be treated as owning (directly, indirectly through foreign
entities or constructively) 10% or more of the total voting power of all
classes of RAM Holdings or RAM Res shares. The provisions in our
organizational documents that limit voting power could reduce or eliminate an
investors voting power in circumstances in which, pursuant to certain
constructive ownership rules, shares owned or deemed owned by the investor are
attributed to another investor or shares owned or deemed owned by another
investor are attributed to the investor or the investor is invested in an
entity in which another investor invests.

However,
neither we nor investors may be aware of circumstances in which shares may be
so attributed in order to timely effectuate these provisions. In addition, the
IRS could challenge the effectiveness of the provisions in our organizational
documents and a court could sustain such a challenge.

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U.S. Persons who hold our shares
may be subject to U.S. federal income taxation at ordinary income rates on
their proportionate share of RAM Res related person insurance income.

If U.S. persons are treated as owning 25% or more of RAM Res shares (by vote
or value) and the related person insurance income, or RPII (determined on a
gross basis) of RAM Re were to equal or exceed 20% of RAM Res gross insurance
income in any taxable year and direct or indirect insureds (and persons related
to those insureds) own directly or indirectly through entities 20% or more of
the voting power or value of our shares, then a U.S. Person who owns any shares
of RAM Re (directly or indirectly through foreign entities) on the last day of
the taxable year would be required to include in its income for U.S. federal
income tax purposes such persons pro rata share of RAM Res RPII for the
entire taxable year, determined as if such RPII were distributed
proportionately only to U.S. Persons at that date, regardless of whether such
income is distributed. In addition, any RPII that is includible in the income
of a U.S. tax-exempt organization may be treated as unrelated business taxable
income. The amount of RPII earned by RAM Re (generally, premium and related investment
income from the direct or indirect insurance or reinsurance of any direct or
indirect U.S. holder of common shares or any person related to such holder)
will depend on a number of factors, including the identity of persons directly
or indirectly insured or reinsured by RAM Re. Although RAM Res gross RPII
generally exceeded 20% of RAM Res gross insurance income in recent taxable
years, we believe that the direct or indirect insureds of RAM Re (and related
persons) did not directly or indirectly own 20% or more of either the voting
power or value of our shares in those prior years and we do not expect this
ownership threshold to be exceeded in the foreseeable future. However, we
cannot be certain that this will be the case because some of the factors which
determine the extent of RPII may be beyond our control.

U.S. Persons who dispose of our
shares may be subject to U.S. federal income taxation at the rates applicable
to dividends on a portion of their gains, if any.

The RPII rules provide that if a U.S. Person disposes of shares in a foreign
insurance corporation in which U.S. Persons own 25% or more of the shares (even
if the amount of gross RPII is less than 20% of the corporations gross
insurance income and the ownership of its shares by direct or indirect insureds
and related persons is less than the 20% threshold), any gain from the
disposition will generally be treated as a dividend to the extent of the
holders share of the corporations undistributed earnings and profits that
were accumulated during the period that the holder owned the shares (whether or
not such earnings and profits are attributable to RPII). In addition, such a
holder will be required to comply with certain reporting requirements,
regardless of the amount of shares owned by the holder. We do not believe that
these RPII rules should apply to dispositions of our common shares because RAM
Holdings will not be directly engaged in the insurance business. The RPII
provisions, however, have never been interpreted by the courts or the U.S.
Treasury Department in final regulations, and regulations interpreting the RPII
provisions of the Code exist only in proposed form. It is not certain whether
these regulations will be adopted in their proposed form or what changes or
clarifications might ultimately be made thereto or whether any such changes, as
well as any interpretation or application of the RPII rules by the IRS, the
courts, or otherwise, might have retroactive effect. The U.S. Treasury
Department has authority to impose, among other things, additional reporting
requirements with respect to RPII. Accordingly, the meaning of the RPII
provisions and the application thereof to RAM Holdings and RAM Re is uncertain.

U.S. Persons who hold our shares will be subject to adverse U.S. federal income
tax consequences if RAM Holdings is considered to be a passive foreign
investment company.

If RAM Holdings is considered a passive foreign investment company, or a PFIC,
for U.S. federal income tax purposes, a U.S. Person who owns directly or, in
some cases, indirectly (e.g. through a foreign partnership) any of our shares
may be subject to adverse U.S. federal income tax consequences, including
subjecting the investor to a greater tax liability than might otherwise apply
and, if certain elections are made, subjecting the investor to a tax on amounts
in advance of when such tax would otherwise be imposed, in which case your
investment could be materially adversely affected. In addition, if RAM Holdings
were considered a PFIC, upon the death of any U.S. individual owning common
shares, such individuals heirs or estate would not be entitled to a step-up
in the basis of the common shares which might otherwise be available under U.S.
federal income tax laws. We believe that we are not, and we currently do not
expect to become, a PFIC for U.S. federal income tax purposes; however, we
cannot assure you that we will not be deemed a PFIC by the IRS. There are
currently no regulations regarding the application of the PFIC provisions to an
insurance company. New regulations or pronouncements interpreting or clarifying
these rules may be forthcoming. We cannot predict what impact, if any, such
guidance would have on an investor that is subject to U.S. federal income
taxation.

U.S. tax-exempt organizations that own our common shares may recognize
unrelated business taxable income.

A U.S. tax-exempt organization may recognize unrelated business taxable income
if a portion of our insurance income is allocated to the organization. In
general, insurance income will be allocated to a U.S. tax-exempt organization
if either we are a CFC and the tax-exempt shareholder is a U.S. 10% Shareholder
or there is RPII and certain exceptions do not apply. U.S. tax-exempt investors
are urged to consult their tax advisors as to the potential impact of the
unrelated business taxable income provisions of the Code.

Changes in U.S. federal income tax law could materially adversely affect an
investment in our common shares.

Legislation has been introduced in the U.S. Congress intended to eliminate
certain perceived tax advantages of companies (including insurance companies)
that have legal domiciles outside the U.S. but have certain U.S. connections. While
there are no currently pending

41

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legislative
proposals which, if enacted, would have a material adverse effect on us or our
shareholders, it is possible that broader-based legislative proposals could
emerge in the future that could have an adverse effect on us, or our
shareholders.

Additionally, the U.S. federal income tax laws and interpretations regarding
whether a company is engaged in a trade or business within the U.S., or is a
PFIC or whether U.S. Persons would be required to include in their gross income
the subpart F income or the RPII of a CFC are subject to change, possibly on
a retroactive basis. There are currently no regulations regarding the
application of the PFIC rules to insurance companies and the regulations regarding
RPII are still in proposed form. New regulations or pronouncements interpreting
or clarifying such rules may be forthcoming. We cannot be certain if, when or
in what form such regulations or pronouncements may be provided and whether
such guidance will have a retroactive effect.

|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments

Item 1B is not applicable to us because we are not an accelerated filer, large
accelerated filer or well-known seasoned issuer.

|        |           
|------- | ----------
|Item 2. | Properties

We maintain our executive office at RAM Re House, 46 Reid Street, Hamilton HM
12 Bermuda. We lease two floors of these premises, occupying approximately
4,590 square feet of space. We believe that our current facilities are adequate
to meet our needs for the foreseeable future.

|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are not involved in any material legal proceedings. In the ordinary course
of its business, RAM Re engages in arbitrations under its treaty agreements.

|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders in the fourth
quarter of the fiscal year ended December 31, 2008.

Part II

|        |                                                                                                              
|------- | -------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters
 and Issuer Purchases of Equity Securities

Market Information

RAM Holdings common shares are traded in the U.S. on the NASDAQ Global
Market under the symbol RAMR. As of April 13, 2009, the closing price
for our common shares on NASDAQ was $0.21, and there were 19 shareholders of
record of RAM Holdings common shares.

The table below sets forth, for the quarters indicated the high and low sales
prices per share of RAM Holdings common shares. The RAM Holdings common
shares began trading on April 27, 2006.

|               |  |      |       |     |   |       | 
|-------------- |  | ---- | ----- | --- | - | ----- | 
|               |  | High |       | Low |  
|2008:          |  |      |       |     |   |       | 
|Fourth Quarter |  | $    | 2.10  |     | $ | 0.25  | 
|Third Quarter  |  | $    | 3.22  |     | $ | 0.89  | 
|Second Quarter |  | $    | 2.52  |     | $ | 0.87  | 
|First Quarter  |  | $    | 5.08  |     | $ | 0.75  | 
|2007:          |  |      |       |     |   |       | 
|Fourth Quarter |  | $    | 10.65 |     | $ | 4.62  | 
|Third Quarter  |  | $    | 16.62 |     | $ | 5.91  | 
|Second Quarter |  | $    | 17.34 |     | $ | 14.88 | 
|First Quarter  |  | $    | 17.18 |     | $ | 13.99 | 

On
March 16, 2009, RAM Holdings common shares were approved for a secondary
listing and trade in Bermuda on the Bermuda Stock Exchange (BSX). If RAM
requests delisting from the NASDAQ Global Market, RAM will seek approval for
the BSX to become its primary listing. In addition, if RAM requests delisting
from the NADAQ Global Market, RAM believes that RAM Holdings common shares
will qualify for trading on the Pink Sheets for as long as market makers
determine to make a market in its common shares.

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Dividend Policy

We have never declared or paid, and do not currently intend to pay, any cash
dividends on our common shares. Any determination to pay cash dividends will be
at the discretion of our Board of Directors and will depend upon our results of
operations and cash flows, our financial position and capital requirements,
general business conditions, legal, tax, regulatory and any contractual
restrictions on the payment of dividends and any other factors our Board of
Directors deems relevant. Furthermore, we are a holding company and have no
direct operations. Our ability to pay dividends depends in large part on the
ability of RAM Re to pay dividends to us. RAM Re is subject to Bermuda laws and
regulatory constraints which affect its ability to pay dividends to RAM
Holdings. In addition, payments of principal to the holders of our
$40.0 million aggregate principal amount of 6.875% Senior Notes due 2024,
payments of dividends on our $75.0 million of Series A Preference Shares
and payments of dividends on the $50.0 million Class B Preference Shares of RAM
Re will receive priority over any payments of dividends on our common shares.
See Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources for a discussion of restrictions
on our ability to pay dividends.

Set forth below is a line graph and a table comparing the dollar change in the
cumulative total shareholder return on our common shares from April 27, 2006
(the date on which our common shares were first listed on NASDAQ) through
December 31, 2008 against the NASDAQ Composite Index and the NASDAQ Insurance
Index. The performance graph and table assumes $100 invested on April 27, 2006
in the shares of RAM Holdings, the NASDAQ Composite Index and the NASDAQ
Insurance Index, and depicts the value on a quarterly basis thereafter to
December 31, 2008. It also assumes that all dividends are reinvested.

Total Return RAM Holdings vs NASDAQ Composite
vs NASDAQ Insurance

(LINE GRAPH)

The
performance reflected in the graph above is not necessarily indicative of
future performance.

43

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|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.

The following
financial information for the five years ended December 31, 2008, has been
derived from RAMs Financial Statements. This information should be read in
conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations located in Part II, Item 7, and the Financial
Statements and related notes located in Part II, Item 8. In particular, see
Note 19 to the Financial Statements for a discussion of certain risks and
uncertainties.

|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|--------------------------------------------------- |  | --------------------------------------------------- | -------- | ------------------ | - | ------------------ | - | -------------- | ------- | -------------- | - | ------- | - | - | ------- | 
|                                                    |  | As of and for the Year Ended December 31,(1)        |         
|                                                    |  |                                                     |         
|                                                    |  | Consolidated
 2008                                  |          | Consolidated
 2007 |   | Consolidated
 2006 |   | Combined
 2005 |         | Combined
 2004 |  
|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |  
|                                                    |  | (Dollars in thousands, unless indicated
 otherwise) |         
|Statement of Operations Data:                       |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|Gross written premiums                              |  | $                                                   | (11,214  | )                  | $ | 98,501             |   | $              | 73,219  |                | $ | 63,163  |   | $ | 63,732  | 
|Net written premiums                                |  |                                                     | (11,723  | )                  |   | 97,749             |   |                | 71,073  |                |   | 63,163  |   |   | 63,732  | 
|Net earned premiums                                 |  |                                                     | 68,577   |                    |   | 51,005             |   |                | 44,292  |                |   | 39,036  |   |   | 32,375  | 
|Net change in fair value of credit
 derivatives     |  |                                                     | 7,968    |                    |   | (171,806           | ) |                | 3,190   |                |   | (157    | ) |   | 4,350   | 
|Net investment income                               |  |                                                     | 29,307   |                    |   | 33,148             |   |                | 24,236  |                |   | 18,201  |   |   | 16,824  | 
|Net realized investment gains (losses)              |  |                                                     | (2,356   | )                  |   | (3,604             | ) |                | (1,002  | )              |   | (1,583  | ) |   | 536     | 
|Net unrealized gain on other financial
 instruments |  |                                                     | 7,754    |                    |   | 35,330             |   |                |        |                |   |        |   |   |        | 
|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|Total revenues                                      |  |                                                     | 111,250  |                    |   | (55,927            | ) |                | 70,716  |                |   | 55,497  |   |   | 54,085  | 
|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|Loss and loss adjustment expenses                   |  |                                                     | 214,828  |                    |   | 48,026             |   |                | (2,781  | )              |   | 7,204   |   |   | 3,579   | 
|Acquisition expenses                                |  |                                                     | 30,576   |                    |   | 18,418             |   |                | 16,315  |                |   | 14,424  |   |   | 12,634  | 
|Operating expenses                                  |  |                                                     | 16,930   |                    |   | 13,373             |   |                | 13,379  |                |   | 11,531  |   |   | 11,032  | 
|Interest expense                                    |  |                                                     | 8,375    |                    |   | 8,375              |   |                | 2,750   |                |   | 2,750   |   |   | 2,106   | 
|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|Total expenses                                      |  |                                                     | 270,709  |                    |   | 88,192             |   |                | 29,663  |                |   | 35,909  |   |   | 29,351  | 
|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|Net (loss) income                                   |  | $                                                   | (159,459 | )                  | $ | (144,119           | ) | $              | 41,053  |                | $ | 19,588  |   | $ | 24,734  | 
|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|Earnings per share                                  |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|Basic                                               |  |                                                     | (5.85    | )                  |   | (5.29              | ) |                | 1.53    |                |   | 0.76    |   |   | 0.95    | 
|Diluted                                             |  |                                                     | (5.85    | )                  |   | (5.29              | ) |                | 1.53    |                |   | 0.75    |   |   | 0.95    | 
|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|Balance Sheet Data:                                 |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|                                                    |  |                                                     |          |                    |   |                    |   |                |         |                |   |         |   |   |         | 
|Investments and cash                                |  | $                                                   | 438,938  |                    | $ | 717,037            |   | $              | 620,578 |                | $ | 475,978 |   | $ | 440,992 | 
|Deferred acquisition costs                          |  |                                                     | 74,795   |                    |   | 87,304             |   |                | 73,838  |                |   | 66,220  |   |   | 58,653  | 
|Total assets                                        |  |                                                     | 574,282  |                    |   | 860,265            |   |                | 711,843 |                |   | 553,498 |   |   | 511,413 | 
|Reserve for losses and loss adjustment
 expense     |  |                                                     | 95,794   |                    |   | 63,798             |   |                | 14,506  |                |   | 16,595  |   |   | 15,493  | 
|Unearned premiums                                   |  |                                                     | 158,594  |                    |   | 239,957            |   |                | 192,641 |                |   | 163,769 |   |   | 139,632 | 
|Unsecured senior notes                              |  |                                                     | 40,000   |                    |   | 40,000             |   |                | 40,000  |                |   | 40,000  |   |   | 40,000  | 
|Redeemable preference shares                        |  |                                                     | 75,000   |                    |   | 75,000             |   |                | 75,000  |                |   |        |   |   |        | 
|Derivative liability                                |  |                                                     | 85,354   |                    |   | 180,589            |   |                | 1,621   |                |   | 1,737   |   |   |        | 
|Total liabilities                                   |  |                                                     | 484,924  |                    |   | 607,953            |   |                | 332,576 |                |   | 230,842 |   |   | 199,908 | 
|Accumulated other comprehensive (loss)
 income      |  |                                                     | 6,331    |                    |   | 10,888             |   |                | (5,497  | )              |   | (4,540  | ) |   | 2,787   | 
|Shareholders equity                                |  |                                                     | 89,358   |                    |   | 252,313            |   |                | 379,267 |                |   | 322,656 |   |   | 311,505 | 
|Book value per share                                |  | $                                                   | 3.28     |                    | $ | 9.26               |   | $              | 13.93   |                | $ | 12.47   |   | $ | 12.02   | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Financial
 statement information included is on a consolidated basis for December 31,
 2008, 2007 and 2006. Prior to that financial information is presented on a
 combined basis. See Note 1 in the audited financial statements.
Certain
 reclassifications have been made to the prior years amounts to conform to
 the current years presentation. See Note 2 to the audited financial
 statements.

44

---



|                                                              |  |                                                     |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|------------------------------------------------------------- |  | --------------------------------------------------- | ------ | ---- |  | ------ | - | ---- | ------ | ---- |  | ------ | - |  | ------ | -
|                                                              |  | As of and for the Year Ended December 31,           |       
|                                                              |  |                                                     |       
|                                                              |  | 2008                                                |        | 2007 |  | 2006   |   | 2005 |        | 2004 | 
|                                                              |  |                                                     |        |      |  |        |   |      |        |      | 
|                                                             
|                                                              |  | (Dollars in thousands, unless indicated
 otherwise) |       
|Financial Ratios (Based on U.S. GAAP Income
 Statement Data): |  |                                                     |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|Loss and loss adjustment expense ratio 1                      |  |                                                     | 313.3  | %    |  | 94.2   | % |      | (6.3   | ) %  |  | 18.5   | % |  | 11.1   | %
|Acquisition expense ratio 2                                   |  |                                                     | 44.6   | %    |  | 36.1   | % |      | 36.8   | %    |  | 37.0   | % |  | 39.0   | %
|Operating expense ratio 3                                     |  |                                                     | 24.7   | %    |  | 26.2   | % |      | 30.2   | %    |  | 29.5   | % |  | 34.1   | %
|Combined ratio 4                                              |  |                                                     | 382.6  | %    |  | 156.5  | % |      | 60.7   | %    |  | 85.0   | % |  | 84.2   | %
|                                                              |  |                                                     |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|Non-GAAP Supplemental Data:                                   |  |                                                     |        |      |  |        |   |      |        |      |  |        |   |  |        |  
|Net par outstanding (in millions)                             |  |                                                     | 29,957 |      |  | 45,394 |   |      | 31,119 |      |  | 27,054 |   |  | 22,154 |  
|Net debt service outstanding (in millions)                    |  |                                                     | 50,731 |      |  | 71,911 |   |      | 50,944 |      |  | 41,535 |   |  | 34,957 |  
|U.S. Basis statutory capital and surplus
 (in millions) 5     |  |                                                     | 137.1  |      |  | 356.8  |   |      | 403.4  |      |  | 248.8  |   |  | 274.6  |  



---

|  |                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------
|1 | Calculated by dividing loss
 and loss adjustment expenses by net earned premiums                                                             
|  |                                                                                                                                              
|2 | Calculated by dividing
 acquisition expenses by net earned premiums                                                                          
|  |                                                                                                                                              
|3 | Calculated by dividing
 operating expenses by net earned premiums                                                                            
|  |                                                                                                                                              
|4 | Loss, acquisition and
 operating expense ratio may not total combined ratio due to rounding                                                  
|  |                                                                                                                                              
|5 | Our estimate of the sum of
 U.S. basis policyholder surplus and contingency reserve, as RAM Re files
 Bermuda statutory financial statements.

45

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|        |                                                                                        
|------- | ---------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial Condition and
 Results of Operations.

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
accompanying notes which are presented under Item 8. It contains
forward-looking statements that involve risks and uncertainties. Please see
Forward-Looking Statements for more information. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including those discussed below and elsewhere in
this Form 10-K, particularly under the headings Risk Factors and
Forward-Looking Statements.

Overview

We are a Bermuda-based provider of financial guaranty reinsurance, conducting
substantially all of our operations through our wholly owned subsidiary, RAM
Re. Our financial strength ratings from the rating agencies affect our ability
to compete in the market of providing reinsurance to the primary financial
guaranty insurers.

We
are rated A+ (with a negative outlook) by Standard &Poors and Baa3
(outlook developing) by Moodys. We requested withdrawal of our Moodys rating
on March 17, 2009. On September 24, 2008, S&P lowered its
financial strength rating of RAM Re to A+, with negative outlook. S&P
stated that the A+ rating, issued on September 24, 2008, reflects its view
that the diversity and scope of RAM Res reinsurance relationships have
suffered as more of the primary insurers new business production has declined
in the current environment. These changes raise the likelihood in S&Ps
view that RAM Res new business generation will be limited until the primary
insurers can stabilize their franchises. The rating changes also reflect the
difficulty S&P believes RAM Re may face, in light of the current
environment, toward improving its historically below-average return on equity
(ROE). Finally, S&P stated that the rating changes reflect S&Ps view
of RAM Res weakened capital adequacy position, which is the result of a significant
amount of projected losses relating primarily to reinsured subprime and
second-lien RMBS and secondarily CDOs of ABS. Although the Companys capital
adequacy margin of safety in S&Ps analysis was at the low end of the range
of 1.0x -1.1x, which exceeds S&P A criteria of 0.8x, it has declined from
prior years when the margin of safety was in excess of 1.25x. On December 4,
2008 Moodys downgraded RAM to Baa3, with developing outlook. Moodys stated
that its rating action on December 4, 2008, reflected Moodys views on RAM Res
overall credit profile in the current environment, including the potential for
increased losses among its mortgage-related exposures and significantly
constrained new business prospects. Moodys stated that the downgrade resulted
from three primary factors, the first being Moodys expectations of greater
losses on mortgage-related exposures, reflecting continued adverse delinquency
trends. Moodys stated that although RAM Re has reduced the size of its RMBS
and ABS CDO portfolios through recent commutation transactions with MBIA
Insurance Corporation (MBIA) and Syncora Guaranty Re (formerly XL Financial
Assurance Ltd.) (XLFA), loss expectations relating to RAM Res direct RMBS
portfolio were material relative to capital. The second factor was Moodys view
of diminished business prospects as reflected by low underwriting volume. The
third factor according to Moodys was the Companys impaired financial
flexibility.

The
downgrades of our ratings by S&P and Moodys have had a material adverse
affect on our ability to compete, on the terms of our reinsurance and on our
financial results. Due to adverse developments in the financial markets and the
financial guaranty industry generally beginning in the latter half of 2007, as
well as the downgrades of our ratings, we wrote only a modest amount of
business in 2008 and have written no new business in 2009. In addition, due to
the above mentioned downgrades, certain of the primary financial guarantors
that have previously ceded business to RAM, which we refer to as ceding
companies, have the right, after a cure period, to increase the ceding
commission, as stipulated in the treaties, or terminate the treaties and
recapture the business previously ceded to RAM Re whether written in financial
guaranty or credit derivative form. To the extent policies are recaptured, RAM
must forfeit to the ceding company an amount determined by formula under each
treaty which generally consists of RAMs allocated share of the U.S. statutory
unearned premium, net of the ceding commission paid by RAM to the ceding
company (subject to a penalty amount in some cases), and loss reserves
established with respect to the policies ceded, as applicable.

Business strategy

In response to the economic and rating events referenced above, we are
continuing efforts that we began in 2008 to reduce the volatility of our
insured portfolio and evaluate our business model:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reducing our insured risk exposure: We
 commuted our entire insured portfolio assumed from Syncora Guaranty Re Ltd.
 and MBIA, effective July 25, 2008 and November 30, 2008, respectively. See
 Managements Discussion and Analysis of Financial Condition and Results of
 Operations, Results of operations: Net income - Commutations. As a result
 of these commutations, we reduced our exposure to the troubled sectors as
 follows:
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                               | Total
 20052007 vintage US RMBS was reduced by $733.4 million par outstanding
 consisting of $609.2 million of second-lien RMBS (HELOCs and Closed-End
 Seconds) and $124.2 million of first-lien RMBS. As a percent of outstanding
 par at December 31, 2007, the commuted amounts represent 35.4% of total
 2005-2007 vintage US RMBS, 50.7% of second-lien RMBS, and 14.3% of first-lien
 RMBS, respectively.

46

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Total ABS
 CDO par outstanding, predominantly 2005-2007 vintages, was reduced by
 $1,149.9 million. As a percent of outstanding par at December 31, 2007, the
 commuted amount represents 81.6% of total ABS CDOs.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                   
| |  | We commuted
 our entire insured portfolio assumed from Ambac Assurance Corporation
 effective April 8, 2009. See Note 27, Subsequent Events, in the notes to
 our consolidated financial statements. We are pursuing further commutations
 in cases where they can be negotiated at acceptable prices. In addition, we
 are pursuing legal actions against our ceding companies in cases where we
 dispute the validity of cessions made under our treaties or ceded losses.                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                   
| |  | Capital preservation and evaluation: We
 reduced our new business growth in 2008 and have not written any business to
 date in 2009. We are evaluating our capital position in light of the ongoing
 deterioration in the credit markets to determine whether we have sufficient
 capital in excess of that required to pay claims and other obligations under
 various stress scenarios to pursue opportunities to deleverage our capital
 structure by repurchasing our outstanding securities and, in the longer term,
 new business opportunities.                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                   
| |  | Reducing expenses: In order to reduce
 expenses we are actively considering whether to de-list our common shares
 from trading on NASDAQ and de-register our securities under the Securities
 Exchange Act of 1934 as promptly as possible after the filing of this annual
 report on Form 10-K. If we de-list and de-register, we would no longer file
 annual, quarterly and current reports or proxy statements with the U.S.
 Securities and Exchange Commission. We estimate that these actions will
 reduce our expenses by at least $2 million per year, although the full effect
 of this cost savings is not expected until 2010. We also requested on March
 17, 2009 that Moodys withdraw our financial strength rating on March 17,
 2009, which will result in us no longer paying an annual fee to Moodys. We
 are also evaluating other measures to reduce expenses.

We
are not seeking to write any new business in the near term, although we believe
that if we are successful in the strategic measures set forth above, it will
improve our position to potentially write new business in the future. We
continue to evaluate our business model and may pursue a different set of
strategies in the future. There can be no assurance that the strategies that
have been implemented or that will be pursued in the future in connection with
this evaluation will improve our business, financial condition, liquidity or
results of operations or will not have a material adverse effect on the
Company. Because we are not writing any new business, our Board may consider
strategic options or determine to wind down the Company. See Item IA. Risk
Factors - We are not seeking to write any new business in the near term, and
the lack of new premiums written could have a material adverse effect on our
business, financial condition, liquidity and results of operations; We may
not be able to execute our business strategy or any other strategic
alternatives the Board may determine to pursue; and If RAM is unable to
execute its business strategy or other strategic alternatives, the Board of
Directors of RAM may determine that the best course of action is to commence an
orderly winding up and liquidation of RAM Res operations over some period of
time that is not currently determinable.

Business operations

During
2008, we wrote only a modest amount of new financial guaranty business as
compared to prior periods. We have not written any financial guaranty
reinsurance to date in 2009. The following discussion concerns
our business operations during 2008 and prior.

Our business consists of a single operating segment, financial guaranty
reinsurance, the purpose of which is to indemnify a primary financial
guarantor, against the portion of any loss it may sustain under financial
guaranty policies it has ceded to us. We reinsure policies covering both U.S. and
international exposures. We market our reinsurance directly through the
execution of treaty and facultative contracts with primary insurers.

Treaty
reinsurance requires primary insurers to cede to us, and requires us to
reinsure, financial guarantees for specific types of obligations as determined
by the treaty terms. We have not renewed any of our reinsurance treaties in
2009. This means that we do not expect to write any financial guaranty
reinsurance in the current year but this does not reduce our in-force business,
unless the business is commuted or recaptured by the primaries. Facultative
reinsurance, the reinsurance of individual policies, is subject to separate
negotiation for each reinsurance cession. We continue to have facultative reinsurance
agreements in place with the primaries under which we could reinsure business
on a case by case basis. The initial underwriting of insured risks and the
reporting of underwriting results to us are the responsibility of the primary
insurers. As a result, we are highly dependent on the underwriting, operating
and reporting standards of our primary insurers. The monitoring and oversight
of primary insurers by RAM are integral parts of our business. These activities
include reviews of the underwriting, risk management, surveillance and
reporting practices of primaries both before entering into a reinsurance treaty
and on an ongoing basis.

We provide reinsurance in two product lines: public finance and structured
finance. Public finance obligations consist primarily of debt obligations
issued by or on behalf of states or other governmental entities or their
political subdivisions (counties, cities, towns and villages, utility
districts, public housing and transportation authorities), other public and
quasi-public entities (including public universities and not-for-profit
hospitals, and non-U.S. sovereigns and their political subdivisions), private
universities and hospitals and investor-owned utilities. Structured finance
obligations are generally securities backed by pools of assets such as
residential mortgage loans, consumer or trade receivables, securities,
short-term bank deposits or other assets having a specified cash flow or market
value which are generally held by a special purpose issuing entity.

47

---



During
2008 RAM Re renewed two treaties that were effective in the first quarter with
AAA-rated ceding companies both of which were subsequently downgraded by
Moodys (but not S&P) to the Aa-level. The remaining treaties that were in
effect in 2007 were either cancelled or expired in 2008. New business written
in 2008 was minimal as a result of a number of factors arising out of the
effect of the subprime and credit crisis on the financial guaranty industry,
including the following:

|  |                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------
| | RAM Re has been downgraded and was in a
 rating agency capital-constrained position                       
|  |                                                                                                           
| | RAM Re discontinued treaties with four
 ceding companies that were downgraded below AAA                   
|  |                                                                                                           
| | The two AAA-rated ceding companies with
 which RAM had treaties in 2008 wrote minimal new business volume.
|  |                                                                                                           
| | Reduced structured finance issuances                                                                      
|  |                                                                                                           
| | Lower insured penetration of the public
 finance market                                                   

We
have not renewed our reinsurance treaties with any of the primaries or
otherwise written any new business in 2009.

Our revenues are derived principally from:

| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | earned
 premiums from our reinsurance activities;                                       
| |   |                                                                                         
| |  | net
 investment income generated by our investment portfolio; and                       
| |   |                                                                                         
| |  | gains
 (losses) in our credit derivatives portfolio and on other financial
 instruments.

The written premiums we receive are directly related to the amount and type of
business assumed from primary insurers under treaty and facultative reinsurance
contracts as well as to prevailing premium rates at the time of reinsurance
cessions. Written premiums are usually received on an upfront basis for public
finance transactions and earned over the life of a policy, while premiums for
structured finance transactions are typically written on an installment basis
and earned ratably over the installment period. Investment income is primarily
a function of invested assets and the market interest rates prevailing at the
time of investing money, as well as the type, credit quality and maturity of
the securities purchased. Unrealized gains (losses) on credit derivatives are a
function of changes in estimated fair value of our assumed credit derivative
transactions (primarily credit default swaps). U.S. GAAP requires us to
recognize unrealized gains and losses on credit derivative contracts to the
extent that the estimated fair value of these contracts change from the
beginning to the end of each reporting period, which is referred to as
mark-to-market accounting. We expect these unrealized gains or losses to fluctuate
primarily based on changes in credit spreads and underlying collateral
performance of the contracts reinsured by us except for unrealized losses
associated with credit impairments. Because such contracts are typically held
to maturity, unless actual losses are incurred due to defaults, the cumulative
unrealized gains and losses will net to zero at the end of the contract.
Unrealized gains (losses) on other financial instruments reflect estimated fair
values of instruments required to be measured at fair value on the balance
sheet. These gains or losses are expected to fluctuate based on current market
trends and the financial strength of the Company, among other factors.

Our
expenses principally consist of:

| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | losses and
 loss adjustment expenses;                              
| |   |                                                                    
| |  | acquisition
 costs;                                                
| |   |                                                                    
| |  | operating
 costs; and                                              
| |   |                                                                    
| |  | interest on
 long term debt and preference shares dividend expense.

Losses and
loss adjustment expenses are a function of the amount and types of business we
write and are based in part upon estimates of the case-basis and unallocated
reserves as determined by the primary insurers, which are reviewed and revised
by us as deemed appropriate, and related estimates by RAM Re management (See
Critical Accounting Policies  Losses and Loss Expense Reserves). Acquisition
costs are costs that vary with and are directly related to the production of
new business. Certain acquisition costs are deferred and recognized over the
period in which the related premiums are earned. Operating costs consist of
general and administrative costs, which are primarily salaries and other
employee-related costs. Operating costs do not generally vary with premium
production. Interest expense is a function of outstanding debt and the
contractual interest rate related to that debt, while dividends are a function
of the amount of outstanding preference shares and the dividend rate on those
preference shares.

We believe that financial guaranty business is significantly affected by
economic cycles. For example, a robust economy featuring a good or improving
credit environment is beneficial to the in-force insured portfolios of
financial guaranty insurers and reinsurers. If such conditions persist for an extended period, however, credit
spreads tend to narrow and pricing and/or demand for financial guaranty
insurance

48

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and, consequently, reinsurance declines. A deteriorating economic and
credit environment, in contrast, is typically accompanied by widening credit
spreads and improved pricing for financial guaranty products. However, a
prolonged period of weak or deteriorating economic activity could stress
in-force financial guaranty insured portfolios and could result in claims
payments or could adversely impact capital adequacy due to deterioration in the
credit quality of in-force insured portfolios. Other broad economic factors,
such as the general level of interest rates, also have an effect on the
business in that, for example, returns on our invested assets are largely
determined by interest rates and premium rates may be substantially influenced
by the level of interest rates.

For
several years prior to 2007, interest rates were relatively stable at low
historical levels and credit spreads were generally historically tight or
narrow and new aggregate business production of primary insurers was about flat
through mid-2007, although varying considerably by primary insurer.

In
contrast, beginning in late 2007 through the present, a global credit crisis
occurred, precipitated by heightened delinquencies and defaults in subprime
mortgages which has spread to other types of mortgages and asset classes. This
has resulted in dramatic widening of credit spreads, ratings downgrades of
policies, a lack of price transparency, less liquidity and increased capital
requirements for financial guarantors and other participants in the financial
markets. As a result of these market conditions, pricing for the products we
reinsure has improved (See Item 1. Business  Pricing). However, the difficult
market conditions and recent rating agency actions have resulted in the
reduction in our customer base and limited new business production from our
existing customers (See Item 1. Business  Customers). We have suspended
writing new business in 2009 and therefore will not benefit from the improved
pricing in the market. If the adverse market conditions continue or worsen
during 2009, we may incur greater losses, which would have an adverse effect on
our business, financial condition, liquidity and results of operations. See
Item I A. Risk Factors Continuing adverse developments in the global economy
and credit markets and their negative impact on RAMs insured portfolio may
continue to materially and adversely affect our financial condition, results of
operations and future business.

In addition to broad economic cycles, the financial guaranty industry, along
with other financial institutions, continue to be affected by specific credit
events relating to insured obligations that expose guarantors to claims or
potential claims. As can be seen in the current economic environment, the
continued increase in mortgage delinquencies since late 2007 has resulted in
the establishment of a significant amount of case-basis loss reserves being
recorded on policies that have defaulted or have a high probability of
defaulting and the widening of credit spreads has resulted in large unrealized
losses being recorded on policies written on credit derivatives. The financial
guaranty industry, including RAM, continues to be exposed to uncertainties
around these events, including interest rates and housing prices, which may
compromise an obligors ability to meet guaranteed obligations and result in
claims. The Company continues to monitor these exposures and updates loss
estimates as new information is obtained.

Critical Accounting Policies

Our consolidated financial statements include amounts that, either by their
nature or due to requirements of U.S. GAAP, are determined using estimates and
assumptions. The actual amounts realized could ultimately be materially
different from the amounts currently provided for in our consolidated financial
statements. Critical accounting policies are those that management believes to
be inherently complex and subjective. We believe loss and loss adjustment
expense reserves, valuation of derivative financial instruments, valuation of
the investment portfolio including other than temporary impairments of
investments, determination of deferred acquisition costs and premium revenue
recognition to be inherently complex and subjective, and therefore an
understanding of the accounting policies pertaining to these items is
critically important. These policies are summarized below, and described in
further detail in the notes to our consolidated financial statements contained
elsewhere in this Form 10-K filing, and the discussion that follows should be
read in conjunction with our consolidated financial statements and the related
notes.

Losses and Loss Expense Reserves. The
estimated liability for losses and loss adjustment expenses consists of case
reserves and unallocated reserves. Case reserves are established by the primary
insurer and our proportionate share of these reserves is reported to us at
least quarterly. Case reserves are established in an amount that is estimated
to be sufficient to cover the present value of the anticipated defaulted debt
service payments over the expected period of default and estimated expenses
associated with settling the claims, less estimated recoveries under collateral
and subrogation rights offset by the present value of installment premiums
expected to be received. Case reserves are discounted by the ceding companies
in accordance with discount rates prescribed or permitted by state regulatory
authorities. We review and assess the ceded case reserves and our evaluation
may result in the case reserve recorded by RAM Re differing from the amount
reported to us by the primary insurer.

To
determine the adequacy of its aggregate reserves, the Company considers the
case reserves established by its ceding companies for the exposures it has
reinsured as well as the methodologies used by the ceding companies to
calculate such ceded case reserves. When the ceding companies provide additional
non-case-basis reserves associated with ceded exposures, the Company also takes
these reserves into consideration and is generally included in our unallocated
loss reserves if not already included in our case reserves. To further evaluate
the ceded reserve amounts established by the ceding companies, the Company uses
its own loss forecasting methodology. For RMBS, the Company takes into account
the first loss protective features inherent in the structure of the insured
exposure, collateral losses to date, current delinquency rates and loan product
characteristics such as loan-to-value ratio and credit score. The first loss
protection in most of the Companys RMBS transactions is provided by excess
spread, overcollateralization, subordination, and in some cases mortgage pool
insurance.

49

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For
RMBS, the Companys loss reserving methodology assumes that all 90+ day
delinquent loans are liquidated, and the loss severity for these loans is equal
to 100% for second liens, 55% for subprime and 45% for Alt-A and Prime loans,
while the remainder of the collateral pool experiences losses based on loss
assumptions determined by the vintage year in the case of Home Equity Lines of
Credit (HELOCs), Subprime, Alt-A and prime mortgages. Borrower credit quality
is also considered in the case of Closed End Seconds (CES). Correlation is not
one of the inputs in our loss reserving methodology for RMBS.

The
following table sets forth the general guidelines the Company uses for our
remaining loss assumptions (expressed as a percent of the outstanding principal
balance of loans less than 90 days delinquent) for 2005-2007 vintage US RMBS.
Our exposures to US RMBS vintages from earlier vintages have minimal case
reserves and are therefore analyzed using different assumptions applied on a
case-by-case basis.

|         |  |  |                 |  |              |  |              |      |              |  |      |  | 
|-------- |  |  | --------------- |  | ------------ |  | ------------ | ---- | ------------ |  | ---- |  | 
|Product  |  |  | Borrower Credit |  | 2005 Vintage |  | 2006 Vintage |      | 2007 Vintage | 
|         |  |  |                 |  |              |  |              |      |              | 
|         |  |  |                 |  |              |  |              |      |             
|HELOC    |  |  | NA              |  | 15.0         |  |              | 25.0 |              |  | 30.0 |  | 
|         |  |  |                 |  |              |  |              |      |              |  |      |  | 
|Subprime |  |  | NA              |  | 6.0          |  |              | 15.0 |              |  | 25.0 |  | 
|         |  |  |                 |  |              |  |              |      |              |  |      |  | 
|CES      |  |  | Good            |  | 6.0          |  |              | 20.0 |              |  | 35.0 |  | 
|         |  |  |                 |  |              |  |              |      |              |  |      |  | 
|CES      |  |  | Fair            |  | 10.0         |  |              | NA   |              |  | 40.0 |  | 
|         |  |  |                 |  |              |  |              |      |              |  |      |  | 
|CES      |  |  | Poor            |  | NA           |  |              | NA   |              |  | 70.0 |  | 
|         |  |  |                 |  |              |  |              |      |              |  |      |  | 
|Alt-A    |  |  | NA              |  | 12.0         |  |              | 18.0 |              |  | 18.0 |  | 
|         |  |  |                 |  |              |  |              |      |              |  |      |  | 
|Prime    |  |  | NA              |  | 8.5          |  |              | 8.5  |              |  | 12.0 |  | 

Our
risk management staff reviews each transaction and may make adjustments to the
above assumptions depending on the information provided by the primaries and
the historical performance of each transaction. Other key assumptions include
the spread between the prime rate and 1-month LIBOR for HELOC transactions,
which is assumed to be fixed at 240 basis points, and the remaining average
life of the collateral pool, which is generally assumed to be four years.

The
following table summarizes the subordination and overcollateralization (OC)
in the Companys 2005-2007 US RMBS exposures by product type and vintage. The
severity of loss (or loss given default) is the Companys lifetime severity
assumption. The table also sets forth the mortgage collateral lifetime default
and cumulative lifetime loss rates that result from our modeling methodology,
our assumptions and the performance to date of our exposures.

|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |  
|------------- |  |  | ------- |  | -------------------------------------- | - | ----------------------------- | ---- | ------------------ |  | ------------------------ | - |  | ---- | -
|Product
 Type |  |  | Vintage |  | Remaining 
 Subordination 
 and OC (1) |   | Lifetime 
 Default Rate 
 (2) |      | Severity of 
 Loss |  | Cum. Lifetime 
 Loss (2)
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |  
|HELOC         |  |  | 2005    |  | 2.0                                    | % |                               | 9.8  | %                  |  | 100                      | % |  | 9.8  | %
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |  
|HELOC         |  |  | 2006    |  | 0.3                                    | % |                               | 27.6 | %                  |  | 100                      | % |  | 27.6 | %
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |  
|HELOC         |  |  | 2007    |  | 6.3                                    | % |                               | 32.9 | %                  |  | 100                      | % |  | 32.9 | %
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |  
|CES           |  |  | 2005    |  | 19.2                                   | % |                               | 16.2 | %                  |  | 100                      | % |  | 16.2 | %
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |  
|CES           |  |  | 2006    |  | 0.5                                    | % |                               | 30.4 | %                  |  | 100                      | % |  | 30.4 | %
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |  
|CES           |  |  | 2007    |  | 2.5                                    | % |                               | 42.7 | %                  |  | 100                      | % |  | 42.7 | %
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |  
|Subprime      |  |  | 2005    |  | 11.3                                   | % |                               | 18.1 | %                  |  | 55                       | % |  | 10.0 | %
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |  
|Subprime      |  |  | 2006    |  | 36.1                                   | % |                               | 25.3 | %                  |  | 55                       | % |  | 13.9 | %
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |  
|Subprime      |  |  | 2007    |  | 12.7                                   | % |                               | 50.4 | %                  |  | 55                       | % |  | 27.7 | %

50

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|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |   | 
|------------- |  |  | ------- |  | -------------------------------------- | - | ----------------------------- | ---- | ------------------ |  | ------------------------ | - |  | ---- | - | 
|Product
 Type |  |  | Vintage |  | Remaining 
 Subordination 
 and OC (1) |   | Lifetime 
 Default Rate 
 (2) |      | Severity of 
 Loss |  | Cum. Lifetime 
 Loss (2) |  
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |   | 
|Alt-A         |  |  | 2005    |  | 25.6                                   | % |                               | 29.9 | %                  |  | 45                       | % |  | 13.5 | % | 
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |   | 
|Alt-A         |  |  | 2006    |  | 48.4                                   | % |                               | 50.2 | %                  |  | 45                       | % |  | 22.6 | % | 
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |   | 
|Alt-A         |  |  | 2007    |  | 14.4                                   | % |                               | 35.7 | %                  |  | 45                       | % |  | 16.1 | % | 
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |   | 
|Prime         |  |  | 2005    |  | 38.1                                   | % |                               | 14.1 | %                  |  | 45                       | % |  | 6.3  | % | 
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |   | 
|Prime         |  |  | 2006    |  | 12.4                                   | % |                               | 22.4 | %                  |  | 45                       | % |  | 10.1 | % | 
|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |   | 
|Prime         |  |  | 2007    |  | 13.0                                   | % |                               | 28.8 | %                  |  | 45                       | % |  | 12.9 | % | 

(1) Percent of
current outstanding collateral balance.

(2) Percent of
original collateral balance.

If
the Companys remaining loss assumption is increased by 25% over our current
assumptions (which approximates the effect of estimated peak monthly default
rates continuing for an additional six months beyond the Companys current
nine-month assumption for second liens and 24-month assumption for first
liens), we estimate the addition to our total loss and LAE reserve for
2005-2007 vintage US RMBS would be approximately $31.9 million.Management believes extending the
peak default rate by 6 months is representative of a typical stress scenario
and a prolonged recession period. Such estimated increase assumes our current
remediation recovery estimates remain constant; however, our actual remediation
recoveries could be lower than our current estimates if the sponsors of these
transactions either: i) fail to honor their obligations to repurchase the
mortgage loans; ii) successfully dispute the primaries breach findings; or
iii) no longer have the financial means to fully satisfy their obligations
under the transaction documents. In addition, such estimated increase does not
include the effect of the stress scenario on approximately $89.1 million par
outstanding of 2005-2007 vintage RMBS for which the Company has insufficient
data to perform this analysis.

The
Company believes that its methodology for determining total loss and LAE
reserves is appropriate based on the methodologies explained to the Company by
the ceding companies used to determine ceding company reserves and the analysis
performed by the Company, which validates or results in adjustments to the
ceding company reserves. Although the Company believes its methodology for
determining loss reserves is appropriate, there can be no assurance that
actual, ultimate losses will not be higher or lower than the Companys reserves.
The ultimate performance of the Companys RMBS transactions remains highly
uncertain and may be subject to considerable volatility due to the influence of
many factors, including the level and timing of loan defaults, changes in
housing prices and other variables.

Beginning
in the fourth quarter of 2008, we reduced our case-basis loss reserves with
respect to RMBS by the amount of expected recoveries from originators of the
related RMBS transactions. Expected recoveries derive from contractual
provisions in the related transaction documents which require that the
originator repurchase securitized mortgage loans which do not conform to
representations and warranties given by the originator at the time that the
mortgage-backed securities were issued. The primaries are engaging in various
forensic exercises in which they examine loan files to ascertain whether the
loans conformed to the representations and warranties. The primaries then
submit nonconforming loans to the originator for repurchases and in some cases,
pursue legal actions against originators in cases where they refuse to
repurchase the loans. Individual primaries began recording these remediation
benefits in their case reserves in mid-2008, with all of our ceding companies
recording remediation benefits at year end. Prior to the fourth quarter we did
not have access to sufficient information to assess the reliability of the
remediation benefits ceded by the primaries. In the fourth quarter, we began to
record our pro rata share of the remediation benefits in the ceded case
reserves as a result of additional supporting information received from the
primaries,

We
also establish an unallocated reserve because we believe that additional losses
are inherent in our portfolio of reinsured risks although we cannot currently
specify which risks or where we have specified the risks but the losses are not
sufficiently probable or estimable to establish case reserves.

51

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At
December 31, 2008, and December 31, 2007, our balance sheet included reserves
as follows:

|                     |  |                                 |      |      |   |      | 
|-------------------- |  | ------------------------------- | ---- | ---- | - | ---- | 
|                     |  | For the year ended December 31, |     
|                     |  | 2008                            |      | 2007 |  
|                     |  |                                 |      |      |  
|                     |  | (Dollars in millions)           |     
|Case reserves        |  | $                               | 81.8 |      | $ | 30.4 | 
|Unallocated reserves |  | $                               | 14.0 |      | $ | 33.4 | 
|                     |  |                                 |      |      |   |      | 
|Total Reserves       |  | $                               | 95.8 |      | $ | 63.8 | 
|                     |  |                                 |      |      |   |      | 

Estimates of our reserves for loss
and loss adjustment expenses are substantially dependent on the surveillance
activities and reserving policies of the primary insurers and our estimates are
subjective and are based on the judgment of both the primary insurer and our
senior risk and finance personnel and, therefore, the final liability may
materially differ from amounts estimated and reserved.

Our
unallocated reserve estimate is primarily based on the composition of our
outstanding par exposure and reserve factors that we apply to this exposure. As
a result, in the absence of other offsetting developments, increases in
outstanding par will result in increases in unallocated reserves. Our reserve
factors, in turn, are the product of the ratios of (i) the unallocated reserves
of our primary insurer customers relative to their outstanding exposures
weighted by (ii) the credit risk of our outstanding exposure relative to the
credit risk of the portfolios of our primary insurer customers, where the ratio
in (i) is calculated by dividing unallocated reserves carried by our primary
insurers by their net par outstanding and the ratio in (ii) is calculated by
dividing the weighted average capital charge for our outstanding par by the
weighted average capital charge for the primary insured portfolio. RAM Res
insured portfolio is segregated by primary insurer, and the ratios in (i) and
(ii) are calculated individually by primary insurer. Our credit risk is
determined by the ratio of our weighted average capital charges (a commonly
recognized measure of credit risk promulgated by S&P) to the weighted
average capital charges of our primary insurer customers. The following
provides a numerical example of the mechanics of calculating the reserve
factors.

If
we assume (i) the ratio of a ceding companys unallocated reserves to its
outstanding par was .05% (or .0005) and (ii) the ratio of our weighted average
capital charge to that of the ceding company was 125% (or 1.25), then our
unallocated reserve factor would be .000625, calculated as the product of the
two ratios, (i) .0005 multiplied by (ii) 1.25, and the resultant factor of
..000625 would be applied to the outstanding par ceded to us by that particular
primary insurer, such that for each $1 billion of outstanding par ceded to RAM
Re we would have an unallocated reserve of $625,000. The calculation described
is performed individually for each of RAM Res major ceding companies and the
resulting reserve factor is applied to our outstanding par ceded by that ceding
company. Therefore, under our reserving practices, our unallocated reserves
would be affected by occurrences such as changes in the reserving practices of
the primary insurers (which could occur if estimates of default frequency or
severities of loss were to change), changes in the weighted average capital
charge for our portfolio exposures versus those of ceding companies (which
could occur if modifications of capital charges by S&P were to impact RAM
Re and the primary insurers differently) or developments in the credit quality
of our portfolio relative to primary insurers. For example, if the reserve
factors applied at December 31, 2008 were calculated as the product of (1) the
highest ratio of unallocated reserves to outstanding par that we have
calculated for each ceding company during the years 2006, 2007 or 2008 and (2)
the highest ratio of our weighted average capital charge to the weighted
average capital charge of each ceding company that we have calculated during
the years 2006, 2007 and 2008, the calculation of unallocated reserves would
have resulted in a value that was $5.0 million, or 35%, greater than that
recorded at December 31, 2008. We believe that developments resulting in a
change in unallocated reserve of this magnitude are reasonably possible in that
the values employed in the above calculation, although they did not occur
simultaneously, are based on actual past experience. We can provide no
assurance that conditions resulting in a material increase in reserves of that
amount or greater amounts will not develop or that final claim liabilities will
not materially differ from amounts estimated and reserved. An increase in
unallocated reserves, in the absence of any offsetting claims related activity,
would directly impact reported financial results by increasing incurred losses
and would also affect financial position by increasing the unallocated reserve
balance, although an increase would not by itself impact liquidity in that the
unallocated reserve does not affect cash flows.

RAM Res
unallocated reserve is reviewed periodically by the Management Committee and
the estimate may be modified if industry experience or company
specific-developments are judged to warrant such an adjustment.
For example, as at December 31, 2008, some of the primaries increased the
unallocated reserves for residential mortgage-backed securities, which has been
reflected in our unallocated loss reserve calculation, as discussed in the
following paragraph.

Since
mid-2007, there has been considerable stress in the U.S. residential mortgage
market, particularly related to mortgage loans originated during 2005, 2006 and
2007. The Company is exposed to U.S. residential mortgages through our
reinsurance of residential mortgage-backed securities, or RMBS, and
indirectly through our guarantees of collateralized debt obligations or CDOs.
CDOs are securities backed by portfolios of assets that may include a
combination of bonds, loans, asset-backed securities, tranches of other
collateralized debt obligations or credit derivatives representing any of the
former. As of December 31, 2008 and 2007, we established $48.2 million and
$26.4 million, respectively, of case reserves relating to 2005-2007 RMBS and
$8.9 million and $15.6 million, respectively, of unallocated loss reserve
relating to RMBS losses that are probable. The December 31, 2008 unallocated
reserves for 2005-2007 RMBS is made up of $26.5 million unallocated loss
reserves offset by $17.6 million transferred to case reserves in 2008. This
addition to unallocated loss reserves is an

52

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extension of our reserving methodology and is based generally on
increases in unallocated reserves for RMBS by our primary insurers.
Additionally, the Company monitors credit impairments relating to CDOs (see
non GAAP measures).

Estimates
of our reserves for losses and loss adjustment expenses are substantially
dependent on the surveillance activities and reserving policies of our primary
insurer customers and such estimates are subjective and are based on the
judgment of our senior risk and finance personnel and, therefore, the final
liability may materially differ from amounts estimated and reserved.

Valuation
of Derivative Financial Instruments. Certain
transactions reinsured by the Company meet the definition of a derivative under
FAS No. 133, Accounting for Derivative Instruments and Hedging
Activities (FAS 133), and FAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities (FAS 149), and require
that an entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheets and measure those instruments at fair value. RAMs exposure to credit derivative
instruments is through reinsurance of credit default swap (CDS) contracts
issued by ceding companies. These contracts are held to maturity by the ceding
companies and were generally considered risk remote at underwriting because at
origination they insured highly rated tranches of structured CDS obligations
with significant first loss protection. Management considers these agreements
to be a normal extension of its financial guaranty reinsurance business and
reinsurance in substance but they do not meet the scope exception that excludes
most financial guaranty policies from the fair value provisions of FAS 149.
Therefore, we are required to account for these assumed credit default swaps on
the balance sheet at fair value and changes in fair value due to market
conditions are reported in our Consolidated Statement of Operations. Changes in
fair value are recorded in Net change in fair value of credit derivatives on
the Consolidated Statement of Operations. The Realized gains and losses and
other settlements component of this change in fair value includes, net
premiums earned on credit derivative policies, including current premiums
receivable on assumed credit derivative polices, net of ceding commissions, and
loss payments to the reinsured including losses payable upon the occurrence of
a credit event. The Unrealized gains and losses component of the Net change
in fair value of credit derivatives includes all other changes in fair value,
including changes in instrument specific credit spreads.

Through
June 30, 2007, RAM valued its credit default swap portfolio using an internally
developed model. While the model estimated an appropriate fair value during
normal market conditions, the internal model output would not fully reflect the
effect of market conditions and the large changes in credit spreads being
experienced. Management therefore determined that a more appropriate basis for
our estimate of fair value was to use as a key input, from September 30, 2007
onward, the valuation information provided to us by our ceding companies. RAM
participates in credit default swaps through a reinsurance treaty with a ceding
company and therefore the contract to be valued is a reinsurance contract on a
derivative. This contract is not identical to the underlying credit default
swaps. In particular, although RAMs contract allows it to share in the
economic results of the underlying contracts, it does not provide rights to the
same information that the ceding companies have access to. Under FAS 157, the
fair value of RAMs contract represents the exit price that would be paid to a
market participant to assume the reinsurance contract as written; that is, the
amount the market participant would require to assume RAMs potential
obligations under the contract with the same contractual rights and
obligations, including those which limit the information about the ceding
companies underlying contracts that are being reinsured. Given the contractual
terms that exist, RAM believes that an exit market participant would look to
the information that is available from the ceding companies to determine the
exit value of RAMs reinsurance contract. The primary insurers underwrite each
of the transactions underlying the reinsurance contract and they have access to
all the underlying data related to the transactions. The ceding companies use
their own internal valuation models where market prices are not available. RAM
employs procedures to test the reasonableness of the mark both in process and
absolute terms because we believe that an exit market participant would perform
similar procedures when determining an exit price for our reinsurance contract.
If it appears that the fair values generated by the ceding companies internal
models and reported to RAM are consistent with macro spread movements and
general market trends, and RAM believes that the modeling and assumptions that
drive the modeling are reasonable (based on RAMs ceding company audits and
review of publicly available information), RAM will use the mark provided by
the ceding company as a key input in the determination of the fair value of
reinsurance contract. There is no single accepted model for fair valuing credit
default swaps and there is generally not an active market for the type of
credit default swaps insured by ceding companies and reinsured by us.
Therefore, due to the limited availability of quoted market prices for these
derivative contracts and the inherent uncertainties in the assumptions used in
models, different valuation models may produce materially different results and
be materially different from actual experience. In addition, due to the
complexity of fair value accounting and the application of FAS 133 and FAS 157,
future amendments or interpretations of FAS 133 and FAS 157 may cause us to
modify our accounting methodology in a manner which may have an adverse impact
on our financial results.

Determining Fair Value

In
accordance with FAS 157, Fair Value
Measurements, fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value is
determined based on quoted market prices, if available. Financial guarantors
sell credit protection in CDS form to financial institutions in a
principal-to-principal market in which transactions are highly customized and
negotiated independently. Based on disclosures by the primaries, a CDS contract
written by a financial guarantor differs from typical CDS contracts entered
into by parties that are not financial guarantors because:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | CDS contracts written by financial
 guarantors are neither held for trading purposes (i.e., a short-term duration
 contract written for the purpose of generating trading gains) nor used as
 hedging instruments. Instead they are written with the intent to provide
 protection for the stated duration of the contract, similar to the financial
 guarantors intent with regard to a financial guaranty contract.

53

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Financial guarantors are not entitled to
 terminate a CDS contract they write that is in-the-money and realize a
 profit on such a position. A counterparty to a CDS contract written by a
 financial guarantor generally is not able to force the financial guarantor to
 terminate a CDS contract that is out-of-the-money.                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | The liquidity risk present in most CDS
 contracts sold outside the financial guaranty industry, i.e., the risk that
 the CDS writer would be required to make cash payments, is not present in a
 CDS contract written by a financial guarantor. Terms are designed to
 replicate the payment provisions of financial guaranty contracts in that (a)
 losses, if any, are generally paid over time, and (b) the financial guarantor
 is not required to post collateral to secure its obligation under the CDS
 contract.

As
a result of these differences, we believe there have been few, if any, relevant
third-party exit transactions for CDS contracts written by financial
guarantors. In the absence of a principal exit market, a financial guarantor
determines the fair value of a CDS contract it writes by using an internally
developed model, as more fully discussed below.

Fair Value Modeling

Each
ceding company uses its own internal valuation models where market prices are
not available. Given the contractual terms of RAMs reinsurance
that limit its access to the terms of the underlying credit derivatives, which
are highly individualized, and the underlying loan level data, RAM
believes that an exit market participant would look to the information that is
available from the ceding companies to determine the exit value of RAMs
reinsurance contract, as discussed above. Therefore, the Company, in
determining the fair value of derivative instruments, uses credit derivative
contract valuations from its ceding companies as a key input. Management then
assesses the reasonableness of the ceding companies valuations on a quarterly
basis by i) discussing with primary insurers their mark-to-market valuation
methodology including the nature of changes in key assumptions, ii) reviewing
the primaries publicly available information regarding their mark-to-market
process, including methodology and key assumptions, and iii) analyzing the
movement of each individual derivative policy compared to observable market
data, including credit spread movements and collateral delinquency information.
Spreads and the related movements quarter to quarter are identified from
observable market information such as indices, including the CDX, ABX, CMBX and
LCDX indices, as related to specific types of derivative contracts. Overall,
the relationship between the widening of credit spreads and fair value is not a
linear one due to the mix of policy types (duration, rating, and maturities)
within the portfolio. Therefore it is difficult to calculate the actual
magnitude of any increase/decrease in the unrealized gain/(loss) with the
movement of spreads alone. Additionally, there are many other assumptions that
drive the ceding companies ultimate fair value assessment namely, asset
recovery assumptions, correlation across asset assumptions, discount rate used,
time to maturity, timing of default assumptions and collateral posting
requirements, where applicable. So while spreads are a significant driving factor in
models of fair value they are not the only ones. Changes in correlation and
recovery assumptions can result in valuations moving more or less than the
absolute movement of spreads. RAMs reinsurance contracts do not provide rights
to the detailed underlying data for each policy, or the inputs and assumptions
used to obtain the fair valuations as calculated by the ceding companies, and
therefore RAM can only generally analyze the fair valuations for consistency
with market movements, in conformity with the manner in which RAM believes an
exit market participant would analyze the fair valuations given the contractual
terms of RAMs reinsurance.

Valuation
models used by our ceding companies generally come in two forms, based on our
understanding of the models as described to us by our ceding companies:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Premium method; A model that calculates the difference between the
 present value of remaining expected premiums a primary receives for the
 credit protection on a CDS contract and the estimated present value of
 premiums that a comparable financial guarantor would hypothetically charge
 for the same protection at the balance sheet date. The fair value of the
 primarys credit derivatives depends on a number of factors including
 notional amount of the contract, expected term, credit spreads, changes in
 interest rates, the credit ratings of referenced entities, the primarys own
 credit risk and the remaining contractual cash flows.                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 2. | Expected loss method; A model of the CDS contract that derives a
 probabilistic measure of expected loss for the primarys exposure using
 market pricing on the underlying referenced collateral within the
 transaction. The model calculates expected losses on a collateral pool within
 an insured credit derivative transaction by reference to the following:
 credit spreads of the underlying collateral, based on actual spreads or
 spreads on similar collateral with similar ratings, diversity score of the
 collateral pool as an indication of correlation of collateral defaults, and
 recovery rate for all defaulted collateral. The model then allocates the
 expected losses for each tranche of the transaction according to its
 subordination level within the transaction structure.

The primary strengths of the
Premium Method of fair valuing CDS based on our understanding of this model
are:

| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The model takes account of transaction
 structure and the key drivers of market value. The transaction structure
 includes par insured, weighted average life, level of subordination and
 composition of collateral.                                                                                 
| |   |                                                                                                                                                                                                                                                                                                       
| |  | The model maximizes the use of
 market-driven inputs whenever they are available. The key inputs to the model
 are market-based spreads for the collateral, and the credit rating of
 referenced entities. These are viewed by us to be the key parameters that
 affect fair value of the transaction.

54

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|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                        | The primaries are able to use actual
 transactions to validate their model results and to explain the correlation
 between various market indices and indicative CDS market prices.                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                        | The model is a well-documented, consistent
 approach to valuing positions that minimizes subjectivity according to its
 users. Each company has developed a hierarchy for market-based spread inputs
 that helps mitigate the degree of subjectivity during periods of high
 illiquidity.                                                                                                                                                                                     
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|The primary weaknesses of the Premium
 Method of valuing CDS are:                                                                                                       
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                        | There is no exit market or actual exit
 transactions. Thus the exit market is a hypothetical one based on each
 primarys entry market.                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                        | There is a very limited market in which to
 verify the fair values developed by the model.                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                        | Due to the non-standard terms under which
 each primary enters into derivative contracts, the fair value of their credit
 derivatives may not reflect the same prices observed in an actively traded
 market of credit derivatives that do not contain terms and conditions similar
 to those observed in the financial guaranty market.                                                                                                                                      
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|The primary strengths of the Expected Loss
 Method of valuing CDS, which we believe is only used by one of the primaries,
 based on our understanding of this model are:
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                        | The model takes account of transaction
 structure and the key drivers of market value. The transaction structure
 includes par insured, weighted average life, level of deductible or
 subordination and composition of collateral.                                                                                                                                                                                                                                           
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                        | The primary believes its model is a
 well-documented, consistent approach to marking positions that minimizes the
 level of subjectivity. The primary has also developed a hierarchy for
 market-based spread inputs that helps reduce the level of subjectivity,
 especially during periods of high illiquidity.                                                                                                                                                             
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                        | The model uses market inputs whenever they
 are available. The key inputs to the model for any transactions are market- based
 spreads for the underlying referenced collateral, assumed recovery rates
 specific to the type and rating of the referenced collateral, and the
 diversity score of the collateral pool. These are viewed as key parameters
 that affect the fair value of the transaction and, to the extent practicable;
 the inputs are market-based inputs.
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|The primary weaknesses of the Expected Loss
 Method of valuing CDS are:                                                                                                 
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                        | There is no market in which to verify the
 fair values developed by the model, and at December 31, 2008, the markets for
 the inputs to the model were highly illiquid, which impacts their
 reliability.                                                                                                                                                                                                                                                                     
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                        | There is diversity of approach to
 estimating the fair value of these transactions among the financial guarantee
 insurance companies.                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                        | The averaging of spreads in the model and
 use of a single diversity factor rather than using specific spreads for each
 piece of underlying collateral and collateral-specific correlation
 assumptions may distort results.                                                                                                                                                                                                                                                 

Fair
values from the ceding companies models may differ from values calculated by
companies outside of the financial guaranty industry because, according to the
ceding companies, the terms of the CDS contracts insured generally differ from
other non-insured CDS contracts. Because of these terms and conditions, the
fair value of the ceding companies credit derivatives may not reflect the same
prices observed in an actively traded market of credit default swaps that do
not contain terms and conditions similar to those observed in the financial
guaranty market. These models and the related assumptions are continuously
reevaluated by the ceding companies and enhanced, as appropriate, based upon
improvements in modeling techniques and availability of market information.

On
January 1, 2008, the Company adopted FAS 157. Under FAS 157, the use of
valuation information provided to us by our ceding companies as a key input
remains appropriate for the reasons described above, Under FAS
157, the fair value of RAMs contract represents the exit price that would be
paid to a market participant to assume the reinsurance contract as written;
that is, the amount the market participant would require to assume RAMs
potential obligations under the contract with the same contractual rights and
obligations, including those which limit the information about the ceding
companies underlying contracts that are being reinsured. Given the contractual
terms that exist, RAM believes that an exit market participant would look to
the information that is available from the ceding companies to determine the
exit value of RAMs reinsurance contract, as discussed above. In compliance
with the requirements of FAS 157, the Company adjusts the fair value of its
credit derivatives liabilities to account for RAMs own non performance risk.

As
noted above, this calculation is based on estimates, involves a significant
degree of management judgment and is sensitive to selected assumptions. Changes
to the assumptions used in this valuation could lead to materially different
results. For example, a change in RAMs estimated spread would have a
significant impact on the amount of the adjustment for RAMs own
non-performance risk. Adjustments to RAMs non-performance risk will be
recorded in the periods in which they become known or estimable by the Company.

55

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Valuation
of Other Financial Instruments. The put option
relating to the Companys preference share soft capital facility of $50.0
million, which is described in more detail under Liquidity and Capital
Resources  Capital Resources, is a financial instrument and is fair valued
with the fair value measurement representing the value to the Company in the
current market environment. The gain or loss on the put option is recorded on
the consolidated balance sheet and changes in fair value are reported through
the statement of operations in Unrealized Gain/(Loss) on Other Financial
Instruments. Unobservable inputs are used to value the put option and include
assumptions regarding the creditworthiness of the Company and the structure of
the facility as well as other similar instruments in the market. Subsequent to
year end, on February 17, 2009, the put option was exercised. Preferred shares
were issued with a fair value of $8.1 million and $41.9 million was recorded as
a realized gain in the fair value in the statement of operations.

Valuation
of Investment Portfolio. Our investment securities are
designated as available for sale in accordance with Statement of Financial
Accounting Standards No. 115 (FAS 115), Accounting for Certain
Investments in Debt and Equity Securities. Available for sale investments are carried at fair
value, with unrealized appreciation or depreciation reported as a separate
component of accumulated other comprehensive income in shareholders
equity. The
Companys fair values of fixed maturity and short-term investments are based on
prices obtained from nationally recognized independent pricing services. All
investment transactions are recorded on a trade date basis. Realized gains and
losses on sales of fixed maturity investments are determined on the basis of
amortized cost. Gains and losses on sale of investments are included in
investment income when realized. The cost of securities sold is determined
using the specific identification method. Short-term investments are carried at
amortized cost, which approximates fair value, and include all securities with
maturities greater than 90 days but less than one year at time of purchase. We
have a formal review process for all securities in our investment portfolio,
including a review for other than temporary impairment losses. All declines in fair
value below cost that are considered other than temporary are recognized in
income. Factors management considered when assessing other than
temporary impairment include, but are not limited to: (i) securities with
market values having declined by 20% or more below amortized cost for a
continuous period of at least six months; (ii) recent credit downgrades by
rating agencies; (iii) the financial condition of the issuer; (iv) whether
scheduled interest payments are past due; and (v) whether we have the ability
and intent to hold the security for a sufficient period of time to allow for
anticipated recoveries in fair value. If we believe a decline in the value of a
particular investment is temporary, we record the decline as an unrealized loss
in Accumulated other comprehensive income on our balance sheet. If we believe
the decline is other than temporary, we write-down the carrying value of the
investment and record a loss on our income statement. Our assessment of a
decline in value includes our current judgment of the factors noted above. If
that judgment changes in the future, we may ultimately record a loss after
having originally concluded that the decline in value was temporary. The Companys
investment guidelines require the orderly sale of securities that do not meet
investment guidelines due to a downgrade by rating agencies or other
circumstances, unless otherwise authorized by management to hold.

We
have provided tables to summarize unrealized losses in our investment portfolio
in our financial statements provided in Item 8  Financial Statements
and Supplementary Data in this annual Form 10-K filing.

Determination
of Deferred Acquisition Costs. We defer certain costs
that vary with and are directly related to the production of new business,
including direct expenses such as ceding commissions and underwriting salaries,
as well as allocated costs attributable to the production of new business.
Deferred costs are amortized over the period in which the related premiums are
earned. Acquisition costs in the income statement represent gross policy
acquisition costs, less the deferral of expenses to future periods, plus the
amortization of previously deferred expenses. The amount of expenses that
qualify for deferral is determined on the basis of periodic analysis, and is
dependent on new business production, ceding commissions negotiated with
primary insurers, managements judgment as to what costs and percentage thereof
are deferrable, and the level of normal and refunded earned premiums. We
periodically conduct a study to determine the deferability of expenses and in
recent years a lesser percentage of our expenses have been deferred than was
the case in our initial years of operation.

When
assessing the recoverability of deferred policy acquisition costs, the Company
considers the future earnings of premiums paid upfront, the estimated present
value of net installment premiums to be received and anticipated investment
income and compares this to the sum of unamortized policy acquisition costs and
expected loss and loss adjustment expenses. This comparison is completed by
underwriting year and risk type. If a premium deficiency were calculated the
unamortized acquisition costs would be reduced by a charge to expense.

For
policies retroceded, the Company receives ceding commissions to compensate for
acquisition costs incurred. The Company nets ceding commissions received
against deferred acquisition costs and earns these ceding commissions over the
period in which the related premiums are earned.

Premium
Revenue Recognition. Written premiums are received
either as upfront premiums or in installments. Under our reinsurance
agreements, whether treaty or facultative, we reinsure policies that will be in
force over extended time periods corresponding to the life of the insured
obligations, so although our reinsurance treaties are generally renewable
annually, our reinsurance obligations are for the life of the policies.

Upfront
premiums are recorded as written at policy inception and earned over the life
of the policy in relation to the amount of insurance protection provided.
Unearned premium reserves represent that portion of written premiums applicable
to the outstanding amount at risk with respect to the obligations reinsured.
Public finance premiums are customarily paid upfront and earned over the life
of an issue which may extend to 30 years or more. Upfront premiums have
relatively little effect on earnings in the year written, but cumulatively
affect future years earned premiums. When an issue reinsured by us is retired
early, has been called by the issuer, or is paid in advance through refunding,
any remaining unearned premium is earned at that time, since there is no longer
any risk outstanding in connection with the issue. Refunding levels

56

---



vary depending
upon a number of conditions, primarily the relationship between current
interest rates and interest rates on outstanding debt. Installment premiums are
received in accordance with contractual terms over the life of an issue,
recorded as written at each installment due date and earned over the
installment period which corresponds to the expiration of risk. Structured
finance premiums are customarily paid in installments and earned over
installment periods that generally range from three months to one year in
duration. We do not record a provision for doubtful accounts because
historically we have not experienced any material issues related to the
collectability of assumed premiums.

For
fiscal years beginning after December 15, 2008, and all interim periods within
those fiscal years, FASB statement No.163 Accounting for Financial Guarantee
Insurance Contracts (FAS 163) is effective. FAS 163 clarifies how FASB
Statement No.60 Accounting and reporting by Insurance Enterprises applies to
financial guaranty insurance contracts. FAS 163 is focused on the recognition
and measurement of premium revenue and claims liabilities, along with
additional disclosure requirements for financial guaranty contracts. Premium
revenue will be recognized as a function of the amount of insurance protection
provided over the contract term and the adjustment from the current measurement
of premium revenue will be recognized as an adjustment to opening retained
earnings for the fiscal year beginning January 1, 2009

Results of Operations

|                                                                                                                                                                                                                                                                            |                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                            | Year Ended December 31, 2008 Compared to
 December 31, 2007 and Year Ended December 31, 2007 Compared to December 31,
 2006
|                                                                                                                                                                                                                                                                            |                                                                                                                            
|Net Income. Net (loss) income was $(159.5)
 million in 2008, $(144.1) million in 2007, and $41.1 million in 2006. The
 increase in net (loss) for the year ended December 31, 2008, compared to 2007, of
 $15.4 million or 10.7% is due primarily to the following factors:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Loss and loss adjustment expenses of $214.8
 million during 2008, an increase of $166.8 million over the $48.0 million for
 the comparable 2007 period primarily associated with the continued
 deterioration in the performance of reinsured RMBS. Included in the loss and
 loss adjustment expenses is a net loss on commutations of $45.9 million (see
 Commutations below).                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Unrealized gains on credit derivatives of
 $94.3 million for the year ended December 31, 2008, an increase of $272.1
 million over the losses of $(177.8) million in 2007. The increase is a result
 of (i) a decrease in net unrealized losses of $203.3 million due to the
 adjustment for RAMs own non-performance risk under FAS 157, (ii) a reduction
 in unrealized losses in 2008 of $232.0 million due to the commutations with
 XLFA and MBIA, offset by (iii) an increase in unrealized losses due to the
 continuing deterioration in subprime mortgage assets and the corresponding
 widening credit spreads in the market. The unrealized gains on credit
 derivatives in 2008 are reduced by the realized losses of $86.3 million
 primarily relating to the payments made to XLFA and MBIA on commutations (see
 Commutations below).
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The decrease
 in net income of $185.2 million in 2007 relative to 2006 is primarily the
 result of (i) a year-over-year increase of $50.8 million in losses and loss
 adjustment expenses, (ii) $177.8 million in losses on credit derivatives in
 2007 due to widening credit spreads and the deterioration of underlying
 collateral, compared to immaterial unrealized losses during 2006, offset by
 (iii) a $35.3 million unrealized gain in 2007 on the fair value of the put
 option on the Companys preference share soft capital facility in 2007
 compared to $Nil in 2006, and (iv) an $8.9 million increase in investment
 income in 2007 compared to 2006.                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Commutations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | MBIA commutation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Effective November 30, 2008, RAM Re entered
 into a Commutation Agreement with MBIA Insurance Corporation and its
 affiliates (MBIA) to commute its entire portfolio of business previously
 assumed from MBIA back to MBIA. As consideration for the commutation RAM Re
 paid MBIA $156.5 million. The commutation reduced the outstanding par amount
 of RAMs insured portfolio by $10.6 billion, including $439.3 million of
 collateralized debt obligations of asset-backed securities (ABS CDOs) (all
 structured as credit derivatives), $2.4 billion of collateralized debt
 obligations of commercial mortgage-backed securities (CMBS CDOs) and $453.0
 million of 2005 - 2008 vintage U.S. RMBS.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The effect of the MBIA commutation on the
 Companys results of operations was to (i) reduce gross written premiums and
 unearned premiums by $36.4 million, resulting in no impact on earned premiums
 (ii) increase realized losses on credit derivatives by $25.5 million and
 decrease unrealized losses on credit derivatives by $136.1 million, and (iii)
 increase loss and loss adjustment expenses by a loss of $61.4 million,
 resulting in an overall gain to net income at the time of commutation of
 $49.3 million.                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | XLFA commutation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | On July 25, 2008, RAM Re entered into a
 Commutation Agreement with Syncora Guaranty Re (formerly XL Financial
 Assurance Ltd.) (XLFA), whereby RAM Re transferred all business previously
 ceded to RAM Re by XLFA back to XLFA and each of RAM Re and XLFA released
 each other from claims under the reinsurance agreements. As consideration for
 the Commutation Agreement, RAM Re paid $94.4 million which comprised the
 repayment of $8.6 million of unearned premiums, net of ceding commission,
 $16.1 million towards estimated loss reserves on RMBS and $69.7 million
 towards unrealized losses on ABS CDOs.                                                                                  

57

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The transaction reduced the par amount of
 RAMs insured portfolio by $3.5 billion of which $711 million related to 2005
 - 2007 vintage ABS CDOs (all structured as credit derivatives) and $280
 million of 2005 - 2007 vintage RMBS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The effect of the XLFA commutation on the
 Companys results of operations was to (i) reduce gross written premiums by
 $11.4 million, (ii) increase net earned premiums by $1.1 million, (iii)
 increase net change in fair value of credit derivatives by a gain of $26.0
 million, (iv) reduce loss and loss adjustment expenses by a gain of $15.5
 million and (v) increase acquisition expenses by $0.3 million, resulting in
 an overall gain to net income of $42.3 million.                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Other commutations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | During the second quarter of 2008, the
 Company commuted $1 billion in par outstanding on policies with two primary
 insurers. All the Companys obligations with respect to the commuted policies
 were terminated on commutation. The effect of these commutations on the
 Companys income statement was to reduce (i) net earned premiums by $1.8
 million and (ii) acquisition expenses by $0.6 million, giving an overall
 reduction to net income of $1.2 million. The net income effect was the result
 of paying back the primary insurers statutory unearned premiums, net of
 ceding commissions, which earn on a slower basis than GAAP premium earnings                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In December 2008 RAM Re commuted a further
 $158.3 million in par outstanding on two policies with another primary
 insurer. One policy was a partial commutation of $41.8 million par outstanding
 on a 2007 subprime RMBS whereas RAM Res total obligations on the second
 policy were terminated fully. The Commutation payment of $3.1 million reduced
 the total loss reserve accordingly.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Certain reclassifications have been made to
 the prior period amounts to conform to the current periods presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Credit Derivatives presentation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | As at January 1, 2008, RAM implemented a
 change in the presentation of revenues, expenses and balance sheet items
 relating to financial guaranty contracts that the Company reinsures in the
 form of credit default swap (CDS) contracts. This reclassification did not
 change the Companys net income/(loss), comprehensive income/(loss), earnings
 per share or shareholders equity. This reclassification was adopted after
 agreement between members of the Association of Financial Guaranty insurers
 (AFGI) and discussions with the Securities and Exchange Commission, to
 increase comparability of the Companys financial statements with other
 financial guaranty companies that have credit derivative contracts.                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | CDS contract revenue has been reclassified
 in the consolidated statement of operations (see above derivative instruments
 accounting policy note for further details). Amounts relating to CDS
 contracts within net earned premiums, acquisition expenses (or ceding
 commissions) and loss and loss adjustment expenses have been reclassified
 to realized (losses) gains and other settlements on credit derivatives. The
 Company has reclassified all CDS-related balances in the consolidated balance
 sheet included in unearned premiums to derivatives liabilities. The
 balances on the Companys balance sheet as of December 31, 2007, and related
 statements of operations and comprehensive income and cash flows for the years
 ended December 31, 2007 and 2006, affected by the reclassifications are as
 follows:

|                             |  |                          |             |                 |   |             | 
|---------------------------- |  | ------------------------ | ----------- | --------------- | - | ----------- | 
|Consolidated
 Balance Sheets |  | As of
 December 31, 2007 |            
|                             |  |                          |            
|Liabilities:                 |  | As previously 
 reported |             | As reclassified |  
|                             |  |                          |             |                 |  
|Unearned premiums            |  | $                        | 242,829,191 |                 | $ | 239,957,383 | 
|Derivative liabilities       |  |                          | 177,717,110 |                 |   | 180,588,918 | 
|Total
 liabilities           |  |                          | 607,953,061 |                 |   | 607,953,061 | 

58

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|                                        |  |                               |              |                               |   |                          |   |                   |             |   |   |             |  
|--------------------------------------- |  | ----------------------------- | ------------ | ----------------------------- | - | ------------------------ | - | ----------------- | ----------- | - | - | ----------- | -
|Consolidated
 Statement of Operations   |  | Year Ended
 December 31, 2007 |              | Year Ended
 December 31, 2006 |  
|                                        |  |                               |              |                               |  
|                                        |  | As previously 
 reported      |              | As 
 reclassified             |   | As previously 
 reported |   | As 
 reclassified |            
|                                        |  |                               |              |                               |   |                          |   |                   |            
|Gross premiums written                  |  | $                             | 108,749,672  |                               | $ | 98,500,663               |   | $                 | 77,631,605  |   | $ | 73,218,339  |  
|Change in unearned premiums             |  |                               | (47,935,507  | )                             |   | (46,744,694              | ) |                   | (26,650,681 | ) |   | (26,780,438 | )
|Net earned premiums                     |  |                               | 60,062,637   |                               |   | 51,004,441               |   |                   | 48,835,265  |   |   | 44,292,242  |  
|Realized gains and other settlements    |  |                               |             |                               |   | 5,971,020                |   |                   |            |   |   | 3,203,910   |  
|Unrealized losses on credit derivatives |  |                               | (177,777,141 | )                             |   | (177,777,141             | ) |                   | (14,426     | ) |   | (14,426     | )
|Acquisition expenses                    |  |                               | 21,504,966   |                               |   | 18,417,790               |   |                   | 17,654,466  |   |   | 16,315,353  |  
|Net income                              |  |                               | (144,119,582 | )                             |   | (144,119,582             | ) |                   | 41,052,840  |   |   | 41,052,840  |  
|                                        |  |                               |              |                               |   |                          |   |                   |             |   |   |             |  

|                                                 |  |                               |            |                              |   |                         |  |                  |            |  |   |            |  
|------------------------------------------------ |  | ----------------------------- | ---------- | ---------------------------- | - | ----------------------- |  | ---------------- | ---------- |  | - | ---------- | -
|Statement of Consolidated Cash Flows             |  | Year Ended 
December 31, 2007 |            | Year Ended
December 31, 2006 |  
|                                                 |  |                               |            |                              |  
|Cash flows from operating activities:            |  | As previously 
reported       |            | As 
reclassified             |   | As previously 
reported |  | As 
reclassified |           
|                                                 |  |                               |            |                              |   |                         |  |                  |           
|Unearned premiums                                |  | $                             | 48,506,826 |                              | $ | 47,316,014              |  | $                | 28,742,035 |  | $ | 28,871,792 |  
|Derivative liability                             |  |                               |           |                              |   | 1,190,812               |  |                  |           |  |   | (129,757   | )
|Net cash flows provided by
 operating activities |  |                               | 84,500,588 |                              |   | 84,500,588              |  |                  | 57,096,137 |  |   | 57,096,137 |  

Gross
Written Premiums. Gross written premiums were $(11.2)
million in 2008, compared to $98.5 million for 2007. Excluding the effect of
the commutations during the year, gross premiums written for 2008 were $46.8
million, a decrease of $51.7 million or 52.5% in comparison to the 2007 period.
Gross written premiums were $98.5 million in 2007, an increase of 34.6%
from $73.2 million of gross written premiums in 2006. The decrease in gross
written premiums in 2008 relative to 2007 was a result of a number of factors arising out of the
effect of the subprime and credit crisis on the financial guaranty industry as
discussed in the Overview above, along with the reduction in treaties the
Company had in place during 2008 as compared to 2007. The increase in
gross written premiums in 2007 relative to 2006 is the combined result of two
new treaties with two of our primaries, which contributed $26.1 million for the
year ended December 31, 2007, along with an overall increase in market volume
in 2007 over prior year.

Public
finance gross written premiums, excluding the premiums returned on
commutations, were $24.0 million in 2008, 67.2% less than in 2007 when public
finance written premiums were $73.1 million. Public finance gross written
premiums increased by 51.0% in 2007, from $48.4 million in 2006. The decrease
in public finance gross premiums written in 2008 is a result of a
reduction in the number of ceding companies we assume business from, a decline
in the cessions from our ceding companies due to lower insured penetration of
the public finance market and ceding companies ceding minimum amounts under the
treaties. The increase in public finance gross premiums written in 2007
as compared to 2006 is largely due to the new treaties in 2007, along with
increases within our existing treaties.

Structured
finance gross written premiums, excluding the premiums returned on
commutations, were $22.8 million in 2008, a decrease of 10.2% from $25.4
million in 2007. Structured finance gross written premiums in 2007 increased by
2.4% from $24.8 million in 2006. Structured finance written premiums declined
in 2008 over 2007, largely the result of the commutation of MBIA and
XLFA during the year, which reduced the quarterly installment premiums written.
Structured finance written premiums grew in 2007 over 2006 as a result
of the new treaties along with increased cessions from our other primaries for
2007 over prior years.

The
following table sets forth the amounts of gross written premiums by product
line:

|                             |  |                                 |       |      |   |      |  |   |      | 
|---------------------------- |  | ------------------------------- | ----- | ---- | - | ---- |  | - | ---- | 
|                             |  | For the Year Ended December 31, |      
|                             |  |                                 |      
|                             |  | 2008                            |       | 2007 |   | 2006 | 
|                             |  |                                 |       |      |   |      | 
|                             |  | (Dollars in millions)           |      
|Public
 Finance              |  | $                               | 24.0  |      | $ | 73.1 |  | $ | 48.4 | 
|Structured
 Finance          |  |                                 | 22.8  |      |   | 25.4 |  |   | 24.8 | 
|Commuted                     |  |                                 | (58.0 | )    |   |     |  |   |     | 
|                             |  |                                 |       |      |   |      |  |   |      | 
|                             |  |                                 |       |      |   |      |  |   |      | 
|Total gross premiums written |  | $                               | (11.2 | )    | $ | 98.5 |  | $ | 73.2 | 
|                             |  |                                 |       |      |   |      |  |   |      | 

Gross
written premiums are highly dependent upon the amount of business ceded by the
primary insurers which, in turn, is related to the overall volume of business
they underwrite, and the size and type of obligations they insure. In general, a
growing volume of insured business, a stable or growing usage of reinsurance
and higher premium rates will benefit our gross written premiums. During 2008,
RAM Re renewed two treaties that were effective in the first quarter with
AAA-rated ceding companies, which were subsequently downgraded by Moodys (but

59

---



not S&P) to the Aa-level. The
remaining treaties that were in effect in 2007 were cancelled or expired in
2008. New business written for 2008 was minimal as a result of a number of
factors arising out of the effect of the subprime and credit crisis on the
financial guaranty industry as discussed in the Overview above. During
2007, the aggregate gross premiums written ceded by our three largest customers
was slightly below the level of premiums written in 2006. While these customers
ceded premiums written slightly below prior years, our other primaries with new
treaties ceded the remaining increase in premiums written in 2007 over 2006.
The average premium rates for public finance business assumed by RAM Re in 2008
were above the average rates of 2007, and the average premium rates for public
finance business assumed by RAM Re in 2007 had been comparable to those of
2006. Structured finance business assumed by RAM Re in 2008 had average premium
rates above those of 2007, while 2007 average premium rates for structured
finance business assumed by RAM Re were lower than those of 2006. Premium rates
reflect market conditions, the type and mix of business ceded by RAM Res
customers and the credit quality of such business so that an increase or
decrease in average premium rates is the result of a several factors.

Net
Written Premiums. Net premiums written were $(11.7)
million in 2008, compared to $97.7 million in 2007. Net written premiums in
2008 reflect ceded premiums of $0.5 million compared to $0.8 million in 2007.
Excluding the effect of the commutations during the year, net premiums written
for 2008 were $46.3 million, a decrease of $51.4 million or 52.6% in comparison
to the 2007 period. Net premiums written were $97.7 million in 2007, a
37.4% increase over the 2006 level of $71.1 million. Net written premiums in
2006 reflected ceded premiums of $2.1 million, the first such activity for RAM
Re. During 2008, we ceded premiums of $1.0 million pursuant to an agreement
under which RAM retrocedes a portion of business in excess of specified levels
of par exposure that we have assumed from a single issuer, additionally $(0.5)
million of premiums previously retroceded were returned to RAM relating to
underlying policies which were commuted by RAM during the year. Our purchase
of reinsurance protection does not relieve us of the full liability that we
assumed from our ceding companies. In the event that a reinsurer of RAM is
unable to meet its obligation under a retrocession agreement, we would continue
to be liable to ceding companies in the full amount of their cession to RAM.
RAM currently has one retrocession agreement in place with a company rated Ba1
by Moodys and BBB- by S&P (a AA rated financial guaranty
company at the time of writing the agreement). This agreement has been terminated
on a
run-off basis effective December 31, 2008. As a result of the downgrade
of the retrocessionaire, the Company has the right to terminate the agreement
on a
cutoff basis and recapture all the policies previously ceded. The
Company has not exercised this right as of April 13,
2009.

Net
Earned Premiums. Net earned premiums were $68.6
million in 2008, 34.5% above 2007 earned premiums of $51.0 million. In 2007, earned
premiums increased by 15.1% from $44.3 million of earned premiums in 2006. The increase in
2008 as compared to 2007 is primarily due to a significant increase in
refundings in 2008. Refundings for the year ended December 31, 2008 were $23.7
million, compared to $5.7 million for the comparable 2007 period. Accelerated
earnings from refundings were $6.3 million in 2006. The refundings
primarily resulted from issuers terminating certain variable rate demand bonds
and auction rate securities and issuing fixed rate bonds as interest rates on
insured bonds increased due to deteriorating credit of the insurers. Refundings
represent an acceleration of earned premiums that occurs when an obligation
that we have reinsured is retired or defeased prior to its scheduled maturity
which, in turn, results in the recognition of any remaining unearned premiums
and deferred policy acquisition costs associated with the obligation. The
significant increases in upfront written premiums from the public finance
business in past years, and growth in installment premiums from the structured
finance business assumed in prior years contributed to the increase in 2007 as
compared to 2006.

The following
table sets forth net earned premiums by product line:

|                          |  |                                 |      |      |   |      |  |   |      | 
|------------------------- |  | ------------------------------- | ---- | ---- | - | ---- |  | - | ---- | 
|                          |  | For the Year Ended December 31, |     
|                          |  |                                 |     
|                          |  | 2008                            |      | 2007 |   | 2006 | 
|                          |  |                                 |      |      |   |      | 
|                          |  | (Dollars in millions)           |     
|Public
 Finance           |  | $                               | 44.6 |      | $ | 27.5 |  | $ | 25.8 | 
|Structured
 Finance       |  |                                 | 24.0 |      |   | 23.5 |  |   | 18.5 | 
|                          |  |                                 |      |      |   |      |  |   |      | 
|                          |  |                                 |      |      |   |      |  |   |      | 
|Total net earned premiums |  | $                               | 68.6 |      | $ | 51.0 |  | $ | 44.3 | 
|                          |  |                                 |      |      |   |      |  |   |      | 
|                          |  |                                 |      |      |   |      |  |   |      | 

60

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Net Change in Fair Value of Credit
Derivatives:The net change in fair value of credit derivatives consists of the
following related to our credit derivative policies:

|                                                    |  |                                 |       |      |   |        |   |   |      |  
|--------------------------------------------------- |  | ------------------------------- | ----- | ---- | - | ------ | - | - | ---- | -
|                                                    |  | For the Year Ended December 31, |      
|                                                    |  |                                 |      
|                                                    |  | 2008                            |       | 2007 |   | 2006   |  
|                                                    |  |                                 |       |      |   |        |  
|Change in fair value of credit derivatives:         |  |                                 |       |      |   |        |   |   |      |  
|Credit derivative premiums received and
 receivable |  | $                               | 12.4  |      | $ | 9.1    |   | $ | 4.5  |  
|Acquisition expenses on credit derivatives          |  |                                 | (3.5  | )    |   | (3.1   | ) |   | (1.3 | )
|Losses and loss adjustment
 expenses                |  |                                 | (95.2 | )    |   |       |   |   |     |  
|                                                    |  |                                 |       |      |   |        |   |   |      |  
|Realized (losses)/gains and other settlements       |  |                                 | (86.3 | )    |   | 6.0    |   |   | 3.2  |  
|                                                    |  |                                 |       |      |   |        |   |   |      |  
|Unrealized gains (losses)                           |  |                                 | 94.3  |      |   | (177.8 | ) |   |     |  
|                                                    |  |                                 |       |      |   |        |   |   |      |  
|                                                    |  |                                 |       |      |   |        |   |   |      |  
|Net change in fair value of credit
 derivatives     |  | $                               | 8.0   |      | $ | (171.8 | ) | $ | 3.2  |  
|                                                    |  |                                 |       |      |   |        |   |   |      |  

Net change
in fair value of credit derivatives was $8.0 million in 2008 compared to
$(171.8) million in 2007 and $3.2 million in 2006. The movement in the net
change in fair value of credit derivatives is driven by the following factors:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Realized (losses) gains and other settlements consists of credit
 derivative premiums received and receivable, which represents premium income
 relating to credit default swap policies (net of acquisition expenses) and
 loss and loss adjustment expenses on those policies. Included within realized
 gains and other settlements were premiums received and receivable of $12.4
 million in 2008, an increase of 36.3% above 2007 premiums of $9.1 million. In
 2007, premiums received and receivable increased by 102.2% from the $4.5
 million in 2006. The growth in premiums received and receivable in 2008 over
 2007 and 2007 over 2006 is due to the new treaties written in
 2007 along with increased cessions from our primaries for 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   | Also included within realized gains and other settlements in 2008
 were losses and loss expenses of $95.2 million compared to $Nil for the
 comparable 2007 and 2006 periods. The 2008 amount included $69.7 million
 relating to the XLFA credit derivative policies and $25.5 million relating to
 MBIA credit derivative policies which were commuted during the year. The
 total $95.2 million realized losses on commutation of credit derivatives
 policies is offset by a reduction in unrealized losses on credit derivative
 policies on commutations of $136.1 million and $95.9 million, relating to
 MBIA and XLFA, respectively. The overall net gain on commutations relating to
 credit derivative policies, included within the net change in fair value of
 credit derivatives was $136.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | The net unrealized gains for the year ended December 31, 2008 were
 $94.3 million, a change of $272.1 million over the unrealized losses of
 $177.8 million in 2007. The unrealized gains in 2008 include reduction of
 previously recorded unrealized losses of $136.1 million and $95.9 million on
 commutations with MBIA and XLFA, respectively, as discussed above, offset by
 increased unrealized losses on credit derivative policies during the period.
 This increase in unrealized losses is primarily due to the continuing
 deterioration of underlying collateral on these policies and the
 corresponding widening credit spreads in the market, offset by the adjustment
 for RAMs own non-performance risk in accordance with FAS 157 which was
 adopted at January 1, 2008. RAM is required to comply with FAS 157, which
 requires the Company to adjust for its own non-performance risk when
 measuring the fair value of its derivative liabilities. The effect of the
 change in RAM Res risk of non-performance can result in large variations in
 the credit derivative liability quarter- on-quarter, which is based on how
 the market perceives RAM Res creditworthiness. The effect of the FAS 157
 adjustment for RAMs creditworthiness resulted in a gain of $203.3 million to
 the net mark-to-market charge during the year ended December 31, 2008.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   | Net
 unrealized losses on credit derivative contracts were $177.8 million in 2007,
 compared to immaterial unrealized losses in 2006. The significant increase in
 net unrealized losses on derivative financial instruments reported during
 2007 was primarily due to the deterioration in subprime mortgage assets and
 the corresponding widening credit spreads in the market. The Company also monitors credit
 impairments (see non GAAP measures below).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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 applying this requirement in 2008 was a reduction in the
Companys derivative liability of approximately $203.3 million at December 31,
2008 (see FAS 157 disclosures below for further information on this
adjustment).

The
unrealized gain or loss on credit derivatives will change based on the
underlying assumptions and information used in the models and may not be
indicative of ultimate claims. The credit derivative contracts we reinsure
require us to make payments upon the occurrence of certain defined credit
events relating to an underlying obligation. Credit derivative exposures are
substantially similar to financial guaranty insurance contracts and provide for
credit protection against payment default. We view our assumed reinsurance of credit
derivative policies to be an extension of normal financial guaranty business
and typically intend to hold derivative financial instruments to maturity, so
that in the absence of an actual loss, the changes in fair value estimates will
net to zero over the term of the assumed business. Changes in the fair value of

61

---



our derivative contracts do not reflect expected or actual claims or
credit losses, unless otherwise identified as impairments, and have no impact
on the Companys claims-paying resources, rating agency capital or regulatory
capital positions.

Net
Investment Income. Net investment income of $29.3
million in 2008 was 11.5% below the $33.1 million recorded in 2007, while the
2007 level represented a 36.8% increase from the $24.2 million recorded in
2006. During 2008, net investment income decreased relative to 2007 primarily
as a result of the reduction in the investment portfolio due to payments on
commutations with XLFA and MBIA totaling $250.9 million, along with a decrease
in the book yield on invested assets. During 2007, net investment income
increased relative to 2006 primarily as a result of growth in the portfolio due
to our issuance of $75 million of preference shares on December 14, 2006 and
net cash flows from operations. A secondary element of investment income growth
in 2007 was our ability to invest at higher yields than were available in 2006.
The investment portfolio is comprised predominantly of taxable securities, and
had an average yield of 4.5% at December 31, 2008, compared with 5.0% and 4.9%
at December 31, 2007 and 2006, respectively.

Net
Realized Investment Losses. Net realized investment
losses were $2.4 million in 2008, $3.6 million in 2007 and $1.0 million in
2006. During 2008, other than temporary impairments of $10.5 million were
recognized. The Company recognized an additional $2.2 million during 2008, $3.6
million during 2007 and $Nil in 2006, relating to an investment with subprime
exposure. The fair value of this investment was $0.2 million at December 31,
2008. The Company had a second investment with subprime exposure on which it
realized a $0.1 million loss in 2008 and the fair value of this investment at
December 31, 2008 was $0.2 million. Two other securities have been other than
temporarily impaired during 2008. These were corporate bonds that realized a
total of $8.2 million of losses and the combined fair value of these
investments at December 31, 2008 was $0.9 million. These impairments were
offset by net gains in 2008 of $8.1 million primarily a result of gains
realized on sales of securities for commutation payments. The balance of the
net losses realized in 2007 and 2006 were generally the result of modest
repositioning within the portfolio achieved by selling certain securities and
purchasing others believed to provide improved investment characteristics.

Net
Unrealized Gains(Losses) on Other Financial Instruments.
Net unrealized gains on other financial instruments were $7.8 million in 2008
compared to $35.3 million in 2007 and $Nil in 2006. The unrealized gain on
other financial instruments relates to a $50.0 million put option the Company
has in place with respect to its preference share soft capital facility. The
put option allows the Company to issues preference shares to a trust that held
the $50.0 million in investments in exchange for the proceeds from the
liquidation of the investments held in the trust. The unrealized gains of $7.8
million and $35.3 million in 2008 and 2007, respectively, relates to the
increased value of the soft capital facility to the Company compared to the
estimated current cost of similar capital that could be obtained in the current
market. Subsequent to year end, on February 17, 2009, the put option was
exercised.

Losses
and Loss Adjustment Expenses. Losses and loss
adjustment expenses in 2008 were $214.8 million compared to $48.0 million in
2007. The increase in loss and loss adjustment expense for 2008 is mainly
driven by:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net loss on
 commutations with XLFA and MBIA in 2008 of $45.9 million, including $121.8
 million paid on commutations (see Commutations above).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | The
 continued deterioration of and the establishment of reserves relating to the
 RMBS deals, primarily those underwritten with vintages between 2005-2007.
 Case-basis loss reserves directly relating to subprime mortgages, Alt-A,
 Closed-End Seconds and Home Equity Lines of Credit (HELOCs) account for $26.4
 million of the increase in loss and loss adjustment expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | We
 established a case reserve of $25.0 million for a life insurance reserve
 securitization transaction, which we refer to as a pooled actuarial insurance
 policy securitization  Reg XXX. Our total par outstanding exposure on this
 transaction is $108 million. Monies raised through the issuance of the
 insured notes were used to support present and future U.S. statutory reserve
 requirements related to the life insurance contracts. The monies raised were
 invested at inception of the transaction in certain investment accounts,
 which have incurred substantial mark-to-market losses since mid-year 2007,
 principally as a result of their exposure to subprime and Alt-A RMBS
 transactions. Credit losses have been realized on the securities in the
 investment accounts and significant additional credit losses are expected to
 occur. Performance of the underlying block of life insurance business thus
 far generally has been in accordance with expectations, and cash flows from
 the investment accounts and the life insurance contracts is currently
 sufficient to cover interest payments due on the notes we reinsure. Based on
 the analysis performed by the primary of estimates of future investment
 performance, projected credit impairments on the invested assets and
 performance of the block of life insurance contracts, we established a case
 reserve of $25.0 million for this transaction representing our proportionate
 share of the case reserve established by the primary.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | The above
 increases are offset by a decrease in unallocated loss reserve of $19.3
 million. During 2008 and 2007, an additional $10.9 million and $15.6 million,
 respectively, of unallocated loss reserves were established relating to RMBS
 losses. During 2008, this was reduced by transfers to case reserves of $17.6
 million relating to the RMBS losses along with a reduction due to the decline
 in our outstanding par exposure primarily as a result of the commutations during
 the year. Additionally, we gave credit of $28.8 million in our case reserves
 for the benefit of expected recoveries in 18 RMBS transactions resulting from
 required repurchases by the originators due to contractual breaches of
 representations and warranties in the RMBS securitization agreements. The
 $28.8 million of credit given matches the credit reported to us by the
 primaries. The primaries performed detailed examinations of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

62

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | sampled RMBS
 loan files to determine whether the loans conformed to the representation and
 warranties made by the originators. The sampled loans were either in later
 stages of delinquency or had been charged off. Those loans that showed a
 material breach of representations and warranties are in the process of being
 put-back to the originator for repurchase. All of the primaries have stated
 that they intend to vigorously pursue enforcement of the contractual
 repurchase obligations of the originators. We view the obligation to
 repurchase as a standard provision of RMBS securitizations that has been
 enforced for many years. Thus we view the inclusion of remediation credit
 taken by the primaries in our reserves to be probable and estimable and have
 assumed our proportionate share of the credit given by the primaries when establishing
 our case reserves.

At
December 31, 2008, we carried total reserves for losses and loss adjustment
expenses of $95.8 million, of which $81.8 million were case reserves and the
remaining $14.0 million related to unallocated loss reserves.

Losses
and loss adjustment expenses in 2007 were $48.0 million compared to $(2.8)
million in 2006. The increase in loss and loss adjustment expense for 2007 as
compared to 2006 is mainly driven by the establishment of reserves relating to
the RMBS deals, primarily those underwritten with vintages between 2005-2007.
Case-basis loss reserves directly relating to subprime mortgages, Alt-A,
Closed-End Seconds and HELOCs account for $26.4 million of the increase in loss
and loss adjustment expenses. Additionally, the unallocated loss reserve
increased by $21.9 million, of which $15.6 million relates to future RMBS
losses that are probable to default but cannot be allocated directly to a
specific policy. The remaining increase in unallocated loss reserves was
directly related to the increase in business written in the 2007 year. Loss
activity that results in net negative incurred losses during a full year
period, as occurred during 2006, is atypical although recoveries on previously
paid losses are a normal part of our business. Loss and loss adjustment
expenses are generally affected by changes in the mix, size, and credit quality
of our portfolio, as well as specific credit events within reinsured
obligations and trends in the reserving practices of our ceding insurers.

The following
table sets forth the components of incurred losses:

|                                |  |                                 |       |      |   |      |   |   |      |  
|------------------------------- |  | ------------------------------- | ----- | ---- | - | ---- | - | - | ---- | -
|                                |  | For the Year Ended December 31, |      
|                                |  |                                 |      
|                                |  | 2008                            |       | 2007 |   | 2006 |  
|                                |  |                                 |       |      |   |      |  
|                                |  | (Dollars in millions)           |      
|Paid losses(1)                  |  | $                               | 182.8 |      | $ | (0.4 | ) | $ | (1.1 | )
|Change in
 case-basis reserves  |  |                                 | 51.3  |      |   | 27.4 |   |   | (3.3 | )
|Change in
 unallocated reserves |  |                                 | (19.3 | )    |   | 21.9 |   |   | 1.2  |  
|Change in
 recoverables         |  |                                 |      |      |   | (0.9 | ) |   | 0.4  |  
|                                |  |                                 |       |      |   |      |   |   |      |  
|Total incurred losses           |  | $                               | 214.8 |      | $ | 48.0 |   | $ | (2.8 | )
|                                |  |                                 |       |      |   |      |   |   |      |  
|                                |  |                                 |       |      |   |      |   |   |      |  

(1) Includes $121.8 million paid in 2008 towards commutations
with XLFA and MBIA (see Commutations above).

Since the
latter half of 2007, there has been considerable stress in the US residential
mortgage market, particularly related to mortgage loans originated during 2005,
2006 and 2007. RAM Re is exposed to US residential mortgages through our RMBS,
and indirectly through our guarantees of CDOs backed by RMBS. CDOs are
securities backed by portfolios of assets that may include a combination of
corporate bonds, loans, RMBS, asset-backed securities, tranches of other
collateralized debt obligations or credit derivatives representing any of the
former. CDOs backed by significant amounts of RMBS are known as ABS CDOs. As
of December 31, 2008, we have established $48.2 million of case reserves relating
to specific 2005-2007 RMBS exposures and an additional $26.5 million of
unallocated loss reserves relating to RMBS losses that are probable but can not
be specifically identified, less $17.6 million of unallocated reserves relating
to RMBS transferred to case reserves. Additionally, the Company monitors credit
impairments relating to ABS CDOs (see non GAAP measures below).

To
determine the adequacy of its aggregate reserves, the Company considers the
case reserves established by its ceding companies for the exposures it has
reinsured as well as the methodologies used by the ceding companies to
calculate such ceded case reserves. When the ceding companies provide
additional non-case-basis reserves associated with ceded exposures, the Company
also takes these reserves into consideration and is generally included in our
unallocated loss reserves if not already included in our case reserves. To
further evaluate the ceded reserve amounts established by the ceding companies,
the Company uses its own loss forecasting methodology. For RMBS, the Company
takes into account the first loss protective features inherent in the structure
of the insured exposure, collateral losses to date, current delinquency rates
and loan product characteristics such as loan-to-value ratio and credit score.
The first loss protection in most of the Companys RMBS transactions is
provided by excess spread, overcollateralization, subordination, and in some
cases mortgage pool insurance.

For
RMBS, the Companys loss reserving methodology assumes that all 90+ day
delinquent loans are liquidated, and the loss severity for these loans is equal
to 100% for second liens, 55% for subprime and 45% for Alt-A and prime loans,
while the remainder of the collateral pool experiences losses based on loss
assumptions determined by the vintage year in the case of Home Equity Lines of
Credit (HELOCs), subprime, Alt-A and prime mortgages. Borrower credit quality
is also considered in the case of Closed End Seconds (CES). Correlation is not
one of the inputs in our loss reserving methodology for RMBS.

63

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The
following table sets forth the general guidelines the Company uses for our
remaining loss assumptions (expressed as a percent of the outstanding principal
balance of loans less than 90 days delinquent) for 2005-2007 vintage US RMBS.
Our exposures to US RMBS vintages from earlier vintages have minimal case
reserves and are therefore analyzed using different assumptions applied on a
case-by-case basis.

|         |  |  |                  |  |  |              |  |  |              |  |  |              | 
|-------- |  |  | ---------------- |  |  | ------------ |  |  | ------------ |  |  | ------------ | 
|Product  |  |  | Borrower
 Credit |  |  | 2005 Vintage |  |  | 2006 Vintage |  |  | 2007 Vintage | 
|         |  |  |                  |  |  |              |  |  |              |  |  |              | 
|        
|HELOC    |  |  | NA               |  |  | 15.0         |  |  | 25.0         |  |  | 30.0         | 
|        
|Subprime |  |  | NA               |  |  | 6.0          |  |  | 15.0         |  |  | 25.0         | 
|        
|CES      |  |  | Good             |  |  | 6.0          |  |  | 20.0         |  |  | 35.0         | 
|        
|CES      |  |  | Fair             |  |  | 10.0         |  |  | NA           |  |  | 40.0         | 
|        
|CES      |  |  | Poor             |  |  | NA           |  |  | NA           |  |  | 70.0         | 
|        
|Alt-A    |  |  | NA               |  |  | 12.0         |  |  | 18.0         |  |  | 18.0         | 
|        
|Prime    |  |  | NA               |  |  | 8.5          |  |  | 8.5          |  |  | 12.0         | 

Our
risk management staff reviews each transaction and may make adjustments to the
above assumptions depending on the information provided by the primaries and
the historical performance of each transaction. Other key assumptions include
the spread between the prime rate and 1-month LIBOR for HELOC transactions,
which is assumed to be fixed at 240 basis points, and the remaining average
life of the collateral pool, which is generally assumed to be four years.

The
following table summarizes the subordination and overcollateralization (OC)
in the Companys 2005-2007 US RMBS exposures by product type and vintage. The
severity of loss (or loss given default) is the Companys lifetime severity
assumption. The table also sets forth the mortgage collateral lifetime default
and cumulative lifetime loss rates that result from our modeling methodology,
our assumptions and the performance to date of our exposures.

|             |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |   | 
|------------ |  |  | ------- |  | -------------------------------------- | - | ----------------------------- | ---- | ------------------ |  | ------------------------ | - |  | ---- | - | 
|Product Type |  |  | Vintage |  | Remaining 
 Subordination 
 and OC (1) |   | Lifetime 
 Default Rate 
 (2) |      | Severity of 
 Loss |  | Cum. Lifetime 
 Loss (2) |  
|            
|HELOC        |  |  | 2005    |  | 2.0                                    | % |                               | 9.8  | %                  |  | 100                      | % |  | 9.8  | % | 
|            
|HELOC        |  |  | 2006    |  | 0.3                                    | % |                               | 27.6 | %                  |  | 100                      | % |  | 27.6 | % | 
|            
|HELOC        |  |  | 2007    |  | 6.3                                    | % |                               | 32.9 | %                  |  | 100                      | % |  | 32.9 | % | 
|            
|CES          |  |  | 2005    |  | 19.2                                   | % |                               | 16.2 | %                  |  | 100                      | % |  | 16.2 | % | 
|            
|CES          |  |  | 2006    |  | 0.5                                    | % |                               | 30.4 | %                  |  | 100                      | % |  | 30.4 | % | 
|            
|CES          |  |  | 2007    |  | 2.5                                    | % |                               | 42.7 | %                  |  | 100                      | % |  | 42.7 | % | 
|            
|Subprime     |  |  | 2005    |  | 11.3                                   | % |                               | 18.1 | %                  |  | 55                       | % |  | 10.0 | % | 
|            
|Subprime     |  |  | 2006    |  | 36.1                                   | % |                               | 25.3 | %                  |  | 55                       | % |  | 13.9 | % | 
|            
|Subprime     |  |  | 2007    |  | 12.7                                   | % |                               | 50.4 | %                  |  | 55                       | % |  | 27.7 | % | 
|            
|Alt-A        |  |  | 2005    |  | 25.6                                   | % |                               | 29.9 | %                  |  | 45                       | % |  | 13.5 | % | 
|            
|Alt-A        |  |  | 2006    |  | 48.4                                   | % |                               | 50.2 | %                  |  | 45                       | % |  | 22.6 | % | 
|            
|Alt-A        |  |  | 2007    |  | 14.4                                   | % |                               | 35.7 | %                  |  | 45                       | % |  | 16.1 | % | 

64

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|              |  |  |         |  |                                        |   |                               |      |                    |  |                          |   |  |      |   | 
|------------- |  |  | ------- |  | -------------------------------------- | - | ----------------------------- | ---- | ------------------ |  | ------------------------ | - |  | ---- | - | 
|Product
 Type |  |  | Vintage |  | Remaining 
 Subordination 
 and OC (1) |   | Lifetime 
 Default Rate 
 (2) |      | Severity of 
 Loss |  | Cum. Lifetime 
 Loss (2) |  
|             
|Prime         |  |  | 2005    |  | 38.1                                   | % |                               | 14.1 | %                  |  | 45                       | % |  | 6.3  | % | 
|             
|Prime         |  |  | 2006    |  | 12.4                                   | % |                               | 22.4 | %                  |  | 45                       | % |  | 10.1 | % | 
|             
|Prime         |  |  | 2007    |  | 13.0                                   | % |                               | 28.8 | %                  |  | 45                       | % |  | 12.9 | % | 

(1) Percent of
current outstanding collateral balance.

(2) Percent of
original collateral balance.

If
the Companys remaining loss assumption is increased by 25% over our current
assumptions (which approximates the effect of estimated peak monthly default
rates continuing for an additional six months beyond the Companys current
nine-month assumption for second liens and 24-month assumption for first
liens), we estimate the addition to our total loss and LAE reserve for
2005-2007 vintage US RMBS would be approximately $31.9 million. Management
believes extending the peak default rate by 6 months is representative of a
typical stress scenario and a prolonged recession period. Such estimated
increase assumes our current remediation recovery estimates remain constant;
however, our actual remediation recoveries could be lower than our current
estimates if the sponsors of these transactions either: i) fail to honor their
obligations to repurchase the mortgage loans; ii) successfully dispute the
primaries breach findings; or iii) no longer have the financial means to fully
satisfy their obligations under the transaction documents. In addition, such
estimated increase does not include the effect of the stress scenario on
approximately $89.1 million par outstanding of 2005-2007 vintage RMBS for which
the Company has insufficient data to perform this analysis.

The
Company believes that it is appropriate to determine its total loss and LAE
reserves using the loss and LAE reserves ceded by the ceding companies
as a key input and the analysis performed by the Company, which
validates or results in adjustments to the ceding company reserves. Although
the Company believes its methodology for determining loss reserves is
appropriate, there can be no assurance that actual, ultimate losses will not
    be higher or lower than the Companys reserves. The ultimate performance
    of the Companys RMBS transactions remains highly uncertain and may
    be subject to considerable volatility due to the influence of many factors,
    including the level and timing of loan defaults, changes in housing prices
    and other variables.

The
following summarizes RAM Res exposure to residential mortgage-backed
securities, or RMBS, and CDOs, as of December 31, 20082. RAM Re generally
follows the classifications for mortgage and CDO securities used by the ceding
companies and reported to RAM Re.

As a
reinsurer we report outstanding exposure on a one-quarter lag, which is
consistent with the reinsurance industry practice. However, we
closely monitor any credit changes on an ongoing basis through discussions with
the ceding companies and rating agencies and our loss and loss expense reserves
are current as of the end of the applicable quarter reported. Accordingly, the
tables below present the outstanding par balances of our RMBS and CDO exposures
as reported by the primaries on September 30, 2008, except that we exclude amounts commuted back to MBIA per the
Commutation Agreement dated November 30, 2008. However, we closely monitor any
credit changes on an ongoing basis through discussions with the ceding
companies and rating agencies and our loss and loss expense reserves are
current as of the end of the applicable quarter reported. The RAM Re ratings
shown in the tables below are based on the current ratings of the ceding companies
and the rating agencies as of our review on February 27, 2009. See Note 16 in
our December 31, 2008 financial statements contained elsewhere herein for
information on the Commutation Agreements entered into during the year, whereby
RAM Re commuted business previously ceded to RAM Re back to certain ceding
companies and each of the RAM Re and the respective ceding companies released
each other from all claims under the reinsurance agreements. Outstanding
exposures in the tables below exclude exposure commuted back to these ceding
companies per the Commutation Agreements.

|                                                                   | 
|------------------------------------------------------------------ | 
|                                                                   | 
|2
 RAM Re reports outstanding exposure on a one-quarter lag basis.

65

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Residential
Mortgage Backed Securities (RMBS) Exposure

The following
table summarizes RAM Res RMBS outstanding par exposure as of December 31, 2008
by loan type and vintage.

|                |  |            |      |      |   |      |  |      |      |      |   |       |  |      |      |      |   |                    |  |   |       |  |   |     |  |   |         | 
|--------------- |  | ---------- | ---- | ---- | - | ---- |  | ---- | ---- | ---- | - | ----- |  | ---- | ---- | ---- | - | ------------------ |  | - | ----- |  | - | --- |  | - | ------- | 
|($ in millions) |  | Pre-
 2002 |      | 2002 |   | 2003 |  | 2004 |      | 2005 |   | 2006  |  | 2007 |      | 2008 |   | Total
 Outstanding | 
|                |  |            |      |      |   |      |  |      |      |      |   |       |  |      |      |      |   |                    | 
|                |  |            |      |      |   |      |  |      |      |      |   |       |  |      |      |      |   |                    |  |   |       |  |   |     |  |   |         | 
|Subprime        |  | $          | 20.6 |      | $ | 8.0  |  | $    | 48.4 |      | $ | 19.4  |  | $    | 16.6 |      | $ | 41.5               |  | $ | 116.0 |  | $ | 0.9 |  | $ | 271.4   | 
|                |  |            |      |      |   |      |  |      |      |      |   |       |  |      |      |      |   |                    |  |   |       |  |   |     |  |   |         | 
|Other
 Mortgage |  |            | 15.3 |      |   | 4.2  |  |      | 2.2  |      |   | 77.9  |  |      | 63.3 |      |   | 201.2              |  |   | 688.4 |  |   | 0   |  |   | 1,052.6 | 
|                |  |            |      |      |   |      |  |      |      |      |   |       |  |      |      |      |   |                    |  |   |       |  |   |     |  |   |         | 
|International   |  |            | 0    |      |   | 0    |  |      | 10.2 |      |   | 15.9  |  |      | 4.0  |      |   | 229.4              |  |   | 172.8 |  |   | 0   |  |   | 432.2   | 
|                |  |            |      |      |   |      |  |      |      |      |   |       |  |      |      |      |   |                    |  |   |       |  |   |     |  |   |         | 
|                |  |            |      |      |   |      |  |      |      |      |   |       |  |      |      |      |   |                    |  |   |       |  |   |     |  |   |         | 
|Total           |  | $          | 35.9 |      | $ | 12.2 |  | $    | 60.8 |      | $ | 113.2 |  | $    | 83.9 |      | $ | 472.0              |  | $ | 977.2 |  | $ | 0.9 |  | $ | 1,756.2 | 
|                |  |            |      |      |   |      |  |      |      |      |   |       |  |      |      |      |   |                    |  |   |       |  |   |     |  |   |         | 

(Note: may not
add due to rounding)

As
noted above, RAM Re generally follows the classifications for RMBS securities
used by the ceding companies and reported to RAM Re. In general, the ceding
companies define the various residential mortgage product types as follows:

Prime Firsts First lien, predominantly single-family
residential mortgage loans to prime borrowers. Prime borrowers typically have
credit scores above 660, on average better than 680.

HELOCs Revolving home equity lines of credit,
typically second lien and floating rate. These loans are typically made to
prime quality borrowers.

Closed-End Seconds
(CES)
Second-lien loans similar to HELOCs except that they have a fixed amount
disbursed at closing and no additional borrowing allowed over the life of the
loan and are typically fixed rate.

Alt-A First-lien mortgage loans that generally
conform to traditional prime credit guidelines, although the loan-to-value
ratio (LTV), loan documentation, occupancy status, or property type, etc.,
may cause the loan not to qualify under standard underwriting programs. Alt-A
loans may include reduced or limited documentation, including no verification
of the borrowers assets, employment or income.

Subprime First- or second-lien residential
mortgage loans made to a borrower who has a history of delinquency or other
credit problems.

Manufactured
Housing
Loans on single family homes constructed in a factory, including chattel paper
only secured by the factory-built home and mortgage loans secured by both the
land and the home.

NIMs Net interest margin securities backed by
the residual cash flow from residential mortgage securitizations.

International Mortgage loans on properties outside of
the U.S..

66

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The following
table provides the break-down of RAM Res mortgage exposure outstanding as of
December 31, 2008 for deals closed since January 1, 2005, by product type and
RAM Re Rating3:

Mortgage Securities Exposure 
Net Par Outstanding as of December 31, 2008
Vintages 2005- Q4 2007

|                      |  |               |       |   |   |       |  |      |      |       |   |       |  |   |         | 
|--------------------- |  | ------------- | ----- | - | - | ----- |  | ---- | ---- | ----- | - | ----- |  | - | ------- | 
|($ in millions)       |  | RAM Re Rating |      
|                      |  |               |      
|                      |  | AAA/AA        |       | A |   | BBB   |  | BIG* |      | Total |  
|                      |  |               |       |   |   |       |  |      |      |       |  
|Prime Firsts          |  | $             | 27.9  |   | $ | 16.4  |  | $    |     |       | $ | 17.9  |  | $ | 62.1    | 
|HELOCs                |  |               | 28.5  |   |   | 10.1  |  |      | 26.7 |       |   | 221.0 |  |   | 286.4   | 
|Closed-end
 seconds   |  |               | 1.1   |   |   |      |  |      | 10.9 |       |   | 150.6 |  |   | 162.7   | 
|Alt-A                 |  |               | 69.7  |   |   | 75.8  |  |      | 39.2 |       |   | 248.7 |  |   | 433.4   | 
|Subprime              |  |               | 46.3  |   |   | 1.0   |  |      | 1.4  |       |   | 126.3 |  |   | 175.0   | 
|Manufactured
 housing |  |               |      |   |   | 7.2   |  |      |     |       |   |      |  |   | 7.2     | 
|NIMs                  |  |               |      |   |   |      |  |      | 0.2  |       |   | 0.9   |  |   | 1.1     | 
|International         |  |               | 390.8 |   |   | 0.7   |  |      | 14.7 |       |   |      |  |   | 406.2   | 
|                      |  |               |       |   |   |       |  |      |      |       |   |       |  |   |         | 
|Total                 |  | $             | 564.3 |   | $ | 111.2 |  | $    | 93.1 |       | $ | 765.4 |  | $ | 1,534.1 | 
|                      |  |               |       |   |   |       |  |      |      |       |   |       |  |   |         | 

|  |                                          
|- | -----------------------------------------
|* | BIG stands for Below
 Investment Grade.

The typical
RMBS securitization originally rated A or BBB by RAM Re is structured such
that RAM Res exposure is to the senior-most risk layer. Accordingly, our
outstanding par exposure represents a layer of risk starting from the rating
shown in the table, up to and including the AAA risk layer. For example, $50
million of outstanding par exposure originally reported as BBB represents the
senior-most risk ranging from BBB to AAA. By far the largest of the risk
layers, and therefore most of the $50 million, is considered to be of AAA
credit quality.           The following table lists the top five largest issuers of US
mortgage securities in RAM Res portfolio by RAM Re par outstanding and
provides the outstanding par amount of HELOC, Closed-End Seconds (CES),
Subprime and Alt-A issued by each:

RAM Res Top 5 US Mortgage Issuers
(Outstanding Par)

($ in
millions)

|  |                                 |  |       |       |       |   |       |  |          |       |       |   |      |  |   |       | 
|- | ------------------------------- |  | ----- | ----- | ----- | - | ----- |  | -------- | ----- | ----- | - | ---- |  | - | ----- | 
|  | Issuer
 Name                    |  | Total |       | HELOC |   | CES   |  | Subprime |       | Alt-A |  
|  |                                 |  |       |       |       |   |       |  |          |       |       |  
|1 | Countrywide                     |  | $     | 307.2 |       | $ | 240.2 |  | $        | 23.7  |       | $ | 30.6 |  | $ | 12.7  | 
|2 | Deutsche
 Bank                  |  |       | 198.7 |       |   | 0.0   |  |          | 0.0   |       |   | 0.0  |  |   | 198.7 | 
|3 | Residential
 Capital (GMAC-RFC) |  |       | 148.4 |       |   | 21.6  |  |          | 70.1  |       |   | 52.1 |  |   | 4.6   | 
|4 | Impac
 Funding Corp.            |  |       | 78.1  |       |   | 0.0   |  |          | 10.8  |       |   | 0.0  |  |   | 58.7  | 
|5 | MortgageIT                      |  |       | 76.1  |       |   | 0.0   |  |          | 0.0   |       |   | 0.0  |  |   | 76.1  | 
|  |                                 |  |       |       |       |   |       |  |          |       |       |   |      |  |   |       | 
|  | Total                           |  | $     | 808.4 |       | $ | 261.8 |  | $        | 104.6 |       | $ | 82.7 |  | $ | 350.7 | 
|  |                                 |  |       |       |       |   |       |  |          |       |       |   |      |  |   |       | 

CDO Exposure

RAM Re also
has exposure to mortgage collateral in CDOs. RAM Res exposure to significant
mortgage collateral in CDOs is a subset of our CDOs backed by multi-sector
(MS) collateral (see definition below).

|                                                                                                                                                                                                                                                                                                                                              | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                                                                                                                                                                                             
|3 RAM Re
 ratings are current as of February 27, 2009. These ratings are assigned by
 RAM Re based on managements judgment and take into consideration the ratings
 assigned by the ceding companies and the rating agencies. RAM Re undertakes
 no obligation to update its ratings, and such ratings do not constitute investment
 advice.

67

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The following
table sets forth the RAM Re Rating of the MS CDOs in our portfolio as of
December 31, 2008:

Multi-Sector CDOs by RAM Re Rating($ in millions)

|               |  |                 |       |   |  |       |  
|-------------- |  | --------------- | ----- | - |  | ----- | -
|RAM Re
 Rating |  | Outstanding Par |       | % | 
|               |  |                 |       |   | 
|AAA            |  | $               | 280.5 |   |  | 97.1  | %
|AA             |  |                 | 8.3   |   |  | 2.9   | %
|A              |  |                 |      |   |  | 0.0   | %
|BBB            |  |                 |      |   |  | 0.0   | %
|BIG            |  |                 |      |   |  | 0.0   | %
|               |  |                 |       |   |  |       |  
|Total          |  | $               | 288.8 |   |  | 100.0 | %
|               |  |                 |       |   |  |       |  

RAM Res MS
CDO exposure can be seen in more detail in our multi-sector CDO table below.

The following
table segregates RAM Res MS CDOs into four classifications:

|  |                                                                                
|- | -------------------------------------------------------------------------------
| | HG - which
 are high-grade securities (rated single-A or higher, primarily AA),
|  |                                                                                
| | CMBS - which
 are commercial mortgage-backed securities,                       
|  |                                                                                
| | Mez - which
 are mezzanine securities (rated below single-A, primarily BBB) and
|  |                                                                                
| | CDO - which
 are CDOs backed by CDOs (or CDO-squared).                       

Multi-Sector CDOs by Collateral Type
($ in millions)

|         |  |                 |       |   |  |       |  
|-------- |  | --------------- | ----- | - |  | ----- | -
|CDO Type |  | Outstanding Par |       | % | 
|         |  |                 |       |   | 
|HG       |  | $               | 222.2 |   |  | 76.9  | %
|CMBS     |  |                 | 50.8  |   |  | 17.6  | %
|Mez      |  |                 | 8.3   |   |  | 2.9   | %
|CDO      |  |                 | 7.5   |   |  | 2.6   | %
|         |  |                 |       |   |  |       |  
|Total    |  | $               | 288.8 |   |  | 100.0 | %
|         |  |                 |       |   |  |       |  

The vintage
distribution, based on closing date of CDO issuance, of RAM Res MS CDOs is
broken out by CDO Type in the table below:

Multi-Sector CDOs by Vintage and Type
($ in millions)

|      |  |      |      |    |   |       |  |     |     |       |   |     |  |   |       | 
|----- |  | ---- | ---- | -- | - | ----- |  | --- | --- | ----- | - | --- |  | - | ----- | 
|      |  | CMBS |      | HG |   | Mez   |  | CDO |     | Total |  
|      |  |      |      |    |   |       |  |     |     |       |  
|2000  |  |      |     |    |   |      |  |     |    |       |   |    |  |   |      | 
|2001  |  |      |     |    |   |      |  |     |    |       |   |    |  |   |      | 
|2002  |  |      |     |    |   |      |  |     | 8.3 |       |   |    |  |   | 8.3   | 
|2003  |  |      |     |    |   | 67.9  |  |     |    |       |   | 7.5 |  |   | 75.4  | 
|2004  |  |      |     |    |   |      |  |     |    |       |   |    |  |   |      | 
|2005  |  |      |     |    |   | 154.2 |  |     |    |       |   |    |  |   | 154.2 | 
|2006  |  |      |     |    |   |      |  |     |    |       |   |    |  |   |      | 
|2007  |  |      | 50.8 |    |   |      |  |     |    |       |   |    |  |   | 50.8  | 
|2008  |  |      |     |    |   |      |  |     |    |       |   |    |  |   |      | 
|      |  |      |      |    |   |       |  |     |     |       |   |     |  |   |       | 
|Total |  | $    | 50.8 |    | $ | 222.2 |  | $   | 8.3 |       | $ | 7.5 |  | $ | 288.8 | 
|      |  |      |      |    |   |       |  |     |     |       |   |     |  |   |       | 

The table
below provides a listing of RAM Res multi-sector CDOs containing significant
residential mortgage exposure and closed since January 1, 2005. The table lists
each CDO transaction by vintage year and multi-sector type and provides the
proportion of the collateral that is RMBS. The table also provides a break-down
of the collateral into Subprime RMBS, Alt A, HELOCs, ABS CDOs, Non-ABS CDOs and

68

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Other. The
Other category may include other RMBS types such as international and prime.
Also shown is the current subordination level below RAM Re and RAM Res current
internal rating:

|                 |  |               |  |             |     |                 |  |                         |       |                        |  |                   |   |             |      |        |  |        |   |           |    |                 |  |       |   |       |   |   |  |    |   |  |    |   |  |    |   |  |     |   | 
|---------------- |  | ------------- |  | ----------- | --- | --------------- |  | ----------------------- | ----- | ---------------------- |  | ----------------- | - | ----------- | ---- | ------ |  | ------ | - | --------- | -- | --------------- |  | ----- | - | ----- | - | - |  | -- | - |  | -- | - |  | -- | - |  | --- | - | 
|                 |  |               |  |             |     |                 |  |                         |       |                        |  | Collateral Type % |  
|                 |  |               |  |             |     |                 |  |                         |       |                        |  |                   |  
|                 |  |               |  |             |     |                 |  |                         |       |                        |  |                   |   |             |      |        |  |        |   |           |    |                 |  |       |   |       |  
|Obligor Key      |  | Year
 Insured |  | RAM
 Rating |     | Insured
 Amount |  | Original
 Subordination |       | Current
 Subordination |  | Total
 RMBS       |   | Sub-
 prime |      | Alt
 A |  | HELOCs |   | ABS
 CDOs |    | Non-
 ABS
 CDOs |  | Other |   | Total |  
|                 |  |               |  |             |     |                 |  |                         |       |                        |  |                   |   |             |      |        |  |        |   |           |    |                 |  |       |   |       |  
|HIGH GRADE
 CDOs |  |               |  |             |     |                 |  |                         |       |                        |  |                   |   |             |      |        |  |        |   |           |    |                 |  |       |   |       |   |   |  |    |   |  |    |   |  |    |   | 
|RAM00006950      |  | 2005          |  |             | AAA |                 |  |                         | 74.2  |                        |  | 49.2              | % |             | 49.3 | %      |  | 67     | % |           | 42 | %               |  | 8     | % |       | 0 | % |  | 25 | % |  | 0  | % |  | 25 | % |  | 100 | % | 
|RAM00007029      |  | 2005          |  |             | AAA |                 |  |                         | 80.0  |                        |  | 11.5              | % |             | 11.5 | %      |  | 29     | % |           | 6  | %               |  | 14    | % |       | 4 | % |  | 0  | % |  | 10 | % |  | 65 | % |  | 100 | % | 
|                 |  |               |  |             |     |                 |  |                         |       |                        |  |                   |   |             |      |        |  |        |   |           |    |                 |  |       |   |       |   |   |  |    |   |  |    |   |  |    |   |  |     |   | 
|                 |  |               |  |             |     |                 |  |                         | 154.2 |                        |  |                   |   |             |      |        |  |        |   |           |    |                 |  |       |   |       |   |   |  |    |   |  |    |   |  |    |   |  |     |   | 
|                 |  |               |  |             |     |                 |  |                         |       |                        |  |                   |   |             |      |        |  |        |   |           |    |                 |  |       |   |       |   |   |  |    |   |  |    |   |  |    |   |  |     |   | 

As shown in
the following table, RAM Res total CDO par exposure was $4.3 billion as of
December 31, 2008. The following table breaks down RAM Res total CDO exposure
by type of CDO:

RAM Re Total CDO Exposure by CDO Type($ in millions)

|         |  |                 |         |   |  |       |  
|-------- |  | --------------- | ------- | - |  | ----- | -
|CDO Type |  | Outstanding Par |         | % | 
|         |  |                 |         |   | 
|HY       |  | $               | 3,183.0 |   |  | 74.1  | %
|IG       |  |                 | 452.0   |   |  | 10.5  | %
|MS       |  |                 | 288.8   |   |  | 6.7   | %
|EM       |  |                 | 104.7   |   |  | 2.4   | %
|DBL      |  |                 | 269.7   |   |  | 6.3   | %
|         |  |                 |         |   |  |       |  
|Total    |  | $               | 4,298.2 |   |  | 100.0 | %
|         |  |                 |         |   |  |       |  

The
definitions of the CDO types in the above table are as follows:

HY  Non-investment
grade corporates, predominantly CLOs backed by corporate loans

IG  Investment
grade corporate (predominantly corporate, may include limited ABS)

MS  Multi-sector
collateral, which may include MBS (including subprime), ABS, CDOs, CMBS and
other asset-backed securities

EM  Emerging market
sovereign debt obligations

DBL  Double-Wrap
or second-to-default CDOs that are backed by collateral, but are wrapped by a
financial guaranty company.

The
distribution of RAM Res total outstanding CDO portfolio by RAM Re rating is as
follows:

RAM Re Total CDO Exposure by Rating
($ in millions)

|               |  |                 |         |   |  |       |  
|-------------- |  | --------------- | ------- | - |  | ----- | -
|RAM Re
 Rating |  | Outstanding Par |         | % | 
|               |  |                 |         |   | 
|AAA            |  | $               | 3,730.1 |   |  | 86.8  | %
|AA             |  |                 | 344.6   |   |  | 8.0   | %
|A              |  |                 | 218.9   |   |  | 5.1   | %
|BBB            |  |                 | 3.1     |   |  | 0.1   | %
|BIG            |  |                 | 1.6     |   |  | 0.0   | %
|               |  |                 |         |   |  |       |  
|Total          |  | $               | 4,298.2 |   |  | 100.0 | %
|               |  |                 |         |   |  |       |  

RAM
primarily identifies problem credits through information provided by the
primary insurers at least on a quarterly basis. Such information generally
consists of surveillance and underwriting reports and quarterly conference
calls with the primary ceding companies analysts. The Risk Management staff
supplements this input with their own research to identify and assess the
status of individual credits. Research performed includes reviews of rating
agency and fixed income research publications and analysis of historical
performance data. Each of the ceding companies maintains a watch list for
credits that have been identified as requiring greater than the usual level of
ongoing scrutiny and/or intervention. The ceding companies notify us when any
transaction they have reinsured has been placed on such a watch list.

69

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The Management
Committee is comprised of RAMs senior officers and meets quarterly to formally
review the Companys Watch List and approve case and unallocated reserves.

RAM
maintains its own Watch List to identify those transactions requiring increased
monitoring. The Company typically places transactions on the Watch List if the
ceding company places a transaction on its watch list, and RAM generally
employs a mapping of each watch list category of each primary insurer to the
Companys own Watch List categories. Risk Management surveys market segments on
an as-needed basis based on market trends, and may add transactions to the
Watch List as a result of such survey even if the ceding company has not added
the transaction to its watch list.

Transactions
on the Watch List are divided into four categories generally based upon the
following definitions. Category 1 includes transactions for which performance
of the issue or that of an issuance participant is sufficiently below
expectations where increased monitoring is required; however, the risk of loss
remains remote. Category 2 transactions include those for which performance of
an issue or that of an issuance participant is sufficiently below expectations
where increased monitoring is required and remedial intervention by the ceding
company is either planned or already in progress. Performance issues occur when
the performance of an issue does not stabilize or improve over the intermediate
term and concerns about the transactions ability to meet its debt service
obligations may arise. If performance has deteriorated to the point where
concerns about the issuers continued ability to meet debt service requirements
on a timely basis are substantial, such transaction would be classified as a
Category 3 transaction. Category 3 includes transactions where claims have been
paid but recoveries are forecast for the claims. Category 4 transactions
include those for which claims or loss adjustment expense payments are likely.
Designation of a transaction as Category 4 generally coincides with the
establishment of a case-basis loss reserve. Each transaction in Category 3 or 4
of the Watch List is generally reviewed quarterly to determine whether material
changes are noted by the ceding company or by the Risk Management staff. If
material adverse changes are identified, surveillance reports are requested from
the ceding company and discussions are held to assess the deterioration and
outlook for the credit.

RAMs
Management Committee establishes reserves that it believes are adequate to
cover the present value of ultimate liability for losses and loss adjustment
expenses. These reserves are based on estimates and may vary materially from
actual results. Adjustments based on actual loss experience are recorded in the
periods in which they become known.

RAM
does not perform loss mitigation activities and instead relies on the loss
mitigation efforts of the ceding companies, who report RAMs proportionate
share of the expenses incurred and liability for such activities. RAM pays the
ceding companies a ceding commission for all policies reinsured. The ceding
commission represents RAMs portion of the cost to the ceding companies to
write the transaction, perform ongoing surveillance and engage in loss
mitigation activities. Ceding commissions are deferred and expensed as each
policys exposure matures and is included as an asset in deferred policy
acquisition costs and as acquisition expenses in the statement of operations.
RAM reports loss expenses associated with claims as a liability in loss
reserves on the balance sheet and in loss and loss adjustment expenses of the
statement of operations.

The following
table provides information about the financial guaranty policies and related
loss reserves in each of RAMs Watch List categories as of December 31, 2008:

|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|---------------------------------------------------- |  | ----------------------- | ----- | ---------- | - | ---------- |  | ---------- | ----- | ----- | - | ----- | - | - | ------- | -
|                                                     |  | Surveillance Categories |       |            |  
|                                                     |  |                         |       |            |  
|($ in
 millions)                                     |  | Category 1              |       | Category 2 |   | Category 3 |  | Category 4 |       | Total |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |  
|Number of policies                                   |  |                         | 55    |            |   | 31         |  |            | 36    |       |   | 71    |   |   | 193     |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Remaining weighted average contract period
 (in yrs) |  |                         | 20    |            |   | 22         |  |            | 24    |       |   | 25    |   |   | 23      |  
|Insured contractual payments outstanding:            |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|                                                    
|Principal                                            |  | $                       | 401.3 |            | $ | 496.3      |  | $          | 178.7 |       | $ | 633.0 |   | $ | 1,709.3 |  
|Interest                                             |  | $                       | 268.2 |            | $ | 466.7      |  | $          | 48.7  |       | $ | 342.1 |   | $ | 1,125.6 |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Total                                                |  | $                       | 669.5 |            | $ | 963.0      |  | $          | 227.4 |       | $ | 975.1 |   | $ | 2,834.9 |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Gross Claim Liability                                |  | $                       |      |            | $ |           |  | $          | 19.8  |       | $ | 184.4 |   | $ | 204.2   |  
|Less:                                                |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Gross potential recoveries                           |  | $                       |      |            | $ |           |  | $          | (21.9 | )     | $ | (38.1 | ) | $ | (59.9   | )
|Discount, net                                        |  | $                       |      |            | $ |           |  | $          | 0.3   |       | $ | (64.5 | ) | $ | (64.2   | )
|Net Claim Liability                                  |  | $                       |      |            | $ |           |  | $          | (1.8  | )     | $ | 81.8  |   | $ | 80.0    |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Unearned premium revenue                             |  | $                       | 6.6   |            | $ | 0.1        |  | $          | 0.3   |       | $ | 2.5   |   | $ | 9.4     |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Net Claim liability reported in the Balance
 Sheet   |  |                         |       |            |   |            |  |            |       |       |   |       |   | $ | 80.0    |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Reinsurance recoverables                             |  |                         |      |            |   |           |  |            |      |       |   |      |   |   |        |  

70

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The above table includes all financial guarantee contracts on the
Companys Watch List at December 31, 2008. Policies written in credit
derivative form are not included in the above table.

Acquisition
Expenses. Acquisition expenses were $30.6 million in
2008, $18.4 million in 2007, and $16.3 million in 2006. The increase in
acquisition costs in 2008 over 2007 is due to additional ceding commission
costs relating to the Companys downgrade and the write-off of unrecoverable
deferred acquisition costs. Excluding such unusual items, the changes in
acquisition costs period over period are directly related to the changes in
earned premiums. The ratio of acquisition costs to earned premiums was 44.6% in
2008, up from 36.1% in 2007, which had decreased relative to the 2006 ratio of
36.8%. The increase in the ratio of acquisition costs to earned premiums in
2008 as compared to 2007 is primarily due to (i) expensing of the additional
ceding commissions incurred on the Companys downgrade of $1.4 million and (ii)
the write-off of deferred acquisition costs of $2.0 million considered
unrecoverable. The decline in the ratio of acquisition costs to earned premiums
in 2007 as compared to 2006 reflected the combination of improvements
(decreases) in ceding commissions paid to primary insurers and a lesser share
of direct expenses allocated to the acquisition of business as a general result
of the company maturation as supported by our analysis of expenses that qualify
for deferral.

Operating
Expenses. General or operating expenses were $16.9
million in 2008, 26.1% higher than the $13.4 million in 2007. Operating
expenses in 2007 were comparable to the $13.4 million in 2006. The increase in
operating expenses for 2008 as compared to 2007 was due to increased costs
associated with the renewal of our Directors and Officers (D&O) insurance
coverage, a reduction in the amount of expenses deferred corresponding to the
decline in new business written, along with an increase in audit fees in the
current year. These increases are offset partially by the reduction in staff
costs due to a decline in bonuses in 2008. Operating expenses in 2007
included $0.5 million of non-recurring secondary offering costs, and 2006
included $2.3 million in non-recurring costs related to the IPO. Without these
non-recurring costs, operating expenses increased by 16.2% in 2007 over 2006,
primarily reflecting the ongoing costs of being a public company.

Interest
Expense. Interest expense was $8.4 million in both
2008 and 2007 and $2.8 million in 2006. Preference share dividends, classified
as interest expense, of $5.6 million were paid during both 2008 and 2007. The
preference shares were issued on December 14, 2006 and therefore no dividends
were paid in 2006. Dividends on the preference shares are payable semi-annually
on June 15 and December 15 each year if declared by the Board of Directors.
Interest expense also includes interest expense on the Companys long term
debt. Interest on long term debt was $2.8 million for all years reported.

FAS 157 Disclosures

On
January 1, 2008, the Company adopted FAS 157. This Statement provides guidance
for fair value measurement of assets and liabilities and associated disclosures
about fair value measurement. Under this standard, the definition of fair value
focuses on the price that would be received to sell the asset or paid to
transfer the liability (an exit price), not the price that would be paid to
acquire the asset or received to assume the liability (an entry price). FAS 157
clarifies that fair value is a market-based measurement, not an entity-specific
measurement. FAS 157 establishes a fair value hierarchy of inputs in measuring
fair value, with the highest level being observable inputs and the lowest being
unobservable data as follows:

|                 |                                                                                                                                                                                                                                                                                  
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 inputs  | valuations based on quoted prices in active markets for identical
 assets or liabilities. Valuations in this level do not entail a significant
 degree of judgment.                                                                                                              
|                 |                                                                                                                                                                                                                                                                                  
|Level 2 inputs  | valuations based on quoted prices for similar assets or liabilities
 in active markets, quoted prices for identical or similar assets or
 liabilities in markets that are not active and model derived valuations where
 all significant inputs are observable in active markets.
|                 |                                                                                                                                                                                                                                                                                  
|Level 3 inputs  | valuations based on significant inputs that are unobservable.                                                                                                                                                                                                                    

71

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The following table presents the
fair value measurement levels for assets and liabilities, which the Company has
recorded at fair value as of December 31, 2008. As required by FAS 157, items
are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement:

|                               |  |       |       |         |   |         |   |         |       |   |   |      |  
|------------------------------ |  | ----- | ----- | ------- | - | ------- | - | ------- | ----- | - | - | ---- | -
|($ in millions)                |  | Total |       | Level 1 |   | Level 2 |   | Level 3 |      
|                               |  |       |       |         |   |         |   |         |      
|                               |  |       |       |         |   |         |   |         |       |   |   |      |  
|Financial Assets:              |  |       |       |         |   |         |   |         |       |   |   |      |  
|Fixed
 maturity investments    |  | $     | 421.9 |         | $ | 100.2   |   | $       | 321.5 |   | $ | 0.2  |  
|Cash and
 cash equivalents     |  |       | 8.8   |         |   | 8.8     |   |         |      |   |   |     |  
|Restricted
 cash               |  |       | 8.3   |         |   | 8.3     |   |         |      |   |   |     |  
|Other
 financial instruments   |  |       | 43.1  |         |   |        |   |         |      |   |   | 43.1 |  
|% of assets at fair value      |  |       | 100   | %       |   | 24      | % |         | 67    | % |   | 9    | %
|                               |  |       |       |         |   |         |   |         |       |   |   |      |  
|Financial Liabilities:         |  |       |       |         |   |         |   |         |       |   |   |      |  
|Derivative
 liabilities (1)    |  | $     | 85.4  |         | $ |        |   | $       |      |   | $ | 85.4 |  
|                               |  |       |       |         |   |         |   |         |       |   |   |      |  
|% of liabilities at Fair value |  |       | 100   | %       |   |        |   |         |      |   |   | 100  | %

The
Companys fair values of fixed maturity and short-term investments are based on
prices obtained from nationally recognized independent pricing services. Where
available, the prices are obtained from market quotations in active markets.
Where there is no quoted price for an identical security, then the pricing
service may use matrix pricing or model processes, such as the option adjusted
spread model, to estimate the fair value of a security. The matrix pricing or
model processes consist primarily of observable inputs, which may include;
benchmark yields, reported trades, broker/dealer quotes, issuer spreads,
two-sided markets, benchmark securities, bids, offers and reference data. The
Company receives at least one fair value price for each of its investment
securities and has not adjusted any of the prices received from the pricing
services.

At
December 31, 2008, all but one of the Companys investments were valued using
the independent pricing services. One security, which had a fair value of $0.2
million, has no active market and includes subprime exposure, was valued using
a non-binding broker quote. This security is included within level 3 in the
fair value hierarchy.

As
management is ultimately responsible for determining the fair value
measurements for all securities, the Company assesses the reasonableness of the
fair values received by comparing them to other pricing information readily
available and managements knowledge of the current markets. The Company also
assesses the pricing methodologies and related inputs used by the pricing
services to estimate fair value. Any prices that, in managements opinion, may
not be representative of fair value are challenged with the pricing service.
Based on the information obtained from the above reviews, the Company evaluated
the fixed income securities in the investment portfolio to determine the
appropriate FAS 157 fair value hierarchy level based on trading activity and
observability of inputs. Based on the Companys evaluation, each security was
classified as Level 1, 2, or 3. Prices with observable market inputs were
classified as Level 2, prices on money market funds and US treasuries were
classified as Level 1, and valuations with no significant observable inputs
were classified as Level 3 as of December 31, 2008.

At
January 1, 2008, two securities within the Companys fixed maturity portfolio
were valued using unobservable inputs, therefore the valuations were assessed
as Level 3. During the year ended December 31, 2008, one of these securities
fully paid down and therefore only one security is included in the level 3
classification at December 31, 2008. The following table presents the fixed
maturity investments for which fair value was measured under Level 3 for the
year to December 31, 2008:

Fair value
measurement using significant unobservable inputs (Level 3)

|                                                                |  |                               |   |      |   | 
|--------------------------------------------------------------- |  | ----------------------------- | - | ---- | - | 
|                                                                |  |                               |  
|($ in millions)                                                 |  | Year Ended
 December 31, 2008 |  
|                                                                |  |                               |  
|                                                                |  |                               |  
|Balance,
 beginning of period                                   |  |                               | $ | 3.8  |   | 
|                                                                |  |                               |   |      |   | 
|Total
 realized losses included in earnings                     |  |                               |   | (1.9 | ) | 
|Total
 unrealized losses included in other comprehensive income |  |                               |   |     |   | 
|Purchases,
 issuances and settlements                           |  |                               |   | (1.7 | ) | 
|Transfers in
 and/or out of Level 3                             |  |                               |   |     |   | 
|                                                                |  |                               |   |      |   | 
|                                                                |  |                               |   |      |   | 
|Balance,
 December 31, 2008                                     |  |                               | $ | 0.2  |   | 
|                                                                |  |                               |   |      |   | 

The
Companys insured credit default swap policies are not readily tradable as
there is no active market for them. Therefore, the Company views its principal
market as the financial guaranty insurance and reinsurance market, whose
participants would hypothetically be able to assume this business if the
Company were to hypothetically transfer a policy.

72

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In
compliance with the requirements of FAS 157, the Company adjusts the fair value
of its insured credit derivatives to account for the Companys own
non-performance risk. There is no observable credit spread for RAM Re or RAM
Holdings, and as such there is inherently a significant amount of judgment,
subjectivity and uncertainty involved in the estimation of the adjustment for
RAMs non performance risk. Management has used inputs that reflect assumptions
market participants may use in pricing RAMs creditworthiness. In determining
the Companys own non-performance risk when measuring the fair value of a
liability, the Company uses an implied market price for buying credit
protection on RAM and a cash flow model, which models a typical CDS contract,
to calculate a value price based on those spreads and cash flows. The Company
identifies comparable entities with active CDS markets to estimate credit
spreads for RAM. Such identification focuses on the nature of risk positions
(primarily public finance and structured products) and of approximate capital
adequacy as depicted by publicly available credit ratings agencies reports.
Based on this information, as at December 31, 2008, the Company estimated its
credit spread to be approximately 2254 basis points per annum. An approximation
of a typical CDS contract is made based on a 5-year insured CDS contract, an
assumption of a 10 year weighted average life, and an assumption for par,
coupon, duration and the appropriate discount rate based on a 5-year swap rate.
The Company believes that these data points may be considered by hypothetical
market participants in determining RAMs creditworthiness. The effect of
applying this requirement of FAS 157 was a reduction in the Companys
derivative liability at December 31, 2008 of approximately $203.3 million.

As
noted above, this calculation is based on estimates, involves a significant
degree of management judgment and is sensitive to selected assumptions. Changes
to the assumptions used in this valuation could lead to materially different
results. For example, a change in RAMs estimated spread would have a
significant impact on the amount of the adjustment for RAMs own
non-performance risk. Adjustments to RAMs non-performance risk will be
recorded in the periods in which they become known or estimable by the Company.

The
following table summarizes the estimated changes in fair value of our credit
derivatives assuming immediate changes in the Companys non performance credit
risk at specified levels at December 31, 2008:

|                            |  |                                                    |        |                                    |   |       |  
|--------------------------- |  | -------------------------------------------------- | ------ | ---------------------------------- | - | ----- | -
|Change in
 Credit Spreads   |  | Estimated Net
 Fair Value of Derivative
 Liability |        | Impact of 
 Change on Net 
 Income |  
|                            |  |                                                    |        |                                    |  
|                            |  | ($ in millions)                                    |       
|1000 basis
 point narrowing |  | $                                                  | (150.7 | )                                  | $ | (65.3 | )
|500 basis
 point narrowing  |  |                                                    | (111.4 | )                                  |   | (26.0 | )
|100 basis
 point narrowing  |  |                                                    | (89.9  | )                                  |   | (4.5  | )
|Base
 scenario              |  |                                                    | (85.4  | )                                  |   |      |  
|100 basis
 point widening   |  |                                                    | (81.3  | )                                  |   | 4.1   |  
|500 basis
 point widening   |  |                                                    | (67.8  | )                                  |   | 17.6  |  
|1000 basis
 point widening  |  |                                                    | (55.5  | )                                  |   | 29.9  |  

The
Company believes that the above data points are hypothetical with the spread
movements used in the sensitivity analysis of 100, 500, and 1000 basis points
supported by previous large spread changes that have occurred in the last year
in our primaries spreads. Therefore, it is not unreasonable for RAM to use
these spread movements in the sensitivity analysis. This calculation is based
on estimates, involves a significant degree of management judgment and is
sensitive to selected assumptions. Changes to assumptions used in this
valuation could lead to materially different results.

Our
credit derivative policies are classified as Level 3 in the above fair value
hierarchy since the valuations provided to us by our ceding companies are from
valuation models which place reliance on at least one significant unobservable
input. Consistent with the requirements of FAS 157, we believe these models use
observable market data when available.

The following
table presents changes in the net credit derivative liabilities balance for
which fair value was measured under Level 3 for the year ended December 31,
2008:

|                                                                        |  |                               |   |        |   | 
|----------------------------------------------------------------------- |  | ----------------------------- | - | ------ | - | 
|Fair value measurement using significant
 unobservable inputs (Level 3) |  |                               |  
|                                                                        |  |                               |  
|($ in millions)                                                         |  | Year Ended
 December 31, 2008 |  
|                                                                        |  |                               |  
|                                                                        |  |                               |   |        |   | 
|Balance,
 beginning of period                                           |  |                               | $ | (180.6 | ) | 
|                                                                        |  |                               |   |        |   | 
|Total
 unrealized gains included in earnings                            |  |                               |   | 94.3   |   | 
|Total
 realized gains included in earnings                              |  |                               |   | 0.9    |   | 
|Purchases,
 issuances and settlements                                   |  |                               |   |       |   | 
|Transfers in
 and/or out of Level 3                                     |  |                               |   |       |   | 
|                                                                        |  |                               |   |        |   | 
|                                                                        |  |                               |   |        |   | 
|Balance,
 December 31, 2008                                             |  |                               | $ | (85.4  | ) | 
|                                                                        |  |                               |   |        |   | 

73

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The
Companys fair value on Other Financial Instruments relates to the put option
on the Companys preference share soft capital facility, which represents the
value to the Company in the current market environment. The put option is a
financial instrument and is required to be fair valued. As at December 31,
2008, the unrealized gain on this put option was $43.1 million and is included
in other financial instruments on the consolidated balance sheet. The movement
in fair value of $7.8 million for the year ended December 31, 2008 is included
as an unrealized gain on other financial instruments in the statement of
operations. Valuations are based on unobservable inputs including assumptions
over the Companys performance and future outlook, the facility, the current
market conditions, and other similar instruments in the market. Assumptions
include the current rate paid for the facility (LIBOR plus 300 bps at December
31, 2008), the term of the facility and the Companys rating, along with
judgmental factors such as the market perception of the facility and the
Company.

The following table presents the
Other Financial Instruments for which fair value was measured under Level 3 for
the year ended December 31, 2008:

|                                                                        |  |                               |   |      |  | 
|----------------------------------------------------------------------- |  | ----------------------------- | - | ---- |  | 
|Fair value measurement using significant
 unobservable inputs (Level 3) |  |                               |  
|                                                                       
|                                                                        |  |                               |  
|                                                                        |  | Year Ended
 December 31, 2008 |  
|                                                                        |  |                               |  
|($ in millions)                                                         |  |                               |   |      |  | 
|Balance,
 beginning of period                                           |  |                               | $ | 35.3 |  | 
|                                                                        |  |                               |   |      |  | 
|Total
 unrealized gains included in earnings                            |  |                               |   | 7.8  |  | 
|Purchases,
 issuances and settlements                                   |  |                               |   |     |  | 
|Transfers in
 and/or out of Level 3                                     |  |                               |   |     |  | 
|                                                                        |  |                               |   |      |  | 
|Balance,
 December 31, 2008                                             |  |                               | $ | 43.1 |  | 
|                                                                        |  |                               |   |      |  | 

As of December 31, 2008, there is
no active market for the put option and due to the significant number of the
unobservable inputs used in the valuation, the put option valuation was
classified as a Level 3 fair value measurement.

Non-GAAP measures

Credit
impairments on our credit default swaps are a non GAAP metric which management
believes is useful to analysts, rating agencies and investors to review the
results of our entire portfolio of policies. Management considers our credit
derivative policies as a normal extension of our financial guarantee business
and reinsurance in substance. The Company measures and monitors credit
impairments which are expected to be paid out over the term of the credit
derivative policies. As at December 31, 2008 and December 31, 2007, the Company
estimates credit impairment reserves amounting to $6.0 million and $44.4
million, respectively. The decline in the credit impairments is primarily due
to the commutation of ABS CDOs with credit impairments during the year.

Liquidity and Capital Resources

Liquidity. RAM Holdings is a holding company and therefore our liquidity, both on a
short-term basis (for the next twelve months) and a long-term basis (beyond the
next twelve months), is largely dependent upon (1) the ability of RAM Re to pay
dividends or make other payments to us and (2) our ability to access the debt
and equity markets, which is unlikely in the near term given current market conditions and the
Companys current share valuation. Our principal uses of liquidity are
for payment of interest on our senior notes, non-mandatory dividends on our
preference shares and capital investments in RAM Re. On March 19, 2009, RAM
Res Board approved a dividend of $2.8 million from RAM Re to RAM Holdings. Based
on the amount of dividends that we received on March 19, 2009, we believe that
we will have sufficient liquidity to pay interest on our senior notes over the
next twelve months. RAM Res ability to declare and pay dividends to us may be
influenced by a variety of factors such as adverse loss development, insurance
regulatory changes and changes in general economic conditions, beyond the next
twelve months, the amounts required to be held by us in trust for the benefit
of our U.S. regulated customers and Bermuda law as described below.
Consequently, although we believe that we will continue to have sufficient
liquidity to meet our obligations over the long term, we cannot guarantee that
RAM Re will be able to dividend amounts sufficient to satisfy all our
obligations, and there can be no assurance that dividends will be declared or
paid in the future.

The
principal sources of RAM Res liquidity are gross written premiums, scheduled
investment maturities, existing soft capital facilities and net investment
income. The principal uses of RAM Res liquidity are for the payment of operating
expenses, claims, ceding commissions, reinsurance premiums, dividends on RAM Re
preference shares, dividends to RAM Holdings and for purchases of new
investments and more recently funding commutation agreements. We believe that
RAM Res expected operating liquidity needs can be funded from its operating
and investing cash flows for the next twelve months. Further increases in loss
reserves and credit impairments would require RAM Re to deposit additional
collateral in the applicable trust account(s); and resulting claims payments in
respect of those losses and impairments would increase cash outflows and could
decrease the size of RAM Res investment portfolio, in turn decreasing income
from investments.

RAM
Re may declare dividends, provided that, after giving effect to the
distribution, it would not violate certain statutory equity, solvency and asset
tests. The Bermuda Insurance Act requires RAM Re to meet a minimum solvency
margin equal to the greater of (i) $1.0

74

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million, (ii)
20% of net premiums written up to $6.0 million plus 15% of net premiums written
over $6.0 million, and (iii) 15% of loss and other insurance reserves. To
satisfy these requirements, RAM Re was required to maintain a minimum level of
statutory capital and surplus of $15.3 million at December 31, 2008. RAM Res
statutory capital and surplus was $158.4 million at December 31, 2008. In addition to
the solvency margin, the Bermuda Insurance Act requires RAM Re to comply with a
liquidity ratio whereby the value of its relevant assets must be not less than
75% of the amount of its relevant liabilities. In the event RAM Re fails to
meet its Relevant Margins on the last day of any financial year, it shall not
without the approval of the Bermuda Monetary Authority (the BMA), declare or
pay any dividend during the next financial year. In addition, under the
Bermuda Insurance Act, Class 3B insurers are prohibited from declaring or
paying any dividends of more than 25% of its total statutory capital and
surplus, as shown on its previous financial year statutory balance sheet,
unless at least seven days before payment of the dividends it files with the
BMA an affidavit that it will continue to meet its required solvency margins.
Based upon these tests, without filing an affidavit with the BMA, the maximum
amount that will be available during 2009 for payment by RAM Re is
approximately $39.6 million, which amounts may be further restricted by
Enhanced Credit Requirements expected to be applied by the BMA to Class 3B
insurers in the future. See Item 1  Business  Regulation in Bermuda.

RAM
Re and the Company must also comply with the provisions of the Bermuda
Companies Act regulating the payment of dividends and making of distributions
from contributed surplus. A company is prohibited from declaring or paying a
dividend, or making a distribution out of contributed surplus, if there are
reasonable grounds for believing that: (a) the company is, or would after the
payment, be unable to pay its liabilities as they become due; or (b) the
realizable value of the companys assets would thereby be less than the
aggregate of its liabilities and its issued share capital and share premium
accounts. The Board of Directors of RAM Re and the Company will evaluate any
dividends in accordance with this test at the time such dividends are declared.

In
addition, the terms of RAM Res Class B preference shares restrict RAM Res
ability to pay dividends on its common shares unless all accrued and unpaid
dividends on the Class B preference shares for the then current dividend period
have been declared and paid or a sum sufficient for payment thereof set apart.
There is an exception however that permits RAM Re to declare dividends on its
common shares in such amounts as are necessary for RAM Holdings (i) to service
indebtedness for borrowed money as such payments become due (or to satisfy any
of its guarantee obligations made in respect of indebtedness of RAM Re or RAM
Holdings) or (ii) to pay its operating expenses.

On
September 24, 2008 RAM Re was downgraded by S&P to A+ from AA and on
December 4, 2008 RAM Re was downgraded by Moodys to Baa3 from A3. On March
17, 2009, RAM Re requested that Moodys withdraw its rating. The downgrade
of RAM Res ratings has had an adverse effect on RAM Res ability to
compete in the financial guaranty reinsurance industry and significantly decreased
the value of the reinsurance provided. Due to the above mentioned downgrades,
certain ceding companies have the right, after a cure period, to increase the
ceding commission, as stipulated in the treaties, or terminate the treaties and
recapture the business previously ceded to RAM Re whether written in financial
guaranty or credit derivative form. To the extent policies are recaptured, RAM
must forfeit to the ceding company an amount determined by formula under each
treaty which generally consists of RAMs allocated share of the U.S. statutory
unearned premium, net of the ceding commission paid by RAM to the ceding
company (subject to a penalty amount in some cases), and loss reserves
established with respect to the policies ceded, as applicable. U.S statutory
premiums usually earn at a slower rate than GAAP premiums and therefore any
forfeiture of U.S. statutory unearned premiums would result in a loss on a GAAP
basis. In some cases, the ceding companies have the right to select specific
years of business written to recapture, and a decision by a ceding company to
recapture, for example, all business written prior to 2006, could have a material
adverse effect on RAM Re because of the projected losses associated with the
business written in the last three years. As of April 13, 2009, none of the
primaries have recaptured any business. The commutations
negotiated during the year were not a result of these treaty terms. As at December
31, 2008, we have accrued or paid additional ceding commissions related to the
S&P downgrade totaling $20.3 million which is being expensed as the related
premiums are earned. We are unable to estimate any further ceding commission
increase resulting from the Moodys downgrade because Moodys has not
yet established the amount of further reinsurance credit we provide to each of
the primaries at the Baa3 level.

At December
31, 2008, the Company has $438.9 million of cash and investments of which
$378.9 million is held in trust for the benefit of our ceding companies,
leaving $60.0 million cash and investments available for the cost of ongoing
business. The trust accounts are required to hold cash and investments
equivalent to unearned premiums, case-basis loss reserves and credit
impairments, and a contingency reserve calculated by the ceding companies, and
the balances are adjusted at least annually. Currently, losses are paid out of
unrestricted cash rather than our trust accounts which reduces available cash
until the trust accounts are adjusted. Subsequent to December 31,
2008, approximately $32.9 million was released from the trust accounts to the
Companys operating account.

Cash
Flows. During 2008, net operating cash flows were
($269.5) million compared to $84.5million and $57.1 million for 2007 and 2006,
respectively. Our operating cash flows are primarily the result of the net
premiums received and investment income less operating expenses, claims
payments and interest expenses. The
decrease in operating cash flows in 2008 is primarily the result of commutation
payments to XLFA and MBIA totaling $250.9 million and loss payments of $61.0
million largely relating to RMBS exposure. Net cash flows from financing
activities were $Nil in both 2008 and 2007 and $90.0 million in 2006. In 2006,
net financing cash flows related primarily to the issuance of preference shares
amounting to $75.0 million, net of preference share issuance costs of $1.1
million and an additional common share issuance. Net cash provided by (used
for) investment activities amounted to $265.9 million, $(107.9) million, and
$(114.0) million for the periods ending December 31, 2008, 2007 and 2006,
respectively, and related to the proceeds on sales and maturities of
investments offset by the purchase of investments.

75

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Capital
Resources. RAM Re maintains a $90.0 million contingent
capital facility with a group of highly rated commercial banks as lenders. The
facility is specifically designed to provide rating-agency qualified capital to
support RAM Res claims paying resources and may not be drawn upon except for
the payment of catastrophic losses where losses exceed minimum thresholds in
respect of cumulative losses on public finance bonds and, in a limited
capacity, asset-backed securities reinsured by RAM Re. Loan obligations under
this facility have limited recourse and are repayable from, and collateralized
by, a pledge of recoveries realized on defaulted reinsured obligations covered
by the facility, including certain installment premiums and other collateral.
The facility has a term ending on May 11, 2015. As of December 31, 2008, no
amounts were outstanding nor have there been any borrowings under this
facility.

On
February 3, 2006, RAM Re closed a $40.0 million contingent capital facility
with two highly rated commercial banks. This facility is essentially the same
as the $90.0 million contingent capital facility described above although it
may be drawn upon only to cover catastrophic losses, exceeding the minimum
threshold, from municipal obligations reinsured by RAM Re. Loan obligations
under this facility also have limited recourse and are repayable from, and
collateralized by, a pledge of recoveries realized on defaulted reinsured
obligations covered by this facility, including certain installment premiums
and other collateral, on a subordinate basis to the pledge made to secure the
$90.0 million facility described above. The facility has a term ending on February
3, 2014. As of December 31, 2008, no amounts were outstanding nor have there
been any borrowings under this facility.

On
May 2, 2006, the Company completed an initial public offering (IPO) of
10,820,816 common shares (including 1,411,411 over-allotment option shares).
The offering raised approximately $131.2 million of proceeds, net of
underwriters discount and commission, of which the Company received $16.4
million and the selling shareholders received $114.8 million. The Company contributed
substantially all of the net proceeds of the offering to RAM Re to increase its
capital and surplus in order to increase its underwriting capacity. In June
2007, the Company completed a secondary offering of 5,347,179 common shares.
The Company did not receive any proceeds from the secondary offering.

On
December 14, 2006, the Company issued 75,000 preference shares at $1,000 per
share for total consideration of $75.0 million. Underwriting expenses were
$0.75 million and other issuance costs were approximately $0.3 million
resulting in estimated net proceeds of approximately $73.9 million all of which
was contributed to RAM Re to support new writings in its reinsurance business.
The preference shares bear a dividend rate of 7.50% which is payable
semi-annually on June 15 and December 15 each year upon approval by the Board
of Directors. Unless previously redeemed, the preference shares have a
mandatory redemption date of December 15, 2066. We can redeem the preference
shares at any time from December 15, 2016 with no penalty to the Company but
redemptions prior to that would require a redemption price equal to par value
plus a make-whole amount reflecting the value of dividends for the remainder
of the period to December 15, 2016. During the years ended December 31, 2008
and 2007, dividends amounting to $5.6 million have been declared and paid.
There were no dividends declared or paid in 2006.

On
March 26, 2004, we issued $40.0 million aggregate principal amount of senior
unsecured debt. The net proceeds of this issuance were contributed to RAM Re to
be used for general corporate purposes. The senior notes bear interest at a
rate of 6.875%, payable semi-annually in arrears on April 1 and October 1 of
each year, beginning on October 1, 2004. Unless previously redeemed, the senior
notes will mature on April 1, 2024. We may redeem the senior notes at any time
and from time to time, in whole or in part, at a make-whole redemption price.
The senior notes contain certain covenants regarding limitations on liens and
delivery of financial information, but do not contain any covenants regarding
financial ratios or specified levels of net worth or liquidity to which RAM
must adhere. We were in compliance with all covenants at December 31, 2008. During
the years ended December 31, 2008 and 2007, RAM Re paid dividends to Holdings
in the amount of $2.8 million, which was used to pay interest on the senior
debt.

On
December 23, 2003, RAM Re entered into a $50.0 million soft capital facility
whereby it was granted the right to exercise perpetual put options in respect
of its Class B preference shares against the counterparty to the option
agreement, in return for which it paid the counterparty a floating put option
fee through February 17, 2009. The counterparty was a trust established by an
investment bank. The trust was created as a vehicle for providing capital
support to RAM Re by allowing it to obtain, at its discretion and subject to
the terms of the option agreement, access to new capital through the exercise
of a put option and the subsequent purchase by the trust of RAM Re preference
shares. In the years ended December 31, 2008, 2007 and 2006, $1.6 million, $0.8
million and $0.5 million, respectively, of expenses relating to the operation
of this facility were paid. As of December 31, 2008, the put option had not
been exercised. Subsequent to December 31, 2008, on February 17, 2009, RAM Re exercised the
put option in the soft capital facility and issued $500.01 Class B preference
shares to the trust in exchange for $50,001,000 of proceeds. On March 16, 2009,
RAM Re elected to pay a fixed rate dividend on the Class B preference shares,
as a result of which the Class B preference shares were distributed to the
holders of the trusts securities and the trust is now in the process of
dissolution. As a result of the fixed rate election, dividends are payable on
the Class B preference shares every 90 days at a rate of 6.276%. The Class B
preference shares give investors the rights of an equity investor in RAM Re.
Such rights are subordinate to insurance claims, as well as the general
unsecured creditors of RAM Re. Dividends on the Class B preference shares are
cumulative, only if RAM Re pays dividends on its common shares without paying
accrued and unpaid dividends on the Class B preference shares. The Class B
preference shares are rated BBB by S&P. As of the date of filing of this
Form 10-K, Moodys has not assigned a rating to the Class B preference shares.
RAM Re has the option to redeem the Class B preference shares, subject
to certain specified terms and conditions. The fair value of the put option at the exercise date was $41.9 million and
therefore the value of the preference shares will be $8.1 million, being the
difference between the proceeds received and the fair value of the put option
on the date of exercise.

76

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As noted
above, we believe our ability to access additional capital in the debt and
equity markets on acceptable terms, if at all, is unlikely in the near term
given current market conditions and the Companys current share valuation.

Investment
Portfolio. At December 31, 2008, our investment
portfolio consisted of $421.9 million of fixed income securities and $16.2
million of cash and cash equivalents. At December 31, 2007, our investment
portfolio consisted of $696.5 million of fixed income securities, $19.9 million
of cash and cash equivalents. Our fixed income securities are designated as
available for sale in accordance with FAS 115 Accounting for Certain
Investments in Debt and Equity Securities. Short-term investments consist primarily
of money market funds, domestic time deposits and discount notes. There were no
short-term investments in our portfolio at December 31, 2008 and 2007. We report
changes in fair value as part of Accumulated other comprehensive income in
shareholders equity. Our portfolio is managed by an outside professional asset
management firm, in accordance with specific investment policies approved by
our Board of Directors. These policies establish liquidity requirements,
portfolio duration, single-risk concentration limits and minimum credit quality
and investment eligibilities. Fair values of fixed income securities are based
on quoted market prices from nationally recognized pricing services, dealer
quotes, or matrix pricing, all of which are based on observable market inputs
where available. Our investment objectives include preservation of principal,
maintaining a high credit quality, liquid investment portfolio within a
prescribed duration range and achieving stable net investment income. The
effective duration of our portfolio at December 31, 2008, is 4.80 years and our
investment policy and guidelines require the minimum portfolio weighted credit
quality to be at least Aa2 rating by Moodys. The yield to maturity of the
portfolio was 5.16% and the book yield of the portfolio was 4.45% at December
31, 2008. The effective duration of our portfolio at December 31, 2007 was 4.83
years. The yield to maturity of the portfolio was 4.92% and the book yield of
the portfolio was 5.04% at December 31, 2007. At December 31, 2008, RAM Re had
$378.9 million of our invested assets in trust accounts for the benefit of
primary insurers (out of $438.9 million of total cash and investments). At
year-end 2007, RAM Re had $414.9 million of our invested assets in trust accounts
for the benefit of primary insurers (out of $716.4 million of total cash and
investments). Under our reinsurance agreements with primary insurers, RAM Re is
required to secure its obligations and may not withdraw funds from the trust
accounts without their express permission. The increase in the unrealized losses as at December 31, 2008 is primarily
attributable to the market reaction to corporate bonds and the current economic
climate, and therefore management does not believe these investments to be other
than temporarily impaired and intends to hold these investments until
recovery.
The investments held by the Company are considered to be available-for-sale but
the Company has the ability and the intent to hold these investments until the
security recovers its value, or to their contractual maturity. The unrealized
gains and losses are expected to decrease as the investment approaches maturity
and the Company expects to realize a value substantially equal to amortized
cost. At December 31, 2008, unrealized losses and gains were $14.6 million and
$20.9 million, respectively, of the $421.9 million of the invested assets.

Our
finance personnel monitor the portfolio for performance and adherence to
policies, including market valuation, credit quality, portfolio duration and
liquidity. We have a formal review process for all securities in our investment
portfolio, including a review for impairment losses based on the factors
described above under Critical Accounting Policies  Valuation of Investment
Portfolio. We have recognized other than temporary impairments totaling $10.5
million relating to two investments with subprime exposure and two investments
in corporate bonds at December 31, 2008. We had recognized an other than
temporary impairment of $3.6 million relating to a single investment with
subprime exposure at year-end 2007. The following table summarizes our
investment portfolio by bond type, fair value and amortized cost thereof at
December 31, 2008 and December 31, 2007:

|                                     |  |                         |         |            |   |         | 
|------------------------------------ |  | ----------------------- | ------- | ---------- | - | ------- | 
|                                     |  | As of December 31, 2008 |        
|                                     |  |                         |        
|Fixed
 Income Securities             |  | Amortized Cost          |         | Fair Value |  
|                                     |  |                         |         |            |  
|                                     |  | (Dollars in thousands)  |        
|Agencies                             |  | $                       | 34,272  |            | $ | 37,395  | 
|U.S. government obligations          |  |                         | 89,930  |            |   | 104,061 | 
|Corporate debt securities            |  |                         | 97,243  |            |   | 93,456  | 
|Municipal securities                 |  |                         | 46,995  |            |   | 47,863  | 
|Mortgage and asset-backed securities |  |                         | 147,119 |            |   | 139,115 | 
|                                     |  |                         |         |            |   |         | 
|Total                                |  | $                       | 415,559 |            | $ | 421,890 | 
|                                     |  |                         |         |            |   |         | 

|                                     |  |                         |         |            |   |         | 
|------------------------------------ |  | ----------------------- | ------- | ---------- | - | ------- | 
|                                     |  | As of December 31, 2007 |        
|                                     |  |                         |        
|Fixed Income Securities              |  | Amortized Cost          |         | Fair Value |  
|                                     |  |                         |         |            |  
|                                     |  | (Dollars in thousands)  |        
|Agencies                             |  | $                       | 169,874 |            | $ | 175,625 | 
|U.S. government obligations          |  |                         | 70,393  |            |   | 73,270  | 
|Corporate debt securities            |  |                         | 123,559 |            |   | 123,992 | 
|Municipal securities                 |  |                         | 16,704  |            |   | 17,727  | 
|Mortgage and asset-backed securities |  |                         | 305,115 |            |   | 305,919 | 
|                                     |  |                         |         |            |   |         | 
|Total                                |  | $                       | 685,645 |            | $ | 696,533 | 
|                                     |  |                         |         |            |   |         | 

77

---



The amortized
cost and estimated fair value of fixed income securities available for sale as
of December 31, 2008 and December 31, 2007 by contractual maturity are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations.

|                                       |  |                         |         |            |   |         | 
|-------------------------------------- |  | ----------------------- | ------- | ---------- | - | ------- | 
|                                       |  | As of December 31, 2008 |        
|                                       |  |                         |        
|Fixed
 Income Securities               |  | Amortized Cost          |         | Fair Value |  
|                                       |  |                         |         |            |  
|                                       |  | (Dollars in thousands)  |        
|Less than one year                     |  | $                       | 28,974  |            | $ | 29,147  | 
|Due after one year through five years  |  |                         | 99,044  |            |   | 98,545  | 
|Due after five years through ten years |  |                         | 61,003  |            |   | 66,740  | 
|Due after ten years                    |  |                         | 79,419  |            |   | 88,343  | 
|Mortgage and asset-backed securities   |  |                         | 147,119 |            |   | 139,115 | 
|                                       |  |                         |         |            |   |         | 
|Total                                  |  | $                       | 415,559 |            | $ | 421,890 | 
|                                       |  |                         |         |            |   |         | 

|                                       |  |                         |         |            |   |         | 
|-------------------------------------- |  | ----------------------- | ------- | ---------- | - | ------- | 
|                                       |  | As of December 31, 2007 |        
|                                       |  |                         |        
|Fixed Income Securities                |  | Amortized Cost          |         | Fair Value |  
|                                       |  |                         |         |            |  
|                                       |  | (Dollars in thousands)  |        
|Less than one year                     |  | $                       | 18,031  |            | $ | 18,034  | 
|Due after one year through five years  |  |                         | 143,996 |            |   | 145,201 | 
|Due after five years through ten years |  |                         | 137,654 |            |   | 142,540 | 
|Due after ten years                    |  |                         | 80,848  |            |   | 84,839  | 
|Mortgage and asset-backed securities   |  |                         | 305,116 |            |   | 305,919 | 
|                                       |  |                         |         |            |   |         | 
|Total                                  |  | $                       | 685,645 |            | $ | 696,533 | 
|                                       |  |                         |         |            |   |         | 

The
following table provides the ratings distribution of our investment portfolio
at each of December 31, 2008 and December 31, 2007:

|           |  |                           |       |  
|---------- |  | ------------------------- | ----- | -
|Rating (1) |  | As of
 December 31,
 2008 |      
|           |  |                           |      
|AAA (2)    |  |                           | 74.6  | %
|AA         |  |                           | 5.1   | %
|A          |  |                           | 16.4  | %
|Cash       |  |                           | 3.7   | %
|BIG        |  |                           | 0.2   | %
|           |  |                           |       |  
|Total      |  |                           | 100.0 | %
|           |  |                           |       |  

|           |  |                           |       |  
|---------- |  | ------------------------- | ----- | -
|Rating (1) |  | As of
 December 31,
 2007 |      
|           |  |                           |      
|AAA (2)    |  |                           | 82.0  | %
|AA         |  |                           | 6.2   | %
|A          |  |                           | 8.9   | %
|Cash       |  |                           | 2.9   | %
|           |  |                           |       |  
|Total      |  |                           | 100.0 | %
|           |  |                           |       |  

|    |                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Ratings
 represent S&P classifications. If unavailable, Moodys ratings are used.                                                                                                       
|    |                                                                                                                                                                                         
|(2) | Includes
 U.S. Treasury and agency obligations, which comprised approximately 33.5% and
 35.7% of the investment portfolio as of December 31, 2008 and December 31,
 2007, respectively.

78

---



The Company
has no material investments in securities guaranteed by third parties and has
no direct investments in financial guarantors as at December 31, 2008 and 2007.

Contractual Obligations

We
have various contractual obligations as of December 31, 2008 that are
summarized in the following table:

|                                                             |  |                       |       |                    |   |            |  |            |     |                     |   |      |  |   |       | 
|------------------------------------------------------------ |  | --------------------- | ----- | ------------------ | - | ---------- |  | ---------- | --- | ------------------- | - | ---- |  | - | ----- | 
|                                                             |  | Total                 |       | Less
 Than 1
 Year |   | 1-3
 Years |  | 4-5
 Years |     | More
 Than 5
 Years |  
|                                                             |  | (Dollars in millions) |      
|Redeemable
 preference shares (1)                            |  | $                     | 75.0  |                    |   |           |  |            |    |                     |   |     |  | $ | 75.0  | 
|Long-term
 debt (2)                                          |  | $                     | 40.0  |                    |   |           |  |            |    |                     |   |     |  | $ | 40.0  | 
|Interest on
 long-term debt                                  |  | $                     | 42.0  |                    | $ | 2.8        |  | $          | 5.5 |                     | $ | 5.5  |  | $ | 28.3  | 
|Operating
 lease commitments (3)                             |  | $                     | 0.3   |                    | $ | 0.3        |  | $          |    |                     |   |     |  |   |      | 
|Losses and
 loss expense and credit impairments reserves (4) |  | $                     | 177.8 |                    | $ | 61.7       |  | $          | 3.3 |                     | $ | 12.4 |  | $ | 100.4 | 
|                                                             |  |                       |       |                    |   |            |  |            |     |                     |   |      |  |   |       | 
|Total                                                        |  | $                     | 335.2 |                    | $ | 64.8       |  | $          | 8.8 |                     | $ | 17.9 |  | $ | 243.7 | 
|                                                             |  |                       |       |                    |   |            |  |            |     |                     |   |      |  |   |       | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Par value
 only of non-cumulative, non mandatory, redeemable preference shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(2) | Principal
 only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(3) | Lease
 payments are subject to escalation in building operating costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(4) | Loss and
 loss expense reserve and credit impairments (a non-GAAP measure) represent estimated
    future payments relating to actual or probable reinsurance policy claims.
    We have estimated the timing of these payments and actual payments may vary
 significantly from these estimates. The discounted value of the claims are
 reported as losses and loss expense reserves on the consolidated balance
 sheets, and as credit impairments within derivative liabilities on the consolidated
 balance sheet. Of the net amount of $100.4 million due in more than 5 years,
    $104.2 million is not expected to be paid out for more than 20 years and
    net recoveries of $3.8 million are expected to be received between years
    6 and 20, primarily attributable to RMBS. Approximately 44% of the unallocated
    reserve is in the 4-5 year category as it relates to further loss development
    on US RMBS exposures, which are expected to pay out in 4-5 years. The remaining
    56% of the unallocated reserve is included in the more than 5 years category
    as it does not relate to any actual claims and cannot be scheduled; therefore,
    it is assumed to payout after more than 20 years.

Off-Balance Sheet Arrangements

As
of December 31, 2008, we did not have off-balance sheet arrangements that were
not accounted for or disclosed in the consolidated financial statements.

Risk Management

In
the ordinary course of business, we manage a variety of risks, primarily
credit, market, liquidity and legal. These risks are identified, measured and
monitored through a variety of control mechanisms, which are in place at
different levels throughout the organization.

Credit Risk. We are exposed to credit risk as a
reinsurer of financial guarantees and as a holder of fixed income investment
securities. We employ various procedures and controls to monitor and manage
credit risk. Our senior risk management personnel focus on risk limits and
measurement in our in-force portfolio of assumed obligations, concentration and
correlation of risk, and the allocation of rating agency capital in a portfolio
context.

Our
underwriting procedures differed in 2008 and prior years, depending on whether
we were conducting facultative or treaty-based reinsurance activities. We have
not written any new financial guaranty reinsurance business to date in 2009 and
do not expect to do so in the near term, but if we were to write new financial
    guaranty reinsurance business, we would adhere to the underwriting procedures
    followed in 2008 and prior years, as follows. Our facultative reinsurance
    activities are subject to a formal underwriting process on a transaction-by-transaction
    basis, whereas our treaty underwriting is based upon an evaluation of the
    portfolio of transactions ceded to us by a particular primary insurer as
    well as the history of each primary insurers own underwriting activities.

For
facultative transactions, various factors affecting the credit worthiness of
the underlying obligations are evaluated during the underwriting process. Our
Credit Committee, comprised of our CEO, CFO, Chief Risk Manager and General
Counsel, approves all treaties and facultative transactions prior to committing
any of our reinsurance capacity.

79

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Like
other reinsurers, we rely for both our facultative and treaty-based business on
the surveillance and remediation activities of the primary insurers that
provide us with updated information on the performance of the transactions in
our reinsured portfolio. The surveillance information provided to us by the primary
insurers is supplemented by our own independent evaluations of the analysis and
underlying performance data provided by the ceding primary with regard to watch
list transactions and verification (where possible) of ratings information
provided by the primary insurers on large exposures and on transactions where
significant discrepancies are evident between a ceding primary insurers
internal rating and the reported ratings of S&P or Moodys. These results
are reviewed periodically by senior finance and risk management personnel. Our
management committee determines the adequacy of our loss reserves and makes any
necessary adjustments following such assessment.

We
also conduct on-site due diligence reviews of the companies with whom we have
treaty arrangements, which include:

| |   |                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | discussions
 with underwriting and risk management personnel to determine if there have
 been any changes in underwriting approach or emphasis;                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                           
| |  | reviews of
 individual underwriting, surveillance and legal files for selected treaty
 transactions to determine whether cessions conform with treaty eligibility
 criteria and to ensure that the primary insurers underwriting approach and
 implementation are consistent with our own risk tolerance;
| |   |                                                                                                                                                                                                                                                                                                           
| |  | reviews of
 watch list transactions to determine the propriety and prognosis of the
 credits placed on the watch list and any case reserves that may have been
 established; and                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                           
| |  | reviews of
 controls over ceded reinsurance reporting.                                                                                                                                                                                                                                                    

In
addition, we also review rating agency releases and other publicly available
information on the credits reinsured by us to further refine our loss
estimation and reserving process.

Our
investment portfolio is managed by a professional asset management firm, New
England Asset Management. Our investment policies are designed to require the
portfolio to be managed in a manner that preserves principal, provides long
term predictable growth while maximizing income, meets statutory requirements,
provides adequate liquidity to meet claims and other cash needs and maintains
high credit quality. Our investment policy and guidelines as adopted by our
board specify eligible investments and establish a portfolio duration target,
high liquidity, minimum credit ratings, single-risk limits, diversification and
asset allocation standards. Our finance personnel review our portfolio for
compliance with investment policies and procedures; and the Risk Management
Committee of our Board of Directors reviews investments and performance reports
and discusses those reports with our portfolio managers at least quarterly.

Quantitative
and Qualitative Information about Market Risk. Market
risk represents the potential for losses that may result from changes in the
value of a financial instrument as a result of changes in market conditions.
The primary market risks that would impact the value of our financial
instruments are interest rate risk and credit spread risk. An estimation of
potential losses arising from adverse changes in market conditions is a key
element in managing market risk. Senior finance personnel are responsible for
risk measurement and monitoring procedures which include periodic analyses of
shifts in the yield curve and changes in credit spreads. The valuation results
from these analyses could differ materially from amounts that would actually be
realized in the market.

Changes
in interest rates may adversely affect the value of fixed income investment
securities. The following table summarizes the estimated change in fair value
on the net balance of investment securities and cash in the investment
portfolio, assuming immediate changes in interest rates at specified levels at
December 31, 2008:

|                          |  |                           |       |                                                   |   |       |  
|------------------------- |  | ------------------------- | ----- | ------------------------------------------------- | - | ----- | -
|Change in
 Interest Rates |  | Estimated Net
 Fair Value |       | Estimated
 (Decrease)/Increase
 in Net Fair Value |  
|                          |  |                           |       |                                                   |  
|                          |  | (Dollars in millions)     |      
|300 basis
 point rise     |  | $                         | 383.6 |                                                   | $ | (54.5 | )
|200 basis
 point rise     |  |                           | 400.9 |                                                   |   | (37.2 | )
|100 basis
 point rise     |  |                           | 419.0 |                                                   |   | (19.1 | )
|50 basis
 point rise      |  |                           | 428.4 |                                                   |   | (9.7  | )
|Base
 scenario            |  |                           | 438.1 |                                                   |   |      |  
|50 basis
 point decline   |  |                           | 448.1 |                                                   |   | 10.0  |  
|100 basis
 point decline  |  |                           | 458.5 |                                                   |   | 20.4  |  
|200 basis
 point decline  |  |                           | 480.6 |                                                   |   | 42.5  |  
|300 basis
 point decline  |  |                           | 505.0 |                                                   |   | 66.9  |  

Financial
instruments that may be adversely affected by changes in credit spreads include
our outstanding exposure to credit derivative transactions. The Companys
credit derivative exposures are substantially similar to its financial guaranty
insurance contracts and provide for

80

---



credit
protection against payment default. The primary insurer enters into these types
of contracts, which require the insurer to make payments upon the occurrence of
certain defined credit events relating to underlying obligations. If credit
spreads relating to the underlying obligations change, the market value of the
related credit derivative changes accordingly. Market liquidity can also impact
valuations of the underlying obligations, resulting in gains or losses. Changes
in credit spreads are generally caused by changes in the markets perception or
market liquidity of the credit quality of the underlying obligations. As credit
spreads change, we experience unrealized fair value gains or losses on credit
derivative transactions reinsured by us. We generally hold these derivative
contracts to maturity. The unrealized gains and losses on derivative financial
instruments will amortize to zero as the exposure approaches its maturity date,
unless there is a payment default on the exposure. Changes in credit spreads
can result in large variations in the credit derivative liability quarter on
quarter, resulting in further losses if credit spreads widen and gains if the
spreads tighten. See FAS 157 disclosures for the effect of changes in the
Companys estimated non-performance credit risk on our derivative balances.

The following
table summarizes the estimated changes in fair value of our credit derivatives
assuming immediate changes in the Companys non performance credit risk at
specified levels at December 31, 2008:

|                            |  |                                                    |        |                                 |   |       |  
|--------------------------- |  | -------------------------------------------------- | ------ | ------------------------------- | - | ----- | -
|Change in
 Credit Spreads   |  | Estimated Net
 Fair Value of Derivative
 Liability |        | Impact of Change on
 Net Income |  
|                            |  |                                                    |        |                                 |  
|                            |  | ($ in millions)                                    |       
|1000 basis
 point narrowing |  | $                                                  | (150.7 | )                               | $ | (65.3 | )
|500 basis
 point narrowing  |  |                                                    | (111.4 | )                               |   | (26.0 | )
|100 basis
 point narrowing  |  |                                                    | (89.9  | )                               |   | (4.5  | )
|Base
 scenario              |  |                                                    | (85.4  | )                               |   |      |  
|100 basis
 point widening   |  |                                                    | (81.3  | )                               |   | 4.1   |  
|500 basis
 point widening   |  |                                                    | (67.8  | )                               |   | 17.6  |  
|1000 basis
 point widening  |  |                                                    | (55.5  | )                               |   | 29.9  |  

The Company
believes that the above data points are hypothetical with the spread movements
used in the sensitivity analysis of 100, 500, and 1000 basis points supported
by previous large spread changes that have occurred in the last year in our
primaries spreads. Therefore, it is not unreasonable for RAM to use these
spread movements in the sensitivity analysis. This calculation is based on
estimates, involves a significant degree of management judgment and is
sensitive to selected assumptions. Changes to assumptions used in this
valuation could lead to materially different results.

Liquidity
Risk. Liquidity risk relates to the possible inability
to satisfy contractual obligations when due. This risk is most present in
financial guarantee contracts reinsured by us in that we are required to make loss
payments to primary insurers in the event they pay losses as a result of
defaults in their ceded insured obligations. We manage our liquidity risk by
analysis of projected cash flows and by maintaining a minimum level of cash and
short-term investments which we anticipate to be sufficient to fulfill our
contractual obligations, and by maintaining a highly liquid investment
portfolio.

Legal
Risk. Legal risks include uncertainty with respect to
the enforceability of rights under our contractual agreements and with respect
to the enforceability of rights under the financial guaranty policies which we
reinsure. We seek to remove or minimize such uncertainties through consultation
with internal and external legal advisers to analyze and understand the nature
of legal risk, to improve documentation and to understand transaction
structure.

New Accounting Pronouncements

On
May 23, 2008, the Financial Accounting Standards Board (FASB) issued FASB
statement No.163 Accounting for Financial Guarantee Insurance Contracts (FAS
163). FAS 163 clarifies how FASB Statement No.60 Accounting and reporting by
Insurance Enterprises applies to financial guaranty insurance contracts. FAS
163 is focused on the recognition and measurement of premium revenue and claims
liabilities, along with additional disclosure requirements for financial
guaranty contracts. The standard requires the following:

|                                                                                                                                                                                                                                                                                                     | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|1.          Premium
 revenue will be recognized as a function of the amount of insurance
 protection provided over the contract term.                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                     | 
|2.          Present
 value of installment premiums due pursuant to the terms of a financial
 guaranty insurance contract will be recognized at inception of the contract
 as unearned premiums and premiums receivable, which is inconsistent with current
 industry accounting practice.           
|                                                                                                                                                                                                                                                                                                     | 
|3.          A claim
 liability will be established on a financial guaranty contract when the
 probability weighted net present value of an expected claim loss is estimated
 to exceed the related unearned premium revenue. Provision of unallocated
 reserves is not permitted under the standard.
|                                                                                                                                                                                                                                                                                                     | 
|4.          Additional
 disclosures will be required on financial guaranty contracts, the accounting
 and risk management activities used to evaluate credit deterioration in the
 Companys insured obligations and surveillance lists.                                                            

81

---



FAS
163 is effective for fiscal years beginning after December 15, 2008, and all
interim periods within those fiscal years, with the exception of certain risk
management disclosures which are effective for the interim financial statements
prepared as of September 30, 2008, and are presented and disclosed for the
current period in Note 11  Loss and Loss Adjustment Expense Reserve in the
Notes to the Consolidated Financial Statements. Early application is not
permitted. The standard does not apply to credit derivatives. The effect of
fully adopting FAS 163 will be recognized as an adjustment to opening retained
earnings for the fiscal year beginning January 1, 2009. The Company is
currently assessing the potential impact, which is likely to be material, of
applying FAS 163 and at this time is unable to quantify the effect of the
adoption of this standard.

In
September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4 Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 145; and Clarification of the Effective
Date of FASB Statement No. 161. FSP No. FAS 133-1 requires enhanced
disclosures about credit derivatives and guarantees and amends FIN 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others to exclude derivative
instruments accounted for at fair value under SFAS No. 133. The FSP is
effective for financial statements issued for reporting periods ending after
November 15, 2008. The Company has adopted FSP FAS No. 133-1 and FIN 45-4 for
the reporting period ending December 31, 2008. Since FSP FAS No. 133-1 and FIN
45-4 only requires additional disclosures concerning credit derivatives and
guarantees, adoption of FSP FAS No. 133-1 and FIN 45-4 has not affected the
Companys financial position or results of operations.

In
March 2008 the FASB issued FAS No. 161 Disclosures About Derivative
Instruments and Hedging Activities  An Amendment of FASB Statement No. 133
(FAS 161). FAS 161 establishes the disclosure requirements for derivative
instruments and for hedging activities. FAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. Early adoption is encouraged. FAS 161 was adopted for the reporting
period ending December 31, 2008. Since FAS 161 only requires additional
disclosures concerning credit derivatives, FAS 161 did not impact the Companys
results of operations or financial position.

In
September 2006, the FASB issued FAS No. 157 (FAS 157), Fair Value
Measurements. This Statement provides guidance for using fair value to measure
assets and liabilities and associated disclosures about fair value measurement.
Under this standard, the definition of fair value focuses on the price that
would be received to sell the asset or paid to transfer the liability (an exit
price), not the price that would be paid to acquire the asset or received to
assume the liability (an entry price). FAS 157 clarifies that fair value is a
market-based measurement, not an entity-specific measurement, and establishes a
fair value hierarchy with the highest priority being quoted prices in active
markets and the lowest priority to unobservable data. Further, FAS 157 requires
expanded disclosures of the fair value measurements by level within the fair
value hierarchy that distinguishes market data between observable independent
market inputs and unobservable market assumptions by the reporting entity. The
Company adopted FAS 157 effective January 1, 2008. See Note 4, Derivative
Instruments and Note 10, Fair value of Financial Instruments for further
information.

In
October 2008, the FASB issued FASB Staff Position No. 157-3 Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active
(FSP 157-3). FSP 157-3 clarifies the application of FAS 157 in an inactive
market and the provisions of the FSP were effective upon issuance. FSP 157-3
did not have an effect on the Companys results of operations or financial
position. The
    Company had minimal assets in its investment portfolio which were not active
    at December 31, 2008. The provisions were applied to its soft capital facility
    put option (see Item 8  Financial Statement Footnote 9).

In
February 2007, the FASB issued FAS No. 159 (FAS 159), Fair Value Option for
Financial Assets and Financial Liabilities. This statement provides companies
with an option to report selected financial assets and liabilities at fair
value. The statement requires the fair value of the assets and liabilities that
the company has chosen to fair value be shown on the face of the balance sheet.
The standard also requires companies to provide additional information to
enable users of the financial statements to understand the companys reasons
for electing the fair value option and how changes in the fair values affect
earnings for the period. FAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and liabilities.
This statement is effective for fiscal years beginning on or after November 15,
2007. The Company adopted FAS 159 effective January 1, 2008. The fair value
option was not applied to any eligible items on the adoption date.

Effects of Inflation

We
do not believe that inflation has had a material impact on our business or
operating results during the periods presented in this annual report.

|         |                                                            
|-------- | -----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk.

Information
concerning quantitative and qualitative disclosures about market risk appears
in Part II, Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations under the heading Liquidity and Capital
ResourcesInvestment Portfolio.

82

---



|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary Data.

Managements Responsibility for Financial Statements

The
consolidated financial statements of RAM Holdings Ltd. were prepared by
management, who are responsible for their reliability and objectivity. The
statements have been prepared in conformity with accounting principles
generally accepted in the United States of America and, as such, include
amounts based on informed estimates and judgments of management. Financial
information elsewhere in this annual report is consistent with that in the
consolidated financial statements.

The
Board of Directors, operating through its Audit Committee, which is composed
entirely of directors who are not officers or employees of the Company,
provides oversight of the financial reporting process and safeguarding of
assets against unauthorized acquisition, use or disposition. The Audit
Committee annually recommends the appointment of an independent registered
public accounting firm and submits its recommendation to the Board of Directors
for approval.

The
Audit Committee meets with management, the independent registered public
accounting firm and the outside firm engaged to perform internal audit
functions for the Company; approves the overall scope of audit work and related
fee arrangements; and reviews audit reports and findings. In addition, the
independent registered public accounting firm and the outside firm engaged to
perform internal audit functions for the Company meet separately with the Audit
Committee, without management representatives present, to discuss the results
of their audits; the adequacy of the Companys internal control; the quality of
its financial reporting; and the safeguarding of assets against unauthorized
acquisition, use or disposition.

The
consolidated financial statements have been audited by an independent
registered public accounting firm, PricewaterhouseCoopers, who were given
unrestricted access to all financial records and related data, including
minutes of all meetings of the Board of Directors and committees of the Board.
The Company believes that all representations made to our independent
registered public accounting firm during their audits were valid and
appropriate.

Managements Report on Internal Control Over
Financial Reporting

The
management of RAM Holdings Ltd. is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting is a process designed by, or under the supervision of our
Chief Executive Officer and Chief Financial Officer to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of our consolidated financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.

As
of December 31, 2008, management has evaluated the effectiveness of the
Companys internal control over financial reporting based on the criteria
established in Internal ControlIntegrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, we have concluded that RAM Holdings Ltd.s internal control over
financial reporting was effective as of December 31, 2008.

|                                       |  |                         
|-------------------------------------- |  | ------------------------
|                                       |  |                         
|                                       |  |                         
|/s/ Vernon
 M. Endo                    |  | /s/ Edward
 U. Gilpin   
|Vernon M.
 Endo                        |  | Edward U.
 Gilpin       
|President
 and Chief Executive Officer |  | Chief
 Financial Officer

83

---



Report of Independent Registered Public
Accounting Firm

To the Board
of Directors and Shareholders of RAM Holdings Ltd.

In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive (loss) income,
shareholders equity and retained (deficit) earnings and of cash flows present
fairly, in all material respects, the financial position of RAM Holdings Ltd.
and its subsidiary (the Company) at December 31, 2008 and December 31, 2007,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2008 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedules listed in the index appearing
under Item 15(a)(2) present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedules are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

As discussed
in Note 4 to the consolidated financial statements, the Company has adopted
SFAS No. 157, Fair Value Measurements in 2008. As discussed in Note 1 to the
consolidated financial statements, the Company has not renewed its reinsurance
treaties with any of the primary financial guaranty insurers in 2009 or written
any new business to date in 2009.

/s/ PricewaterhouseCoopers
Hamilton, Bermuda

April 15, 2009

84

---



RAM Holdings Ltd. 
Consolidated Balance Sheets 
December 31, 2008 and 2007

|                                                                                                                                                                                     |  |      |              |      |   |             | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------------ | ---- | - | ----------- | 
|                                                                                                                                                                                     |  | 2008 |              | 2007 |  
|                                                                                                                                                                                     |  |      |              |      |  
|ASSETS                                                                                                                                                                               |  |      |              |      |  
|Investments: Fixed-maturity securities held
 as available for sale, at fair value (amortized cost of $415,558,752 and
 $685,644,954)                                                 |  | $    | 421,890,248  |      | $ | 696,532,780 | 
|Cash and cash equivalents                                                                                                                                                            |  |      | 8,763,062    |      |   | 12,326,313  | 
|Restricted cash                                                                                                                                                                      |  |      | 8,284,459    |      |   | 8,177,757   | 
|Accrued investment income                                                                                                                                                            |  |      | 4,437,636    |      |   | 6,464,873   | 
|Premiums receivable                                                                                                                                                                  |  |      | 1,115,413    |      |   | 3,644,620   | 
|Recoverables on paid losses                                                                                                                                                          |  |      | 1,796,842    |      |   | 1,807,941   | 
|Deferred policy acquisition costs                                                                                                                                                    |  |      | 74,795,257   |      |   | 87,304,376  | 
|Prepaid reinsurance premiums                                                                                                                                                         |  |      | 1,599,174    |      |   | 2,662,673   | 
|Other receivables                                                                                                                                                                    |  |      | 4,000,000    |      |   |            | 
|Deferred expenses                                                                                                                                                                    |  |      | 1,588,217    |      |   | 1,752,856   | 
|Prepaid expenses                                                                                                                                                                     |  |      | 377,372      |      |   | 195,291     | 
|Financial instruments at fair value                                                                                                                                                  |  |      | 43,083,370   |      |   | 35,330,000  | 
|Other assets                                                                                                                                                                         |  |      | 2,550,875    |      |   | 4,065,979   | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|                                                                                                                                                                                    
|Total assets                                                                                                                                                                         |  | $    | 574,281,925  |      | $ | 860,265,459 | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|LIABILITIES AND SHAREHOLDERS
EQUITY                                                                                                                                                 |  |      |              |      |   |             | 
|Liabilities:                                                                                                                                                                         |  |      |              |      |   |             | 
|Losses and loss expense reserve                                                                                                                                                      |  | $    | 95,794,254   |      | $ | 63,797,744  | 
|Unearned premiums                                                                                                                                                                    |  |      | 158,593,738  |      |   | 239,957,383 | 
|Reinsurance balances payable                                                                                                                                                         |  |      | 24,621,111   |      |   | 539,394     | 
|Accounts payable and accrued liabilities                                                                                                                                             |  |      | 2,493,959    |      |   | 3,463,366   | 
|Accrued interest payable                                                                                                                                                             |  |      | 693,151      |      |   | 693,151     | 
|Derivative liabilities                                                                                                                                                               |  |      | 85,353,670   |      |   | 180,588,918 | 
|Other liabilities                                                                                                                                                                    |  |      | 2,374,153    |      |   | 3,913,105   | 
|Long-term debt                                                                                                                                                                       |  |      | 40,000,000   |      |   | 40,000,000  | 
|Redeemable preference shares ($1,000
 redemption value and $0.10 par value; authorized shares  75,000; issued and
 outstanding shares  75,000 at December 31, 2008 and 2007)       |  |      | 75,000,000   |      |   | 75,000,000  | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|                                                                                                                                                                                    
|Total liabilities                                                                                                                                                                    |  |      | 484,924,036  |      |   | 607,953,061 | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|Commitments and contingencies (Note 18)                                                                                                                                              |  |      |              |      |   |             | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|Shareholders equity:                                                                                                                                                                |  |      |              |      |   |             | 
|Common shares ($0.10 par value; authorized
 shares  90,000,000; issued and outstanding shares  27,251,595 shares at
 December 31, 2008 and 27,238,976 shares at December 31, 2007) |  |      | 2,725,160    |      |   | 2,723,898   | 
|Additional paid-in capital                                                                                                                                                           |  |      | 230,438,128  |      |   | 229,378,418 | 
|Accumulated other comprehensive income                                                                                                                                               |  |      | 6,331,496    |      |   | 10,887,826  | 
|Retained earnings                                                                                                                                                                    |  |      | (150,136,895 | )    |   | 9,322,256   | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|Total shareholders equity                                                                                                                                                           |  |      | 89,357,889   |      |   | 252,312,398 | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 
|Total liabilities and shareholders equity                                                                                                                                           |  | $    | 574,281,925  |      | $ | 860,265,459 | 
|                                                                                                                                                                                     |  |      |              |      |   |             | 

See accompanying Notes to Consolidated
Financial Statements.

85

---



RAM Holdings Ltd.
Consolidated Statements of Operations

|                                                       |  |                          |              |      |   |              |   |   |             |  
|------------------------------------------------------ |  | ------------------------ | ------------ | ---- | - | ------------ | - | - | ----------- | -
|                                                       |  | Years Ended December 31, |             
|                                                       |  |                          |             
|                                                       |  | 2008                     |              | 2007 |   | 2006         |  
|                                                       |  |                          |              |      |   |              |  
|                                                      
|Revenues:                                              |  |                          |              |      |   |              |   |   |             |  
|Gross premiums written (Note 16)                       |  | $                        | (11,214,227  | )    | $ | 98,500,663   |   | $ | 73,218,339  |  
|Ceded premiums                                         |  |                          | (509,190     | )    |   | (751,528     | ) |   | (2,145,659  | )
|                                                       |  |                          |              |      |   |              |   |   |             |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|Net written premiums                                   |  |                          | (11,723,417  | )    |   | 97,749,135   |   |   | 71,072,680  |  
|Change in unearned premiums                            |  |                          | 80,300,144   |      |   | (46,744,694  | ) |   | (26,780,438 | )
|                                                       |  |                          |              |      |   |              |   |   |             |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|Net premiums earned                                    |  | $                        | 68,576,727   |      | $ | 51,004,441   |   | $ | 44,292,242  |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|Change in fair value of credit derivatives:            |  |                          |              |      |   |              |   |   |             |  
|Realized (losses) gains and other
 settlements         |  |                          | (86,319,869  | )    |   | 5,971,020    |   |   | 3,203,910   |  
|Unrealized gains/(losses)                              |  |                          | 94,288,456   |      |   | (177,777,141 | ) |   | (14,426     | )
|                                                       |  |                          |              |      |   |              |   |   |             |  
|Net change in fair value of credit
 derivatives        |  |                          | 7,968,587    |      |   | (171,806,121 | ) |   | 3,189,484   |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|Net investment income                                  |  |                          | 29,306,749   |      |   | 33,148,540   |   |   | 24,236,102  |  
|Net realized losses on investments                     |  |                          | (2,355,915   | )    |   | (3,604,220   | ) |   | (1,002,055  | )
|Net unrealized gain on other financial
 instruments    |  |                          | 7,753,370    |      |   | 35,330,000   |   |   |            |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|Total revenues                                         |  |                          | 111,249,518  |      |   | (55,927,360  | ) |   | 70,715,773  |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|Expenses:                                              |  |                          |              |      |   |              |   |   |             |  
|Losses and loss adjustment expenses                    |  |                          | 214,828,123  |      |   | 48,026,209   |   |   | (2,781,236  | )
|Acquisition expenses                                   |  |                          | 30,575,753   |      |   | 18,417,790   |   |   | 16,315,353  |  
|Operating expenses                                     |  |                          | 16,929,793   |      |   | 13,373,223   |   |   | 13,378,816  |  
|Interest expense                                       |  |                          | 8,375,000    |      |   | 8,375,000    |   |   | 2,750,000   |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|Total expenses                                         |  |                          | 270,708,669  |      |   | 88,192,222   |   |   | 29,662,933  |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|Net (loss) income                                      |  | $                        | (159,459,151 | )    | $ | (144,119,582 | ) | $ | 41,052,840  |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|                                                       |  |                          |              |      |   |              |   |   |             |  
|Net (loss) income per common share:                    |  |                          |              |      |   |              |   |   |             |  
|Basic                                                  |  | $                        | (5.85        | )    | $ | (5.29        | ) | $ | 1.53        |  
|Diluted                                                |  |                          | (5.85        | )    |   | (5.29        | ) |   | 1.53        |  
|Weighted-average number of common shares
 outstanding: |  |                          |              |      |   |              |   |   |             |  
|Basic                                                  |  |                          | 27,249,220   |      |   | 27,237,481   |   |   | 26,787,221  |  
|Diluted                                                |  |                          | 27,249,220   |      |   | 27,237,481   |   |   | 26,843,583  |  

See accompanying Notes to Consolidated
Financial Statements.

86

---



RAM Holdings Ltd. 
Consolidated Statements of Comprehensive Income (Loss)

|                                                                                                        |  |                          |              |      |   |              |   |   |            |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------------ | ---- | - | ------------ | - | - | ---------- | -
|                                                                                                        |  | Years Ended December 31, |             
|                                                                                                        |  |                          |             
|                                                                                                        |  | 2008                     |              | 2007 |   | 2006         |  
|                                                                                                        |  |                          |              |      |   |              |  
|                                                                                                       
|Net (loss) income                                                                                       |  | $                        | (159,459,151 | )    | $ | (144,119,582 | ) | $ | 41,052,840 |  
|                                                                                                        |  |                          |              |      |   |              |   |   |            |  
|Other comprehensive (loss) income                                                                       |  |                          |              |      |   |              |   |   |            |  
|Change in unrealized
 appreciation/(depreciation) of investments                                        |  |                          | (6,912,245   | )    |   | 12,780,249   |   |   | (1,958,979 | )
|Less: Reclassification adjustment for net
 realized losses on investments included in net (loss) income |  |                          | 2,355,915    |      |   | 3,604,220    |   |   | 1,002,055  |  
|                                                                                                        |  |                          |              |      |   |              |   |   |            |  
|                                                                                                        |  |                          |              |      |   |              |   |   |            |  
|Other comprehensive (loss) income                                                                       |  |                          | (4,556,330   | )    |   | 16,384,469   |   |   | (956,924   | )
|                                                                                                        |  |                          |              |      |   |              |   |   |            |  
|Comprehensive (loss) income for the year                                                                |  | $                        | (164,015,481 | )    | $ | (127,735,113 | ) | $ | 40,095,916 |  
|                                                                                                        |  |                          |              |      |   |              |   |   |            |  

See accompanying Notes to Consolidated Financial
Statements.

87

---



RAM Holdings Ltd.
ConsolidatedStatements of Shareholders Equity and Retained (Deficit) Earnings

|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  
|-------------------------------------------------------- |  | ------------- | --------- | --------------------------- | - | ----------------------------------------- | - | ---------------------------- | ---------- | ----- | - | ------------ | - | - | ------------ | -
|                                                         |  | Share capital |           | Additional
 paid-in capital |   | Accumulated
 other
 comprehensive
 income |   | Retained
 (deficit) earnings |            | Total |  
|                                                        
|Balance,
 January 1, 2006                                |  | $             | 2,588,476 |                             | $ | 211,056,634                               |   | $                            | (4,539,719 | )     | $ | 113,550,701  |   | $ | 322,656,092  |  
|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  
|Share
 issuance                                          |  |               | 135,000   |                             |   | 16,456,872                                |   |                              |           |       |   |              |   |   | 16,591,872   |  
|Committed
 preference share expenses                     |  |               |          |                             |   | (523,499                                  | ) |                              |           |       |   |             |   |   | (523,499     | )
|Share based
 compensation                                |  |               |          |                             |   | 446,833                                   |   |                              |           |       |   |             |   |   | 446,833      |  
|Net income                                               |  |               |          |                             |   |                                          |   |                              |           |       |   | 41,052,840   |   |   | 41,052,840   |  
|Other
 comprehensive loss                                |  |               |          |                             |   |                                          |   |                              | (956,924   | )     |   |             |   |   | (956,924     | )
|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  
|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  
|Balance,
 December 31, 2006                              |  |               | 2,723,476 |                             |   | 227,436,840                               |   |                              | (5,496,643 | )     |   | 154,603,541  |   |   | 379,267,214  |  
|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  
|Reclassification of committed preference
 share expenses |  |               |          |                             |   | 1,161,703                                 |   |                              |           |       |   | (1,161,703   | ) |   |             |  
|Share
 issuance                                          |  |               | 422       |                             |   | (422                                      | ) |                              |           |       |   |             |   |   |             |  
|Share based
 compensation                                |  |               |          |                             |   | 780,297                                   |   |                              |           |       |   |             |   |   | 780,297      |  
|Net loss                                                 |  |               |          |                             |   |                                          |   |                              |           |       |   | (144,119,582 | ) |   | (144,119,582 | )
|Other
 comprehensive income                              |  |               |          |                             |   |                                          |   |                              | 16,384,469 |       |   |             |   |   | 16,384,469   |  
|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  
|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  
|Balance,
 December 31, 2007                              |  |               | 2,723,898 |                             |   | 229,378,418                               |   |                              | 10,887,826 |       |   | 9,322,256    |   |   | 252,312,398  |  
|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  
|Share
 issuance                                          |  |               | 1,262     |                             |   | (1,262                                    | ) |                              |           |       |   |             |   |   |             |  
|Share based
 compensation                                |  |               |          |                             |   | 1,060,972                                 |   |                              |           |       |   |             |   |   | 1,060,972    |  
|Net loss                                                 |  |               |          |                             |   |                                          |   |                              |           |       |   | (159,459,151 | ) |   | (159,459,151 | )
|Other
 comprehensive loss                                |  |               |          |                             |   |                                          |   |                              | (4,556,330 | )     |   |             |   |   | (4,556,330   | )
|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  
|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  
|Balance,
 December 31, 2008                              |  | $             | 2,725,160 |                             | $ | 230,438,128                               |   | $                            | 6,331,496  |       | $ | (150,136,895 | ) | $ | 89,357,889   |  
|                                                         |  |               |           |                             |   |                                           |   |                              |            |       |   |              |   |   |              |  

See accompanying Notes to Consolidated
Financial Statements.

88

---



RAM Holdings Ltd.
Consolidated Statements of Cash Flows

|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|----------------------------------------------------------------------------------------- |  | ------------------------ | ------------ | ---- | - | ------------ | - | - | ------------ | -
|                                                                                          |  | Years Ended December 31, |             
|                                                                                          |  |                          |             
|                                                                                          |  | 2008                     |              | 2007 |   | 2006         |  
|                                                                                          |  |                          |              |      |   |              |  
|Cash flows
 from operating activities:                                                    |  |                          |              |      |   |              |   |   |              |  
|Net (loss)
 income for the year                                                           |  | $                        | (159,459,151 | )    | $ | (144,119,582 | ) | $ | 41,052,840   |  
|Adjustments to reconcile net (loss) income
 to net cash provided by operating activities: |  |                          |              |      |   |              |   |   |              |  
|Net realized
 losses on investments                                                       |  |                          | 2,355,915    |      |   | 3,604,220    |   |   | 1,002,055    |  
|Net
 unrealized (gains) losses on credit derivatives                                      |  |                          | (94,288,456  | )    |   | 177,777,141  |   |   | 14,426       |  
|Net
 unrealized (gain) on other financial instruments                                     |  |                          | (7,753,370   | )    |   | (35,330,000  | ) |   |             |  
|Depreciation
 and amortization                                                            |  |                          | 205,054      |      |   | 210,534      |   |   | 141,443      |  
|Amortization
 of debt discount                                                            |  |                          | 6,280        |      |   | 6,280        |   |   | 6,280        |  
|Amortization
 of bond premium and discount                                                |  |                          | 1,646,258    |      |   | 798,087      |   |   | 486,654      |  
|Share based
 compensation                                                                 |  |                          | 1,060,972    |      |   | 780,297      |   |   | 446,833      |  
|Changes in
 assets and liabilities:                                                       |  |                          |              |      |   |              |   |   |              |  
|Accrued
 investment income                                                                |  |                          | 2,027,237    |      |   | (1,238,319   | ) |   | (534,583     | )
|Premiums
 receivable                                                                      |  |                          | 2,529,207    |      |   | (180,465     | ) |   | (1,476,118   | )
|Recoverables
 on paid losses                                                              |  |                          | 11,099       |      |   | (892,041     | ) |   | 363,603      |  
|Deferred
 policy acquisition costs                                                        |  |                          | 12,509,119   |      |   | (13,466,738  | ) |   | (7,617,283   | )
|Prepaid
 reinsurance premiums                                                             |  |                          | 1,063,499    |      |   | (571,319     | ) |   | (2,091,354   | )
|Prepaid
 expenses                                                                         |  |                          | (182,081     | )    |   | (10,665      | ) |   | (70,619      | )
|Other
 receivables                                                                        |  |                          | (4,000,000   | )    |   |             |   |   |             |  
|Deferred
 expenses                                                                        |  |                          |             |      |   | 476          |   |   | (40,346      | )
|Losses and
 loss adjustment expenses                                                      |  |                          | 31,996,510   |      |   | 49,291,966   |   |   | (2,089,089   | )
|Unearned
 premiums                                                                        |  |                          | (81,363,645  | )    |   | 47,316,014   |   |   | 28,871,792   |  
|Derivative liability                                                                      |  |                          | (946,792     | )    |   | 1,190,812    |   |   | (129,757     | )
|Reinsurance
 balances payable                                                             |  |                          | 24,081,717   |      |   | (671,289     | ) |   | 1,210,683    |  
|Accounts
 payable and accrued liabilities and interest payable                            |  |                          | (969,407     | )    |   | 5,179        |   |   | 350,212      |  
|Share based
 compensation liability                                                       |  |                          |             |      |   |             |   |   | (2,801,535   | )
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|Net cash (used in) provided by operating activities                                       |  |                          | (269,470,035 | )    |   | 84,500,588   |   |   | 57,096,137   |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|Cash flows
 from investing activities:                                                    |  |                          |              |      |   |              |   |   |              |  
|Purchases of
 investments                                                                 |  |                          | (251,363,052 | )    |   | (244,097,849 | ) |   | (220,303,995 | )
|Proceeds
 from sales of investments                                                       |  |                          | 427,136,405  |      |   | 18,228,122   |   |   | 111,000,298  |  
|Proceeds on
 maturities of investments                                                    |  |                          | 90,310,675   |      |   | 109,867,972  |   |   | 7,996,521    |  
|Net sales
 (purchases) of short term investments                                          |  |                          |             |      |   | 10,040,385   |   |   | (9,820,200   | )
|Net change
 in restricted cash                                                            |  |                          | (106,702     | )    |   | (1,924,424   | ) |   | (2,885,453   | )
|Purchases of
 fixed assets                                                                |  |                          | (70,542      | )    |   | (24,334      | ) |   | (19,864      | )
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|Net cash provided by (used in) investing activities                                       |  |                          | 265,906,784  |      |   | (107,910,128 | ) |   | (114,032,693 | )
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|Cash flows
 from financing activities:                                                    |  |                          |              |      |   |              |   |   |              |  
|Net issuance
 (redemption) of share capital                                               |  |                          |             |      |   |             |   |   | 16,591,872   |  
|Net proceeds
 from issuance of preference shares                                          |  |                          |             |      |   |             |   |   | 73,901,496   |  
|Committed
 preference securities expenses                                                 |  |                          |             |      |   |             |   |   | (523,499     | )
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|Net cash provided by financing activities                                                 |  |                          |             |      |   |             |   |   | 89,969,869   |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|Net (decrease) increase in cash and cash equivalents                                      |  |                          | (3,563,251   | )    |   | (23,409,540  | ) |   | 33,033,313   |  
|Cash and
 cash equivalents  Beginning of year                                            |  |                          | 12,326,313   |      |   | 35,735,853   |   |   | 2,702,540    |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|Cash and cash equivalents  End of year                                                   |  | $                        | 8,763,062    |      | $ | 12,326,313   |   | $ | 35,735,853   |  
|                                                                                          |  |                          |              |      |   |              |   |   |              |  
|Supplemental
 cash flow disclosure:                                                       |  |                          |              |      |   |              |   |   |              |  
|Interest
 paid on redeemable preference shares                                            |  | $                        | 5,625,000    |      | $ | 5,625,000    |   | $ |             |  
|Interest
 paid on long-term debt                                                          |  | $                        | 2,750,000    |      | $ | 2,750,000    |   | $ | 2,750,000    |  

See accompanying Notes to Consolidated
Financial Statements.

89

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RAM Holdings Ltd.
Notes to Consolidated Financial Statements

|  |           
|- | ----------
|1 | BACKGROUND

RAM Holdings
Ltd. (Holdings), RAM Holdings II Ltd (Holdings II) and RAM Reinsurance
Company Ltd (RAM Re), collectively the RAM Re Group of Companies, were
incorporated on January 28, 1998 under the laws of Bermuda. RAM Holdings and
Holdings II, the owners of all of the voting and non-voting common shares of
RAM Re, entered into an amalgamation (merger) agreement pursuant to which the
two companies amalgamated as of May 1, 2006. Upon completion of the
amalgamation, all of the shares of RAM Re are held by RAM Holdings Ltd. (the
Company), the amalgamated entity of RAM Holdings and Holdings II.

On May 2,
2006, the Company completed an initial public offering (IPO). The Companys
common shares are traded on the NASDAQ Global Market under the symbol of
RAMR.

RAM Re is a
Bermuda-based company whose principal activity is the reinsurance of financial
guarantees of public finance and structured finance debt obligations insured by
monoline financial guaranty companies (the primary
insurers or the primaries). We refer to the primaries that reinsure with RAM Re
as ceding companies. RAM Re provides reinsurance through treaty and
facultative agreements that it maintains with each of its customers. Financial
guaranty reinsurance written by RAM Re generally provides for guarantees of
scheduled principal and interest payments on an issuers obligation in
accordance with the obligations original payment schedule and, in rare
circumstances, such amounts are payable on an accelerated basis.

The
unprecedented deterioration in the U.S. housing market since the latter half of
2007 and the resulting lack of liquidity in the capital markets has had a
substantial adverse impact on the financial guaranty industry generally and the
Company in particular. It is uncertain whether the primary financial guaranty
market will return to the level of business volume of prior years. As a result
of these adverse developments and the downgrades of the Companys ratings from
AAA to A+ by Standard & Poors Ratings Services (S&P) and from Aa3 to
Baa3 by Moodys Investors Service (Moodys), we wrote only a modest amount of
new financial guaranty reinsurance business in 2008 and have not renewed our
reinsurance treaties with the primaries or written any new financial guaranty
business to date in 2009.

Our business strategy

In response to
the economic and rating events referenced above, we are continuing efforts that
we began in 2008 to reduce the volatility of our insured portfolio and evaluate
our business model:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reducing our insured risk exposure:
 We commuted our entire insured portfolio assumed from Syncora Guaranty Re
 Ltd. and MBIA, effective July 25, 2008 and November 30, 2008, respectively.
 See Managements Discussion and Analysis of Financial Condition and Results
 of Operations, Results of operations: Net income - Commutations. We
 commuted our entire insured portfolio assumed from Ambac Assurance
 Corporation effective April 8, 2009. See Note 27, Subsequent Events. We are
 pursuing further commutations in cases where they can be negotiated at
 acceptable prices. In addition, we are pursuing legal actions against our
 ceding companies in cases where we dispute the validity of cessions made
 under our treaties or ceded losses.                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Capital preservation and evaluation:
 We reduced our new business growth in 2008 and have not written any business
 to date in 2009. We are evaluating our capital position in light of ongoing
 deterioration in the credit markets to determine whether we have sufficient
 capital in excess of that required to pay claims and other obligations under
 various stress scenarios to pursue opportunities to deleverage our capital
 structure by repurchasing our outstanding securities and, in the longer term,
 new business opportunities.                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Reducing expenses:
 In order to reduce our expenses, we are actively considering whether to
 de-list our common shares from trading on NASDAQ and de-register our
 securities under the Securities Exchange Act of 1934 as promptly as possible
 after the filing of this annual report on Form 10-K. If we de-list and
 de-register, we would no longer file annual, quarterly and current reports or
 proxy statements with the U.S. Securities and Exchange Commission. We
 estimate that these actions will reduce our expenses by at least $2 million
 per year, although the full effect of this cost savings is not expected until
 2010. We also requested on March 17, 2009 that Moodys withdraw our financial
 strength rating, which will result in us no longer paying an annual fee to
 Moodys. We are also evaluating other measures to reduce expenses.

We are not
seeking to write any new business in the near term, although we believe that if
we are successful in the strategic measures set forth above, it will improve
our position to potentially write new business in the future. We continue to
evaluate our business model and may pursue a different set of strategies in the
future. There can be no assurance that the strategies that have been
implemented or that will be pursued in the future in connection with this
evaluation will improve our business, financial condition, liquidity or results
of operations or will not have a material adverse effect on the Company.

90

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Liquidity

RAM Holdings
is a holding company and therefore our liquidity, both on a short-term basis
(for the next twelve months) and a long-term basis (beyond the next twelve
months), is largely dependent upon (1) the ability of RAM Re to pay dividends
or make other payments to us and (2) our ability to access the debt and equity
markets, which is unlikely in the near term given current market
conditions and the Companys current share valuation. Our principal uses
of liquidity are for payment of interest on our senior notes, non-mandatory
dividends on our preference shares and capital investments in RAM Re. On March
19, 2009, RAM Res Board approved a dividend of $2.8 million from RAM Re to RAM
Holdings. Based on the amount of dividends that we received on March 19,
2009, we believe that we will have sufficient liquidity to pay interest on our
senior notes over the next twelve months. RAM Res ability to declare and pay
dividends to us may be influenced by a variety of factors such as adverse loss
development, insurance regulatory changes and changes in general economic conditions,
beyond the next twelve months, the amounts required to be held by us in trust
for the benefit of our U.S. regulated customers and Bermuda law as described
below. Consequently, although we believe that we will continue to have
sufficient liquidity to meet our obligations over the long term, we cannot
guarantee that RAM Re will be able to dividend amounts sufficient to satisfy
all our obligations, and there can be no assurance that dividends will be
declared or paid in the future.

The principal
sources of RAM Res liquidity are gross written premiums, scheduled investment
maturities, existing soft capital facilities and net investment income. The
principal uses of RAM Res liquidity are for the payment of operating expenses,
claims, ceding commissions, reinsurance premiums, dividends on RAM Re
preference shares, dividends to RAM Holdings and for purchases of new
investments and more recently funding commutation agreements. We believe that
RAM Res expected operating liquidity needs can be funded from its operating
and investing cash flows for the next twelve months. Further increases in loss
reserves and credit impairments would require RAM Re to deposit additional
collateral in the applicable trust account(s); and resulting claims payments in
respect of those losses and impairments would increase cash outflows and could
decrease the size of RAM Res investment portfolio, in turn decreasing income
from investments.

RAM Re may
declare dividends, provided that, after giving effect to the distribution, it
would not violate certain statutory equity, solvency and asset tests. The
Bermuda Insurance Act requires RAM Re to meet a minimum solvency margin equal
to the greater of (i) $1.0 million, (ii) 20% of net premiums written up to $6.0
million plus 15% of net premiums written over $6.0 million, and (iii) 15% of
loss and other insurance reserves. To satisfy these requirements, RAM Re was
required to maintain a minimum level of statutory capital and surplus of $15.3
million at December 31, 2008. RAM Res statutory capital and surplus was $158.4
million at December 31, 2008. In addition to the
solvency margin, the Bermuda Insurance Act requires RAM Re to comply with a
liquidity ratio whereby the value of its relevant assets must be not less than
75% of the amount of its relevant liabilities. In the event RAM Re fails to
meet its Relevant Margins on the last day of any financial year, it shall not
without the approval of the Bermuda Monetary Authority (the BMA), declare or
pay any dividend during the next financial year. In addition, under the
Bermuda Insurance Act, Class 3B insurers are prohibited from declaring or
paying any dividends of more than 25% of its total statutory capital and
surplus, as shown on its previous financial year statutory balance sheet,
unless at least seven days before payment of the dividends it files with the
BMA an affidavit that it will continue to meet its required solvency margins.
Based upon these tests, without filing an affidavit with the BMA, the maximum
amount that will be available during 2009 for payment by RAM Re is
approximately $39.6 million, which amounts may be further restricted by
Enhanced Credit Requirements expected to be applied by the BMA to Class 3B
insurers in the future.

RAM Re and the Company must also
comply with the provisions of the Bermuda Companies Act regulating the payment
of dividends and making of distributions from contributed surplus. A company is
prohibited from declaring or paying a dividend, or making a distribution out of
contributed surplus, if there are reasonable grounds for believing that: (a)
the company is, or would after the payment, be unable to pay its liabilities as
they become due; or (b) the realizable value of the companys assets would
thereby be less than the aggregate of its liabilities and its issued share
capital and share premium accounts. The Board of Directors of RAM Re and the
Company will evaluate any dividends in accordance with this test at the time
such dividends are declared.

In addition, the terms of RAM Res Class B preference shares restrict
RAM Res ability to pay dividends on its common shares unless all accrued and
unpaid dividends on the Class B preference shares for the then current dividend
period have been declared and paid or a sum sufficient for payment thereof set
apart. There is an exception however that permits RAM Re to declare dividends
on its common shares in such amounts as are necessary for RAM Holdings (i) to
service indebtedness for borrowed money as such payments become due (or to
satisfy any of its guarantee obligations made in respect of indebtedness of RAM
Re or RAM Holdings) or (ii) to pay its operating expenses.

On September 24, 2008 RAM Re was
downgraded by S&P to A+ from AA and on December 4, 2008 RAM Re was
downgraded by Moodys to Baa3 from A3. On March 17, 2009, RAM Re requested that
Moodys withdraw its rating. The downgrade of RAM Res ratings has had an
adverse effect on RAM Res ability to compete in the financial guaranty
reinsurance industry and significantly decreased the value of the reinsurance
provided. Due to the above mentioned downgrades, certain ceding companies have
the right, after a cure period, to increase the ceding commission, as
stipulated in the treaties, or terminate the treaties and recapture the
business previously ceded to RAM Re whether written in financial guaranty or
credit derivative form. To the extent policies are recaptured, RAM must forfeit
to the ceding company an amount determined by formula under each treaty which
generally consists of RAMs allocated share of the U.S. statutory unearned
premium, net of the ceding commission paid by RAM to the ceding company
(subject to a penalty amount in some cases), and loss reserves established with
respect to the policies ceded, as applicable. U.S statutory premiums usually earn
at a slower rate than GAAP premiums and therefore any forfeiture of U.S.
statutory unearned premiums would result in a loss on a GAAP basis. In some
cases, the ceding companies have the right to select specific years of business
written to recapture, and a decision by a ceding company to recapture, for
example, all business written prior to

91

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2006, could have a material adverse
effect on RAM Re because of the projected losses associated with the business
written in the last three years. As of April 13, 2009, none of the primaries
have recaptured any business. The commutations negotiated during
the year were not a result of these treaty terms. As at December 31,
2008, we have accrued or paid additional ceding commissions related to the
S&P downgrade totaling $20.3 million which is being expensed as the related
premiums are earned. We are unable to estimate any further ceding commission
increase resulting from the Moodys downgrade because Moodys has not
yet established the amount of further reinsurance credit we provide to each of
the primaries at the Baa3 level.

At December 31, 2008, the Company has $438.9 million of cash and
investments of which $378.9 million is held in trust for the benefit of our
ceding companies, leaving $60.0 million cash and investments available for the
cost of ongoing business. The trust accounts are required to hold cash and
investments equivalent to unearned premiums, case-basis loss reserves and
credit impairments, and a contingency reserve calculated by the ceding companies,
and the balances are adjusted at least annually. Currently, losses are paid out
of our unrestricted cash rather than our trust accounts which reduces available
cash until the trust accounts are adjusted. Subsequent to
December 31, 2008, approximately $32.9 million was released from the trust
accounts to the Companys operating account.

Management
believes that the Company has sufficient capital resources and liquidity to
meet its obligations for at least the twelve months subsequent to the balance
    sheet date and therefore that the Company remains a going concern,
    even if the Company does not write any new business during that time period.

|  |                                
|- | -------------------------------
|2 | SIGNIFICANT ACCOUNTING POLICIES

The following
is a summary of the significant accounting policies adopted by the Company:

| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (a) | Basis of preparation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     | The
 consolidated financial statements have been prepared in accordance with
 accounting principles generally accepted in the United States of America (US
 GAAP). The preparation of financial statements in accordance with generally
 accepted accounting principles requires management to make estimates and
 assumptions that affect reported amounts of assets and liabilities, as well
 as disclosure of contingent assets and liabilities as of the balance sheet
 date. Estimates also affect the reported amounts of income and expenses for
 the reporting period. Actual results could differ materially from those
 estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | (b) | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     | As discussed
 in Note 1, RAM Holdings Ltd and RAM Holdings II Ltd were amalgamated on May
 1, 2006 and these consolidated financial statements reflect the amalgamation.
 There was no effect to shareholders equity or results of operations on
 amalgamation. The consolidated accounts of Holdings include those of its
 subsidiary, RAM Re. All significant intercompany balances have been
 eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | (c) | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     | The Company
 considers all highly liquid investments, including fixed-interest and money
 market fund deposits, with a maturity of 90 days or less when purchased as
 cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | (d) | Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     | The Company
 has classified its fixed-maturity investments as available for sale as
 defined by Statement of Financial Accounting Standards No. 115 (SFAS 115).
 Available for sale investments are carried at fair value, with unrealized
 appreciation or depreciation reported as a separate component of accumulated
 other comprehensive income. The Companys fair
 values of fixed maturity and short-term investments are based on prices
 obtained from nationally recognized independent pricing services. All
 investment transactions are recorded on a trade date basis. Realized gains
 and losses on sales of fixed maturity investments are determined on the basis
 of amortized cost. Gains and losses on sale of investments are included in
 investment income when realized. The cost of securities sold is determined
 using the specific identification method. Short-term investments are carried
 at amortized cost, which approximates fair value, and include all securities
 with maturities greater than 90 days but less than one year at time of
 purchase. All declines in fair value below cost that are considered other
 than temporary are recognized in income. Factors considered when assessing
 impairment include: (i) securities whose market values have declined by 20%
 or more below amortized cost for a continuous period of at least six months;
 (ii)

92

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| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     | credit
 downgrades by rating agencies; (iii) the financial condition of the issuer;
 (iv) whether scheduled interest payments are past due; and (v) whether the
 Company has the ability and intent to hold the security for a sufficient
 period of time to allow for anticipated recoveries in fair value. The
 Companys investment guidelines require the orderly sale of securities that
 do not meet investment guidelines due to a downgrade by rating agencies or
 other circumstances, unless otherwise authorized by management to
 hold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | (e) | Premium revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     | Installment
 premiums are recorded as written at each installment due date and are earned
 over the respective installment period, which equates to the period of risk.
 All other premiums written are recorded as written at the inception of the
 policy and are earned ratably over the period of risk. When insured issues
 are refunded or called, the remaining unearned premiums are earned at that
 time, since there is no longer risk to the Company. Premiums are recorded on
 a one month lag due to the timing of receipt of the information from the
 ceding companies. Premiums earned for 2008, 2007, and 2006, respectively,
 includes $23.7 million, $5.7 million, and $6.3 million related to refundings.                                                                                                                                                                                                                                                                                                                                                                                      
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | (f) | Deferred policy acquisition costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     | Deferred
 policy acquisition costs comprise those expenses that vary with and are
 primarily related to the production of business, including ceding commissions
 paid on reinsurance assumed, a portion of salaries and related costs of
 underwriting personnel, rating agency fees, and certain other underwriting
 expenses. Policy acquisition costs are deferred and amortized over the period
 in which the related premiums are earned. Policy acquisition costs related to
 insured derivative transactions are expensed as incurred. When assessing the
 recoverability of deferred policy acquisition costs, the Company considers
 the future earnings of premiums paid upfront, the estimated present value of
 net installment premiums to be received and anticipated investment income and
 compares this to the sum of unamortized policy acquisition costs and expected
 loss and loss adjustment expenses. This comparison is completed by
 underwriting year and risk type. If a premium deficiency were calculated the
 unamortized acquisition costs would be reduced by a charge to expense.
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     | For policies
 retroceded, the Company receives ceding commissions to compensate for
 acquisition costs incurred. The Company nets ceding commissions received
 against deferred acquisition costs and earns these ceding commissions over
 the period in which the related premiums are earned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | (g) | Losses and loss adjustment expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     | The
 Companys liability for losses and loss adjustment expenses consists of
 case-basis reserves and an unallocated reserve.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     | Case-basis
 reserves are established based on ceding company reports and internal review
 and evaluation of exposures related to guaranteed obligations that either
 have already defaulted or have a high and estimable probability of default.
 Managements review and analysis of case-basis reserves includes an analysis
 of the present value of the expected ultimate losses and loss adjustment
 expense that the Company expects to pay less estimated recoveries. The amount
 of the expected loss, net of expected recoveries, is discounted based on a
 discount rate of approximately 5% for all periods presented. Changes to the
 ceding companys reserves are reported at regular intervals and are reviewed
 for reasonableness by the Chief Risk Manager and the Companys Management
 Committee.                                                                                                                                                                                                                                                                                              
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     | Case-basis
 reserves for policies with installment premiums are established net of
 expected future installments premiums, as such premiums are considered a form
 of recovery when installment premiums are considered collectible. Case-basis
 reserves established for policies with upfront premiums do not reflect the
 benefit of deferred premium revenue, which the Company continues to earn over
 the remaining life of the policy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     | The Company
 maintains an unallocated reserve as established by the Management Committee
 and estimated based on the composition of our outstanding par exposure and
 reserve factors applied to this exposure so that, all else being equal,
 increases in outstanding par will result in increases in unallocated
 reserves. Our reserve factors are the product of i) the ratios of the unallocated
 reserves of our ceding companies relative to their outstanding exposures and
 ii) the credit risk of our outstanding exposure relative to the credit risk
 of the portfolios of our ceding companies, where credit risk is assessed by
 weighted average capital charges (a commonly recognized measure of credit
 risk promulgated by S&P). RAM Res insured portfolio is segregated by
 primary insurer, and the above ratios are calculated individually by primary
 insurer. Therefore, changes in the following factors would result in changes
 in our unallocated reserves under our current practices:                                                                                             

93

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| |  |  |  |    |                                                                                                                                                                                                                                                                                                                          
| |  |  |  | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | 1. | The reserving practices of
 the primaries (such as could occur if estimates of default frequency or
 severities of loss given default were to change);                                                                                                                                                                   
| |  |  |  |    |                                                                                                                                                                                                                                                                                                                          
| |  |  |  | 2. | Developments that could
 result in a change in the relativities between the weighted average capital
 charge for our portfolio exposures versus those of the primary insurers (such
 as could occur if modifications of capital charges by Standard & Poors
 were to differentially impact RAM Re and the primaries); or
| |  |  |  |    |                                                                                                                                                                                                                                                                                                                          
| |  |  |  | 3. | Developments in the credit
 quality of our portfolio relative to our primaries.                                                                                                                                                                                                                                          

| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     | RAM Res unallocated
 reserve is reviewed periodically by the Management Committee and the estimate
 may be modified if industry experience or company specific-developments are
 judged to warrant such an adjustment. For example, as at December 31, 2008,
 some of the primaries increased the unallocated reserves for residential
 mortgage-backed securities, which has been reflected in our unallocated loss
 reserve calculation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |     | The unallocated reserve is
 established to cover estimated losses on par exposures based on historical
 industry experiences of losses and defaults. As case reserves are
 established, the par related to that particular credit is removed from the
 total par used to calculate the unallocated reserve as described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |     | Additionally, management
 considers internal guidelines in place which address the procedures followed
 to determine that the total best estimate continues to be based upon expected
 loss experience over the long term and is not overly influenced by one short
 term development on one loss. Specifically, the Management Committee has two
 guidelines with respect to the interaction of unallocated (excluding any
 calculated by management on specific policies) and case reserves. No more
 than 20% of the unallocated reserve balance at quarter end can be reduced to
 offset a case reserve associated with a single default. No more than 50% of
 the unallocated reserve balance at year end can be reduced to offset
 aggregate case reserve activity during the following year. These internal
 guidelines are not mandatory as they are subject to management judgment based
 on specific facts and circumstances.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |     | The Company reviews the
 portfolio on a continuous basis to identify problem credits. Quarterly, the
 Management Committee formally reviews case and the unallocated reserves.
 Management establishes reserves that it believes are adequate to cover the
 present value of the ultimate liability for claims. The reserves are based on
 estimates and are substantially dependent on the surveillance activities and
 reserving policies of our ceding companies and may vary materially from
 actual results. Adjustments based on actual loss experience will be recorded
 in the periods in which they become known.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |     | The Company recognizes that
 there is diversity in practice among financial guaranty insurers and
 reinsurers with respect to their accounting policies for unallocated loss
 reserves. Current accounting literature, specifically FASB Statement of
 Financial Accounting Standards No. 60 Accounting and Reporting by Insurance
 Enterprises (FAS 60) and FASB Statement of Financial Accounting Standards
 No. 97 Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
 Contracts and for Realized Gains and Losses from the Sale of Investments
 (FAS 97), do not specifically address the unique characteristics of
 financial guarantee insurance contracts. Consequently, the accounting
 principles applied by the industry, as well as the Company, have evolved over
 time and incorporate the concepts of both short-duration contracts, accounted
 for under the provisions of FAS 60 and long duration accounting under FAS 97,
 as well as other accounting literature, such as FASB No. 5 Accounting for
 Contingencies and Emerging Issues Task Force (EITF) Issue No. 85-20
 Recognition of Fees for Guaranteeing a Loan. The Company will continue its
 loss reserving methodology as noted above until the adoption of FAS 163. See
 recent accounting pronouncements (part 2(k) of this note) for further
 discussion of this issue.
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | (h) | Reinsurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |     | In the ordinary course of
 business, the Company cedes business to other insurance and reinsurance
 companies. These agreements enable the Company to manage its risk
 concentration limits thereby providing greater risk diversification and may
 minimize the net potential loss from large risks. Retrocessional contracts do
 not relieve the Company of its obligation to the reinsured. Prepaid reinsurance
 premiums represent the portion of premiums ceded to reinsurers relating to
 the unexpired terms of the reinsurance contracts in force. During 2008, the
 Company had one retrocessional agreement in place. This agreement has been
 terminated on a run-off basis effective December 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | (i) | Derivative
 instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |     | The Company has entered
 into agreements to reinsure derivative instruments, consisting primarily of
 credit default swaps that it intends to reinsure for the full term of the contract.
 While management considers these agreements to be a normal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

94

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| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | extension of its financial
 guaranty reinsurance business and reinsurance in substance, under FASB
 Statement of Financial Accounting Standards No. 149 (FAS 149), the reinsurance
 the Company provides does not meet the scope exception that excludes most
 financial guaranty policies from the fair value provisions of FASB Statement
 of Financial Accounting Standards No. 133 Accounting for Derivative
 Instruments and Hedging Activities (FAS 133). The credit default swaps
 that the Company assumes from ceding companies do not meet the scope
 exception provided under FAS 149 because (a) the guaranteed party (i.e., the
 underlying insured) is entitled to recover amounts on occurrence of events
 other than failure to pay principal and interest when due; and (b) the
 guaranteed party is not exposed to the risk of non-payment at the inception
 of the contract and throughout the contract term as the guaranteed party does
 not have legal ownership of the guaranteed obligation. As the assumed
 policies do not qualify for the scope exception under FAS 149, the Company
 must account for these assumed credit default swaps under the provisions of
 FAS 133, and not as reinsurance under FASB Statement of Financial Accounting
 Standards No. 113, Accounting and Reporting for Reinsurance under
 Short-Duration and Long-Duration Contracts. FAS 133 establishes accounting
 and reporting standards for derivative instruments, and requires the Company
 to recognize the derivative instruments on the balance sheet at their fair
 value, with changes in fair value recognized in earnings. Changes in fair
 value are recorded in Net change in fair value of credit derivatives on the
 Consolidated Statement of Operations. The Realized gains and losses and
 other settlements component of this change in fair value includes, (i) net
 premiums earned on credit derivative policies, including current premiums
 receivable on assumed credit derivative polices, net of ceding commissions,
 and (ii) loss payments to the reinsured including losses payable upon the
 occurrence of a credit event. The Unrealized gains and losses component of
 the Net change in fair value of credit derivatives includes all other
 changes in fair value, including changes in instrument specific credit
 spreads and reduction in fair values due to commutation of credit derivative
 policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  | Through June 30, 2007, RAM
 valued its credit default swap portfolio using an internally developed model.
 While the model estimated an appropriate fair value during normal market
 conditions, the internal model output would not fully reflect the effect of
 market conditions and the large changes in credit spreads being experienced.
 Management therefore determined that a more appropriate basis for our
 estimate of fair value was to use as a key input, from September 30, 2007
 onward, the valuation information provided to us by our ceding companies.
 RAM participates in credit default swaps through a reinsurance treaty with a
 ceding company and therefore the contract to be valued is a reinsurance
 contract on a derivative. This contract is not identical to the underlying
 credit default swaps. In particular, although RAMs contract allows it to
 share in the economic results of the underlying contracts, it does not
 provide rights to the same information that the ceding companies have access
 to. Under FAS 157, the fair value of RAMs contract represents the exit price
 that would be paid to a market participant to assume the reinsurance contract
 as written; that is, the amount the market participant would require to
 assume RAMs potential obligations under the contract with the same
 contractual rights and obligations, including those which limit the
 information about the ceding companies underlying contracts that are being
 reinsured. Given the contractual terms that exist, RAM believes that an exit
 market participant would look to the information that is available from the
 ceding companies to determine the exit value of RAMs reinsurance contract.
 The primary insurers underwrite each of the transactions underlying the
 reinsurance contract and they have access to all the underlying data related
 to the transactions. The ceding companies use their own internal valuation
 models where market prices are not available. RAM employs procedures to test
 the reasonableness of the mark both in process and absolute terms because we
 believe that an exit market participant would perform similar procedures when
 determining an exit price for our reinsurance contract. If it appears that
 the fair values generated by the ceding companies internal models and
 reported to RAM are consistent with macro spread movements and general market
 trends, and RAM believes that the modeling and assumptions that drive the
 modeling are reasonable (based on RAMs ceding company audits and review of
 publicly available information), RAM will use the mark provided by the ceding
 company as a key input in the determination of the fair value of reinsurance
 contract. There is no single accepted model for fair valuing credit default
 swaps and there is generally not an active market for the type of credit
 default swaps insured by ceding companies and reinsured by us. Therefore, due
 to the limited availability of quoted market prices for these derivative
 contracts and the inherent uncertainties in the assumptions used in models,
 different valuation models may produce materially different results and be
 materially different from actual experience. In addition, due to the
 complexity of fair value accounting and the application of FAS 133 and FAS
 157, future amendments or interpretations of FAS 133 and FAS 157 may cause us
 to modify our accounting methodology in a manner which may have an adverse
 impact on our financial results.
| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  | On January 1, 2008, the
 Company adopted Statement of Financial Accounting Standard No. 157 Fair
 Value Measurement (FAS 157). This statement provides guidance for fair
 value measurement of assets and liabilities and associated disclosures about
 fair value measurement. Under this standard, the definition of fair value
 focuses on the price that would be received to sell the asset or paid to
 transfer the liability (an exit price), not the price that would be paid to
 acquire the asset or received to assume the liability (an entry price). FAS
 157 clarifies that fair value is a market-based measurement, not an
 entity-specific measurement. FAS 157 establishes a fair value hierarchy of
 inputs in measuring fair value, with the highest level being observable
 inputs and the lowest being unobservable data as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  | Level 1 inputs  valuations
 based on quoted prices in active markets for identical assets or liabilities.
 Valuations in this level do not entail a significant degree of judgment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

95

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| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     | Level 2 inputs  valuations
 based on quoted prices for similar assets or liabilities in active markets,
 quoted prices for identical or similar assets or liabilities in markets that
 are not active and model derived valuations where all significant inputs are
 observable in active markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     | Level 3 inputs  valuations
 based on significant inputs that are unobservable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     | Under FAS 157, the use of
 valuation information provided to us by our ceding companies remains
 appropriate for the reasons described above, as well as the fact that the
 credit default swaps we reinsure are the same as that valued by our
 primaries, and the Company views its hypothetical principal market to be the
 same as our primaries, being the financial guaranty insurance and reinsurance
 market. The Companys fair value on credit derivatives is adjusted for the
 Companys own non-performance risk in accordance with FAS 157 (see Note 4,
 Derivative instruments).                                                                                                                                                                                                                                                                    
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | (j) | Fair Value
 of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     | The put option relating to
 the Companys preference share soft capital facility is a financial
 instrument and is fair valued with the fair value measurement representing
 the value to the Company in the current market environment. The gain or loss
 on the put option is recorded on the consolidated balance sheet and changes
 in fair value are reported through the statement of operations in Unrealized
 Gain/(Loss) on Other Financial Instruments. Valuations are based on
 unobservable inputs including assumptions over the Companys performance and
 future outlook, the facility, the current market conditions, and other
 similar instruments in the market. Subsequent to year end on February 17,
 2009, the put option was exercised.                                                                                                 
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | (k) | Recent
 accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     | In January 2009, the FASB
 issued FSP EITF 99-20-1 Amendments to the Impairment Guidance of EITF Issue
 No. 99-20 which amends the impairment guidance in EITF Issue No. 99-20,
 Recognition of Interest Income and Impairment on Purchased Beneficial
 Interests and Beneficial Interests That Continue to Be Held by a Transferor
 in Securitized Financial Assets, to achieve more consistent determination of
 whether an other-than-temporary impairment has occurred with that of SFAS
 115. The adoption of FSP EITF 99-20-1 did not have a material effect on the
 Companys consolidated balance sheets, results of operations or cash flows.                                                                                                                                                                                                        
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     | On May 23, 2008, the
 Financial Accounting Standards Board (FASB) issued FASB statement No.163
 Accounting for Financial Guarantee Insurance Contracts (FAS 163). FAS 163
 clarifies how FASB Statement No.60 Accounting and reporting by Insurance
 Enterprises applies to financial guaranty insurance contracts. FAS 163 is
 focused on the recognition and measurement of premium revenue and claims
 liabilities, along with additional disclosure requirements for financial
 guaranty contracts. The standard requires the following:                                                                                                                                                                                                                                                                                                              
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     | 1.          Premium
 revenue will be recognized as a function of the amount of insurance
 protection provided over the contract term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     | 2.          Present
 value of installment premiums due pursuant to the terms of a financial
 guaranty insurance contract will be recognized at inception of the contract
 as unearned premiums and premiums receivable, which is inconsistent with current
 industry accounting practice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     | 3.          A
 claim liability will be established on a financial guaranty contract when the
 probability weighted net present value of an expected claim loss is estimated
 to exceed the related unearned premium revenue. Provision of unallocated
 reserves is not permitted under the standard.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     | 4.          Additional
 disclosures will be required on financial guaranty contracts, the accounting
 and risk management activities used to evaluate credit deterioration in the
 Companys insured obligations and surveillance lists.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     | FAS 163 is effective for
 fiscal years beginning after December 15, 2008, and all interim periods
 within those fiscal years, with the exception of certain risk management
 disclosures which are effective for the interim financial statements prepared
 as of September 30, 2008, and are presented and disclosed for the current
 period in Note 11  Loss and Loss Adjustment Expense Reserve in the Notes
 to the Consolidated Financial Statements. Early application is not permitted.
 The standard does not apply to credit derivatives. The effect of fully
 adopting FAS 163 will be recognized as an adjustment to opening retained
 earnings for the fiscal year beginning January 1, 2009. The Company is currently
 assessing the potential impact, which is likely to be material, of applying
 FAS 163 and at this time is unable to quantify

96

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| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     | the effect of the adoption
 of this standard.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     | In September 2008, the FASB
 issued FSP No. FAS 133-1 and FIN 45-4 Disclosures about Credit Derivatives
 and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
 Interpretation No. 145; and Clarification of the Effective Date of FASB
 Statement No. 161. FSP No. FAS 133-1 requires enhanced disclosures about
 credit derivatives and guarantees and amends FIN 45, Guarantors Accounting
 and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
 Indebtedness of Others to exclude derivative instruments accounted for at
 fair value under SFAS No. 133. The FSP is effective for financial statements
 issued for reporting periods ending after November 15, 2008. The Company has
 adopted FSP FAS No. 133-1 and FIN 45-4 for the reporting period ending
 December 31, 2008 (see Note 4, Derivative instruments for disclosures on our
 credit derivatives). Since FSP FAS No. 133-1 and FIN 45-4 only requires
 additional disclosures concerning credit derivatives and guarantees, adoption
 of FSP FAS No. 133-1 and FIN 45-4 has not affected the Companys financial
 position or results of operations.                                                              
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     | In March 2008 the FASB
 issued FAS No. 161 Disclosures About Derivative Instruments and Hedging
 Activities  An Amendment of FASB Statement No. 133 (FAS 161). FAS 161
 establishes the disclosure requirements for derivative instruments and for
 hedging activities. FAS 161 is effective for financial statements issued for
 fiscal years and interim periods beginning after November 15, 2008. Early
 adoption is encouraged. FAS 161 was adopted for the reporting period ending
 December 31, 2008. See Note 4, Derivative instruments for disclosures on our
 credit derivatives. Since FAS 161 only requires additional disclosures
 concerning credit derivatives, FAS 161 has not affected the Companys results
 of operations or financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     | In September 2006, the FASB
 issued FAS No. 157 (FAS 157), Fair Value Measurements. This Statement
 provides guidance for using fair value to measure assets and liabilities and
 associated disclosures about fair value measurement. Under this standard, the
 definition of fair value focuses on the price that would be received to sell
 the asset or paid to transfer the liability (an exit price), not the price
 that would be paid to acquire the asset or received to assume the liability
 (an entry price). FAS 157 clarifies that fair value is a market-based
 measurement, not an entity-specific measurement, and establishes a fair value
 hierarchy with the highest priority being quoted prices in active markets and
 the lowest priority to unobservable data. Further, FAS 157 requires expanded
 disclosures of the fair value measurements by level within the fair value
 hierarchy that distinguishes market data between observable independent
 market inputs and unobservable market assumptions by the reporting entity. The
 Company adopted FAS 157 effective January 1, 2008. See Note 4, Derivative
 Instruments and Note 10, Fair value of Financial Instruments for further
 information.
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     | In October 2008, the FASB
 issued FASB Staff Position No. 157-3 Determining the Fair Value of a
 Financial Asset When the Market for That Asset Is Not Active (FSP 157-3).
 FSP 157-3 clarifies the application of FAS 157 in an inactive market and the
 provisions of the FSP were effective upon issuance. FSP 157-3 did not have an
 effect on the Companys results of operations or financial position. The
 Company had minimal assets in its investment portfolio which were not active
 at December 31, 2008. The provisions were applied to its financial instrument
 asset (see Note 10).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     | In February 2007, the FASB
 issued FAS No. 159 (FAS 159), Fair Value Option for Financial Assets and
 Financial Liabilities. This statement provides companies with an option to
 report selected financial assets and liabilities at fair value. The statement
 requires the fair value of the assets and liabilities that the company has
 chosen to fair value be shown on the face of the balance sheet. The standard
 also requires companies to provide additional information to enable users of
 the financial statements to understand the companys reasons for electing the
 fair value option and how changes in the fair values affect earnings for the
 period. FAS 159 also establishes presentation and disclosure requirements
 designed to facilitate comparisons between companies that choose different
 measurement attributes for similar types of assets and liabilities. This
 statement is effective for fiscal years beginning on or after November 15,
 2007. The Company adopted FAS 159 effective January 1, 2008. The fair value
 option was not applied to any eligible items on the adoption date.                                                                                                
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | (l) | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     | Certain reclassifications
 have been made to the prior period amounts to conform to the current periods
 presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     | Credit Derivatives
 presentation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     | As at January 1, 2008, RAM
 implemented a change in the presentation of revenues, expenses and balance
 sheet items relating to financial guaranty contracts that the Company
 reinsures in the form of credit default swap (CDS) contracts. This
 reclassification did not change the Companys (loss)/net income,
 comprehensive (loss)/ income, (loss)/earnings per share or shareholders
 equity. This reclassification was adopted after agreement between members of
 the Association of Financial Guaranty insurers (AFGI) and discussions with
 the Securities and Exchange Commission, to increase comparability of the
 Companys financial statements with other financial guaranty companies that
 have credit derivative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

97

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| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  | CDS contract revenue has
 been reclassified in the consolidated statement of operations (see above
 derivative instruments accounting policy note for further details). Amounts
 relating to CDS contracts within net earned premiums, acquisition
 expenses (or ceding commissions) and loss and loss adjustment expenses
 have been reclassified to realized (losses) gains and other settlements on
 credit derivatives. The Company has reclassified all CDS-related balances in
 the consolidated balance sheet included in unearned premiums to derivatives
 liabilities. The balances on the Companys balance sheet as of December 31,
 2007, and related statements of operations and comprehensive income and cash
 flows for the years ended December 31, 2007 and 2006, affected by the
 reclassifications are as follows:

|                             |  |  |  |  |  |  |  |                          |             |                  |   |             | 
|---------------------------- |  |  |  |  |  |  |  | ------------------------ | ----------- | ---------------- | - | ----------- | 
|Consolidated
 Balance Sheets |  |  |  |  |  |  |  | As of
 December 31, 2007 |            
|                             |  |  |  |  |  |  |  |                          |            
|Liabilities:                 |  |  |  |  |  |  |  | As previously
 reported  |             | As
 reclassified |  
|                             |  |  |  |  |  |  |  |                          |             |                  |  
|Unearned premiums            |  |  |  |  |  |  |  | $                        | 242,829,191 |                  | $ | 239,957,383 | 
|Derivative liabilities       |  |  |  |  |  |  |  |                          | 177,717,110 |                  |   | 180,588,918 | 
|Total liabilities            |  |  |  |  |  |  |  |                          | 607,953,061 |                  |   | 607,953,061 | 
|                             |  |  |  |  | 

|                                                             |  |                               |              |                               |   |                         |   |                  |             |   |   |             |  
|------------------------------------------------------------ |  | ----------------------------- | ------------ | ----------------------------- | - | ----------------------- | - | ---------------- | ----------- | - | - | ----------- | -
|Consolidated        Statement       of
Operations            |  | Year Ended
 December 31, 2007 |              | Year Ended
 December 31, 2006 |  
|                                                             |  |                               |              |                               |  
|                                                             |  | As previously
 reported       |              | As
 reclassified              |   | As previously
 reported |   | As
 reclassified |            
|                                                             |  |                               |              |                               |   |                         |   |                  |            
|Gross premiums written                                       |  | $                             | 108,749,672  |                               | $ | 98,500,663              |   | $                | 77,631,605  |   | $ | 73,218,339  |  
|Change in unearned premiums                                  |  |                               | (47,935,507  | )                             |   | (46,744,694             | ) |                  | (26,650,681 | ) |   | (26,780,438 | )
|Net earned premiums                                          |  |                               | 60,062,637   |                               |   | 51,004,441              |   |                  | 48,835,265  |   |   | 44,292,242  |  
|Realized gains and other settlements                         |  |                               |             |                               |   | 5,971,020               |   |                  |            |   |   | 3,203,910   |  
|Unrealized losses on credit derivatives                      |  |                               | (177,777,141 | )                             |   | (177,777,141            | ) |                  | (14,426     | ) |   | (14,426     | )
|Acquisition expenses                                         |  |                               | 21,504,966   |                               |   | 18,417,790              |   |                  | 17,654,466  |   |   | 16,315,353  |  
|Net income                                                   |  |                               | (144,119,582 | )                             |   | (144,119,582            | ) |                  | 41,052,840  |   |   | 41,052,840  |  
|                                                             |  |                               |              |                               |   |                         |   |                  |             |   |   |             |  
|Statement
 of Consolidated Cash Flows                        |  | Year Ended
 December 31, 2007 |              | Year Ended
 December 31, 2006 |  
|                                                             |  |                               |              |                               |  
|Cash      flows      from      operating
activities:         |  | As previously
 reported       |              | As
 reclassified              |   | As previously
 reported |   | As
 reclassified |            
|                                                             |  |                               |              |                               |   |                         |   |                  |            
|Unearned premiums                                            |  | $                             | 48,506,826   |                               | $ | 47,316,014              |   | $                | 28,742,035  |   | $ | 28,871,792  |  
|Derivative liability                                         |  |                               |             |                               |   | 1,190,812               |   |                  |            |   |   | (129,757    | )
|Net    cash   flows    provided   by    operating
activities |  |                               | 84,500,588   |                               |   | 84,500,588              |   |                  | 57,096,137  |   |   | 57,096,137  |  

| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (m) | Restricted
 Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |     | The statement of cash flows
 for the period ended December 31, 2008 appropriately segregates the effect of
 changes in restricted cash into a separate line item within investing
 activities. Restricted cash and the effect of changes in restricted cash
 balances have historically been included in the balance of cash and cash
 equivalents and the net increase/(decrease) in cash and cash equivalents,
 respectively. The statement of cash flows for the years ended December 31,
 2007 and 2006 have been revised to conform to the current period
 presentation. The effect of the prior-period revised presentation has an
 immaterial effect on the statement of cash flows.
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | (n) | Segment
 Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |     | The Company has one
 reportable segment, financial guaranty reinsurance, which provides financial
 guaranty reinsurance for public finance, structured finance and other
 obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

98

---



|  |                
|- | ---------------
|3 | PLEDGED
 ASSETS

As of December 31, 2008 and
2007, the Company had restricted cash of $8.3 million and $8.2 million,
respectively, and investments at fair value of $370.6 million and $406.7
million, respectively, invested in trust accounts for the benefit of ceding
companies. Pursuant to the terms of the reinsurance agreements with ceding
companies regulated in the U.S., the Company is required to secure its
obligations to these ceding companies in accordance with applicable state statutes governing credit for
reinsurance, and may not
withdraw funds from these trust accounts without their express permission.
Subsequent to December 31, 2008, approximately $32.9 million was released from
the trust accounts to the Companys operating account.

|  |                        
|- | -----------------------
|4 | DERIVATIVE
 INSTRUMENTS

The Company has entered into
agreements to reinsure derivative instruments, consisting primarily of Credit
default swaps (CDS) that it intends to reinsure for the full term of the
contract. While management considers these agreements to be a normal extension
of its financial guaranty reinsurance business and reinsurance in substance,
these transactions reinsured by the Company meet the definition of a derivative
under FAS No. 133, Accounting for Derivative Instruments and Hedging Activities
(FAS 133), and FAS No. 149,Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (FAS 149), and the
Company is required to recognize all derivatives as either assets or
liabilities in the consolidated balance sheets and measure those instruments at
fair value. The gain or loss on credit derivatives will change at each
measurement date based on the underlying assumptions and information used in
the estimate of fair value. Such fair value changes may not be indicative of
ultimate claims. The credit derivative contracts the Company reinsures require
us to make payments upon the occurrence of certain defined credit events
relating to an underlying obligation. Credit derivative exposures are
substantially similar to financial guaranty insurance contracts and provide for
credit protection against payment default, are generally held to maturity, and
the unrealized gains and losses on derivative financial instruments will
approach zero as the exposure approaches its maturity date, unless there is a
credit impairment.

The following table provides
the components of net change in fair value of credit derivatives included in
the Companys consolidated statement of operations related to our credit
derivative policies:

|                                                   |  |      |             |      |   |              |   |   |            |  
|-------------------------------------------------- |  | ---- | ----------- | ---- | - | ------------ | - | - | ---------- | -
|                                                   |  | 2008 |             | 2007 |   | 2006         |  
|                                                   |  |      |             |      |   |              |  
|Change in
 fair value of credit derivatives:       |  |      |             |      |   |              |   |   |            |  
|Credit derivative premiums received and
receivable |  | $    | 12,418,183  |      | $ | 9,058,196    |   | $ | 4,543,023  |  
|                                                   |  |      |             |      |   |              |   |   |            |  
|Ceding commissions on credit derivatives           |  |      | (3,556,593  | )    |   | (3,087,176   | ) |   | (1,339,113 | )
|                                                   |  |      |             |      |   |              |   |   |            |  
|Losses and loss adjustment expenses(1)             |  |      | (95,181,459 | )    |   |             |   |   |           |  
|                                                   |  |      |             |      |   |              |   |   |            |  
|                                                   |  |      |             |      |   |              |   |   |            |  
|Realized (losses)/gains and other settlements      |  |      | (86,319,869 | )    |   | 5,971,020    |   |   | 3,203,910  |  
|                                                   |  |      |             |      |   |              |   |   |            |  
|Unrealized
 gains (losses) (1)                     |  |      | 94,288,456  |      |   | (177,777,141 | ) |   | (14,426    | )
|                                                   |  |      |             |      |   |              |   |   |            |  
|                                                   |  |      |             |      |   |              |   |   |            |  
|Net
 change in fair value of credit derivatives    |  | $    | 7,968,587   |      | $ | (171,806,121 | ) | $ | 3,189,484  |  
|                                                   |  |      |             |      |   |              |   |   |            |  

(1) See Note 16 Commutations for details of
the effect of the commutations with MBIA Insurance
Corporation and its affiliates (MBIA) and Syncora Guaranty Re (formerly XL Financial Assurance Ltd) (XLFA)
on the above balances.

Determining Fair Value

In accordance with FAS 157,
Fair Value Measurements, fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value is
determined based on quoted market prices, if available. Financial guarantors
sell credit protection in CDS form to financial institutions in a
principal-to-principal market in which transactions are highly customized and
negotiated independently. Based on disclosures by the primaries, a CDS contract
written by a financial guarantor differs from typical CDS contracts entered
into by parties that are not financial guarantors because:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | CDS contracts written by
 financial guarantors are neither held for trading purposes (i.e., a
 short-term duration contract written for the purpose of generating trading
 gains) nor used as hedging instruments. Instead they are written with the
 intent to provide protection for the stated duration of the contract, similar
 to the financial guarantors intent with regard to a financial guaranty
 contract.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Financial guarantors are
 not entitled to terminate a CDS contract they write that is in-the-money
 and realize a profit on such a position. A counterparty to a CDS contract
 written by a financial guarantor generally is not able to force the financial
 guarantor to terminate a CDS contract that is out-of-the-money.                                                                                      

99

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The liquidity risk present
 in most CDS contracts sold outside the financial guaranty industry, i.e., the
 risk that the CDS writer would be required to make cash payments, is not
 present in a CDS contract written by a financial guarantor. Terms are
 designed to replicate the payment provisions of financial guaranty contracts
 in that (a) losses, if any, are generally paid over time, and (b) the
 financial guarantor is not required to post collateral to secure its
 obligation under the CDS contract.

As a result of these
differences, we believe there have been few, if any, relevant third-party exit
transactions for CDS contracts written by financial guarantors. In the absence
of a principal exit market, a financial guarantor determines the fair value of
a CDS contract it writes by using internally developed models, as more fully
discussed below.

Fair Value Modeling

Each ceding company uses its
own internal valuation models where market prices are not available. Given the
contractual terms of RAMs reinsurance that limit its access to the terms of the underlying credit derivatives, which are highly
individualized, and the underlying loan level data, RAM believes that an exit market participant
would look to the information that is available from the ceding companies to
determine the exit value of RAMs reinsurance contract, as discussed above.
Therefore, the Company, in determining the fair value of
derivative instruments, uses credit derivative contract valuations from its
ceding companies as a key input. Management then assesses the reasonableness of the ceding companies valuations
on a quarterly basis by i) discussing with primary insurers their
mark-to-market valuation methodology including the nature of changes in key
assumptions, ii) reviewing the primaries publicly available information
regarding their mark-to-market process, including methodology and key
assumptions, and iii) analyzing the movement of each individual derivative policy
compared to observable market data, including credit spread movements and
collateral delinquency information. Spreads and the related movements quarter
to quarter are identified from observable market information such as indices,
including the CDX, ABX, CMBX and LCDX indices, as related to specific types of
derivative contracts. Overall, the relationship between the widening of credit
spreads and fair value is not a linear one due to the mix of policy types
(duration, rating, and maturities) within the portfolio. Therefore it is
difficult to calculate the actual magnitude of any increase/decrease in the
unrealized gain/(loss) with the movement of spreads alone. Additionally, there
are many other assumptions that drive the ceding companies ultimate fair value
assessment namely, asset recovery assumptions, correlation across asset
assumptions, discount rate used, time to maturity, timing of default
assumptions, and collateral posting requirements, where applicable. So while
spreads are a significant driving factor in models of fair value they are not
the only ones. Changes in correlation and recovery assumptions can result in
valuations moving more or less than the absolute movement of spreads. RAMs reinsurance contracts do not provide rights to the
detailed
underlying data for each policy, or the inputs and assumptions used to obtain
the fair valuations as calculated by the ceding companies, and therefore RAM
can only generally analyze the fair valuations for consistency with market
movements, in conformity with the manner in which RAM believes an exit market
participant would analyze the fair valuations given the contractual terms of
RAMs reinsurance. If it appears
that the marks are consistent with macro spread movements, and general market
trends and RAM believes that the modeling and assumptions that drive the
modeling are reasonable (based on RAMs ceding company audits and review of
publicly available information), RAM will use the mark provided by the ceding
company as a key input in the determination of the fair value of its
reinsurance contracts on credit derivatives.

Valuation models used by our
ceding companies generally come in two forms, based on our understanding of the
models as described to us by our ceding companies:

1.       Premium method; A model
that calculates the difference between the present value of remaining expected
premiums a primary receives for the credit protection on a CDS contract and the
estimated present value of premiums that a comparable financial guarantor would
hypothetically charge for the same protection at the balance sheet date. The
fair value of the primarys credit derivatives depends on a number of factors
including notional amount of the contract, expected term, credit spreads,
changes in interest rates, the credit ratings of referenced entities, the
primarys own credit risk and the remaining contractual cash flows.

2.       Expected loss method; A
model of the CDS contract that derives a probabilistic measure of expected loss
for the primarys exposure using market pricing on the underlying referenced
collateral within the transaction. The model calculates expected losses on a
collateral pool within an insured credit derivative transaction by reference to
the following: credit spreads of the underlying collateral, based on actual
spreads or spreads on similar collateral with similar ratings, diversity score
of the collateral pool as an indication of correlation of collateral defaults,
and recovery rate for all defaulted collateral. The model then allocates the
expected losses for each tranche of the transaction according to its
subordination level within the transaction structure.

The primary strengths of the
Premium Method of fair valuing CDS based on our understanding of this model
are:

| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The model takes account of
 transaction structure and the key drivers of market value. The transaction
 structure includes par insured, weighted average life, level of subordination
 and composition of collateral.                                                                                 
| |   |                                                                                                                                                                                                                                                                                                       
| |  | The model maximizes the
 use of market-driven inputs whenever they are available. The key inputs to
 the model are market-based spreads for the collateral, and the credit rating
 of referenced entities. These are viewed by us to be the key parameters that
 affect fair value of the transaction.
| |   |                                                                                                                                                                                                                                                                                                       
| |  | The primaries are able to
 use actual transactions to validate their model results and to explain the
 correlation between various market indices and indicative CDS market prices.                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                       
| |  | The model is a
 well-documented, consistent approach to valuing positions that minimizes
 subjectivity, according to its users. Each company has developed a hierarchy
 for market-based spread inputs that helps mitigate the degree of subjectivity
 during periods of high illiquidity.            

100

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The primary weaknesses of
the Premium Method of valuing CDS are:

| |   |                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | There is no exit market or
 actual exit transactions. Thus the exit market is a hypothetical one based on
 each primarys entry market.                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                         
| |  | There is a very limited
 market in which to verify the fair values developed by the model.                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                         
| |  | There is diversity of
 approach to estimating the fair value of these transactions among the
 financial guarantee insurance companies.                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                         
| |  | Due to the non-standard
 terms under which each primary enters into derivative contracts, the fair
 value of their credit derivatives may not reflect the same prices observed in
 an actively traded market of credit derivatives that do not contain terms and
 conditions similar to those observed in the financial guaranty market.

The primary strengths of the
Expected Loss Method of valuing CDS, which we believe is only used by one of
the primaries, based on our understanding of this model are:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The model takes account of
 transaction structure and the key drivers of market value. The transaction
 structure includes par insured, weighted average life, level of deductible or
 subordination and composition of collateral.                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | The primary believes its
 model is a well-documented, consistent approach to marking positions that
 minimizes the level of subjectivity. The primary has also developed a
 hierarchy for market-based spread inputs that helps reduce the level of
 subjectivity, especially during periods of high illiquidity.                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | The model uses market
 inputs whenever they are available. The key inputs to the model for any
 transactions are market- based spreads for the underlying referenced
 collateral, assumed recovery rates specific to the type and rating of the
 referenced collateral, and the diversity score of the collateral pool. These
 are viewed as key parameters that affect the fair value of the transaction
 and, to the extent practicable; the inputs are market-based inputs.

The primary weaknesses of
the Expected Loss Method of valuing CDS are:

| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | There is no market in
 which to verify the fair values developed by the model, and at December 31,
 2008, the markets for the inputs to the model were highly illiquid, which
 impacts their reliability.                    
| |   |                                                                                                                                                                                                                              
| |  | There is diversity of
 approach to estimating the fair value of these transactions among the
 financial guarantee insurance companies.                                                                                       
| |   |                                                                                                                                                                                                                              
| |  | The averaging of spreads
 in the model and use of a single diversity factor rather than using specific
 spreads for each piece of underlying collateral and collateral-specific
 correlation assumptions may distort results.

Fair values from the ceding
companies models may differ from values calculated by companies outside of the
financial guaranty industry because, according to the ceding companies, the
terms of the CDS contracts insured generally differ from other non-insured
credit default swap contracts. Because of these terms and conditions, the fair
value of the ceding companies credit derivatives may not reflect the same
prices observed in an actively traded market of CDS that do not contain terms
and conditions similar to those observed in the financial guaranty market.
These models and the related assumptions are continuously reevaluated by the
ceding companies and enhanced, as appropriate, based upon improvements in
modeling techniques and availability of market information.

RAM measures the value of
its derivative assets and liabilities based on an assumption that a market
participant would consider the fair value information provided by the ceding
companies. The assumption that a market participant would consider the fair
value information provided by the ceding companies when determining the fair
value of RAMs reinsurance contract makes intuitive sense given the lack of
contractual rights to more detailed information about individual ceding company
contracts. The primary insurers underwrite each of the transactions underlying
the reinsurance contract and they have access to all the underlying data
related to the transactions. In addition, they have sophisticated modeling
capabilities and services (i.e. Loan Performance and Intex) that allow them to
evaluate the performance of all of the underlying credits in a transaction. RAM
also employs procedures to test the reasonableness of the mark both in process
and absolute terms because we believe that an exit market participant would
perform similar procedures when determining an exit price for our reinsurance
contract. If it appears that the marks are consistent with macro spread
movements, and general market trends and RAM believes that the modeling and
assumptions that drive the modeling are reasonable (based on RAMs ceding
company audits and review of publicly available information), RAM will use the
mark provided by the ceding company as a key input in the determination of the
fair value of reinsurance contract.

As of December 31, 2008,
2007 and 2006, included in the Companys outstanding par exposure was $5.0
billion, $11.9 billion and $5.5 billion, respectively, of credit default swaps
that have been fair valued under FAS 133. These derivative instruments had an average
legal term to maturity of 18.1 years, 25.1 years and 12.5 years as of December
31, 2008, 2007 and 2006, respectively. The increase in average legal term to
maturity of derivative instruments as at December 31, 2007 as compared to
December 31, 2006, primarily resulted from an increase of $6.4 billion in the
outstanding par amount of credit default swaps, of which approximately 33%
related to Commercial Mortgage-Backed Securities with an average legal term of
43.5 years. During the year ended December 31, 2008, the Company commuted
substantially all of its CMBS derivative instruments which led to the decline
in the average legal term to maturity as at December 31, 2008. The average
legal term to maturity as at December 31, 2008 remains higher than 2006 due to
the change in mix of the Companys CDS portfolio including increased RMBS and
Trust Preferred CDOs assumed by the Company in 2007. Actual maturity of credit
default swaps is generally expected to be significantly less than the legal
term. The Companys determination of derivative liabilities is not affected by
the one-quarter lag in reporting of exposure data included in Note 12.

101

---



The following table sets
forth the Companys exposure to credit derivative by major asset type as at
December 31, 2008:

|               |  |                      |  |                                  |  |                                       |  |  |      |  |  | 
|-------------- |  | -------------------- |  | -------------------------------- |  | ------------------------------------- |  |  | ---- |  |  | 
|Asset Type (1) |  | Net Par
 Outstanding |  | Wtd.
 Average
 Credit rating (2) |  | Wtd.
 Average
 legal contract term(3) | 
|               |  |                      |  |                                  |  |                                       | 
|               |  | ($
in millions)      |  |                                  |  |                                       |  |  |     
|HY             |  | $                    |  | 2,943.9                          |  | AAA                                   |  |  | 13.8 |  | 
|IG             |  |                      |  | 420.6                            |  | AAA                                   |  |  | 7.2  |  | 
|MS             |  |                      |  | 277.9                            |  | AAA                                   |  |  | 21.4 |  | 
|Other CDO      |  |                      |  | 330.2                            |  | AAA                                   |  |  | 35.2 |  | 
|               |  |                      |  |                                  |  |                                       |  |  |      |  |  | 
|Total CDO      |  |                      |  | 3,972.6                          |  |                                       |  |  |      |  | 
|               |  |                      |  |                                  |  |                                       |  |  |      | 
|RMBS           |  |                      |  | 473.5                            |  | A                                     |  |  | 37.6 |  | 
|Other          |  |                      |  | 599.5                            |  | A                                     |  |  | 20.6 |  | 
|               |  |                      |  |                                  |  |                                       |  |  |      | 
|Grand
 Total   |  | $                    |  | 5,045.6                          |  |                                       |  |  |      |  | 
|               |  |                      |  |                                  |  |                                       |  |  |      | 

|    |                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The definitions of the
 collateralized debt obligation (CDO) types in the above table are as
 follows:                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                           
|    | IG  Investment grade corporate
 (predominantly corporate, may include limited ABS)                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                           
|    | HY  Non-investment grade corporates,
 predominantly CLOs backed by corporate loans                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                           
|    | MS  Multi-sector collateral, which may
 include MBS (including subprime), ABS, CDOs, CMBS and other asset-backed
 securities                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                           
|(2) | RAM Re ratings are current
 as of February 27, 2009. These ratings are assigned by RAM Re based on
 managements judgment and take into consideration the ratings assigned by the
 ceding companies and the rating agencies. RAM Re undertakes no obligation to
 update its ratings, and such ratings do not constitute investment advice.
|    |                                                                                                                                                                                                                                                                                                                                           
|(3) | Actual maturity of credit
 default swaps is generally expected to be significantly less than the legal
 term.                                                                                                                                                                                                                             

The Companys credit default
swap policies are not readily tradable as there is no active market for them.
Therefore, the Company views its principal market as the financial guaranty
insurance and reinsurance market, whose participants would hypothetically be
able to assume this business if the Company were to hypothetically transfer a
policy.

In compliance with the
requirements of FAS 157, the Company considered its own non-performance risk
when measuring the fair value of a liability.. An adjustment to these
valuations is needed to reflect RAMs own non performance risk in the
measurement of the fair value of these liabilities.

There is no observable
credit spread for RAM Re or RAM Holdings, and as such there is inherently a
significant amount of judgment, subjectivity and uncertainty involved in the
estimation of the adjustment for RAMs non performance risk. Management has
used inputs that reflect assumptions market participants may use in pricing RAMs
creditworthiness. In determining the Companys own non-performance risk when
measuring the fair value of a liability, the Company uses an implied market
price for buying credit protection on RAM and a cash flow model, which models a
CDS contract, to calculate a value price based on those spreads and cash flows.
The Company identifies comparable entities with active CDS markets to estimate
credit spreads for RAM. Such identification focuses on the nature of risk
positions (primarily public finance and structured products) and of approximate
capital adequacy as depicted by publicly available credit ratings agencies
reports. Based on this information, as at December 31, 2008, the Company
estimated its credit spread to be approximately 2254 basis points. An approximation
of a CDS contract is made based on a 5-year insured CDS contract, an assumption
of a 10 year weighted average life, and an assumption for par, coupon, duration
and the appropriate discount rate based on a 5-year swap rate. The Company
believes that these data points may be considered by hypothetical market
participants in determining RAMs creditworthiness. The effect of applying this
requirement of FAS 157 was a reduction in the Companys derivative liability at
December 31, 2008 of approximately $203.3 million.

As noted above, this
calculation is based on estimates, involves a significant degree of management
judgment and is sensitive to selected assumptions. Changes to the assumptions
used in this valuation could lead to materially different results. For example,
a change in RAMs estimated spread would have a significant impact on the
amount of the adjustment for RAMs own non-performance risk. Adjustments to
RAMs non-performance risk will be recorded in the periods in which they become
known or estimable by the Company.

102

---



The following table
summarizes the estimated changes in fair value of our credit derivatives
assuming immediate changes in the Companys non performance credit risk at
specified levels at December 31, 2008:

|                           |  |                                                  |        |                              |   |       |  
|-------------------------- |  | ------------------------------------------------ | ------ | ---------------------------- | - | ----- | -
|Change in
 Credit Spreads  |  | Estimated Net
 Fair Value ofDerivative Liability |        | Impact ofChange on NetIncome |  
|                           |  |                                                  |        |                              |  
|                           |  | ($ in
millions)                                  |       
|1000 basis point narrowing |  | $                                                | (150.7 | )                            | $ | (65.3 | )
|500 basis point narrowing  |  |                                                  | (111.4 | )                            |   | (26.0 | )
|100 basis point narrowing  |  |                                                  | (89.9  | )                            |   | (4.5  | )
|Base scenario              |  |                                                  | (85.4  | )                            |   |      |  
|100 basis point widening   |  |                                                  | (81.3  | )                            |   | 4.1   |  
|500 basis point widening   |  |                                                  | (67.8  | )                            |   | 17.6  |  
|1000 basis point widening  |  |                                                  | (55.5  | )                            |   | 29.9  |  

The Company
believes that the above data points are hypothetical with the spread movements
used in the sensitivity analysis of 100, 500, and 1000 basis points supported
by previous large spread changes that have occurred in the last year in our
primaries spreads. Therefore, it is not unreasonable for RAM to use these
spread movements in the sensitivity analysis. This calculation is based on
estimates, involves a significant degree of management judgment and is
sensitive to selected assumptions. Changes to assumptions used in this
valuation could lead to materially different results.

The following table sets
forth the Companys derivative liabilities that were accounted for at fair
value as of December 31, 2008 by level within the fair value hierarchy. As
required by FAS 157, items are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement:

|                       |  |       |            |         |   |         |  |         |   |  |   |            | 
|---------------------- |  | ----- | ---------- | ------- | - | ------- |  | ------- | - |  | - | ---------- | 
|                       |  | Total |            | Level 1 |   | Level 2 |  | Level 3 |  
|                       |  |       |            |         |   |         |  |         |  
|                       |  |       |            |         |   |         |  |         |   |  |   |            | 
|Derivative liabilities |  | $     | 85,353,670 |         | $ |        |  | $       |  |  | $ | 85,353,670 | 

Our credit derivative
policies are classified as Level 3 in the above fair value hierarchy since the
inputs provided to us by our ceding companies and our own non-performance risk
adjustments are from valuation models which place reliance on at least one
significant unobservable input. Consistent with the requirements of FAS 157, we
believe these models use observable market data when available.

The following table presents
changes in the net credit derivative liabilities balance for which fair value
was measured under Level 3 for the year ended December 31, 2008:

Fair value measurement using
significant unobservable inputs (Level 3)

|                                            |  |                    |              |  
|------------------------------------------- |  | ------------------ | ------------ | -
|                                            |  |                    |             
|                                            |  | Year Ended         |             
|                                            |  | December
 31, 2008 |             
|                                            |  |                    |             
|                                           
|Balance, beginning of period                |  | $                  | (180,588,918 | )
|                                            |  |                    |              |  
|Total unrealized gains included in earnings |  |                    | 94,288,456   |  
|Total realized gains included in earnings   |  |                    | 946,792      |  
|Purchases, issuances and settlements        |  |                    |             |  
|Transfers in and/or out of Level 3          |  |                    |             |  
|                                            |  |                    |              |  
|                                            |  |                    |              |  
|Balance, December 31, 2008                  |  | $                  | (85,353,670  | )
|                                            |  |                    |              |  

|  |                                 
|- | --------------------------------
|5 | MAJOR
 CUSTOMERS AND COMPETITORS

Our customers through December
31, 2007 were the primary monoline financial guaranty insurers and in some
cases, reinsurers, namely Ambac Assurance Corporation, or Ambac, Assured
Guaranty Corp., or Assured Guaranty, CIFG IXIS Financial Guaranty North
America, Inc., or CIFG, Financial Guaranty Insurance Company, or FGIC,
Financial Security Assurance Inc., or FSA, MBIA Insurance Corporation, or MBIA,
and Syncora Guaranty Re Ltd. (formerly XL Financial Assurance Ltd.) and Syncora
Guaranty Inc. (formerly XL Capital Assurance Inc.).

103

---



In 2008, we
renewed our treaty reinsurance agreements with Assured Guaranty and FSA but
either cancelled or did not renew our treaty reinsurance agreements with our
other customers, due to the downgrades of our customers. During 2008, Assured
Guaranty and FSA accounted for substantially all of the new business assumed by
us under our treaties. We have not renewed our reinsurance treaties with any of
the primaries in 2009 and we do not expect to write any new financial guaranty
business in the near term. This means that we do not expect to write any
financial guaranty reinsurance in the current year but this does not reduce our
in-force business, unless the business is commuted or recaptured by the
primaries.

We commuted
our entire insured portfolio assumed from Syncora Guaranty Re Ltd. and MBIA
effective July 25, 2008 and November 30, 2008, respectively (see Note 16
Commutations). As a result, substantially our entire insured portfolio
outstanding as of December 31, 2008 consists of business assumed from Ambac,
    Assured Guaranty, FGIC, and FSA. Subsequent to year end, effective April
    8, 2009, we commuted our entire insured portfolio assumed from Ambac. See
    Note 27, Subsequent
    Events.

Our business consists of a single
operating segment, financial guaranty reinsurance, the purpose of which is to
indemnify a primary financial guarantor, referred to as the primary insurer or
ceding company, against the portion of any loss it may sustain under
financial guaranty policies it has ceded to us. We reinsure policies covering
both U.S. and international exposures. Through 2008, we marketed our
reinsurance directly through the execution of treaty and facultative contracts
with primary insurers.

Primary
financial guaranty companies choose reinsurance providers based upon several
factors, including overall financial strength, financial strength ratings by
the major rating agencies, single-risk capacity, and, to a lesser extent, level
of service quality and whether or not the reinsurer competes with the primary
company. There has been limited demand for reinsurance on new business since
late 2007, and reinsurance activity in 2008 consisted primarily of transactions
in which the primaries reinsured substantial portions of their existing insured
portfolio of public finance transactions for regulatory capital purposes.
Primaries with excess capital for their current ratings were the only
reinsurers of these portfolio transactions. We did not compete for these
transactions because we did not have sufficient capacity for these large
transactions. We are not currently competing in the financial guaranty
reinsurance market and we believe that Assured Guaranty Re is our only
historical competitor that continues to compete in this market.

|  |                          
|- | -------------------------
|6 | (LOSS)/EARNINGS PER SHARE

Basic earnings
per share is computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share shows the dilutive effect of all stock options and
restricted stock units outstanding during the period that could potentially
result in the issuance of common shares. The calculation of diluted loss per
share excludes the dilutive effect of stock options and restricted stock awards
outstanding because it would otherwise have an anti-dilutive effect on net loss
per share. As of December 31, 2008, 2007 and 2006, there were 2,116,497,
1,252,197 and Nil, respectively, of stock options excluded from the diluted
earnings per share calculation because they were anti-dilutive. At December 31,
2008, 2007 and 2006, all restricted stock units outstanding were anti-dilutive
and therefore excluded from the diluted earnings per share calculations.

The following
table sets forth the computation of basic and diluted earnings per share for
the years ended December 31, 2008, 2007 and 2006:

|                                  |  |      |              |      |   |              |   |   |            | 
|--------------------------------- |  | ---- | ------------ | ---- | - | ------------ | - | - | ---------- | 
|                                  |  | 2008 |              | 2007 |   | 2006         |  
|                                  |  |      |              |      |   |              |  
|                                 
|Net (loss) income                 |  | $    | (159,459,151 | )    | $ | (144,119,582 | ) | $ | 41,052,840 | 
|                                  |  |      |              |      |   |              |   |   |            | 
|Basic weighted-average shares     |  |      | 27,249,220   |      |   | 27,237,481   |   |   | 26,787,221 | 
|Effect of stock options           |  |      |             |      |   |             |   |   | 56,362     | 
|                                  |  |      |              |      |   |              |   |   |            | 
|Diluted weighted-average shares   |  |      | 27,249,220   |      |   | 27,237,481   |   |   | 26,843,583 | 
|                                  |  |      |              |      |   |              |   |   |            | 
|                                  |  |      |              |      |   |              |   |   |            | 
|Basic (loss)/earnings per share   |  | $    | (5.85        | )    | $ | (5.29        | ) | $ | 1.53       | 
|Diluted (loss)/earnings per share |  | $    | (5.85        | )    | $ | (5.29        | ) | $ | 1.53       | 

104

---



|  |            
|- | -----------
|7 | INVESTMENTS

The amortized
cost and estimated fair value of investments at December 31, 2008 and 2007 were
as follows:

|                                     |  |                 |             |                          |   |                           |  |                       |            |  |   |             | 
|------------------------------------ |  | --------------- | ----------- | ------------------------ | - | ------------------------- |  | --------------------- | ---------- |  | - | ----------- | 
|                                     |  | Amortized
 Cost |             | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Estimated
 Fair Value |           
|                                     |  |                 |             |                          |   |                           |  |                       |            |  |   |             | 
|2008:                                |  |                 |             |                          |   |                           |  |                       |            |  |   |             | 
|Fixed interest securities:           |  |                 |             |                          |   |                           |  |                       |            |  |   |             | 
|Agencies                             |  | $               | 34,271,931  |                          | $ | 3,123,576                 |  | $                     |           |  | $ | 37,395,507  | 
|U.S. government obligations          |  |                 | 89,929,540  |                          |   | 14,131,326                |  |                       |           |  |   | 104,060,866 | 
|Corporate debt securities            |  |                 | 97,243,419  |                          |   | 649,301                   |  |                       | 4,436,884  |  |   | 93,455,836  | 
|Municipal securities                 |  |                 | 46,995,309  |                          |   | 1,214,685                 |  |                       | 347,136    |  |   | 47,862,858  | 
|Mortgage and asset-backed securities |  |                 | 147,118,553 |                          |   | 1,781,322                 |  |                       | 9,784,694  |  |   | 139,115,181 | 
|                                     |  |                 |             |                          |   |                           |  |                       |            |  |   |             | 
|                                     |  |                 |             |                          |   |                           |  |                       |            |  |   |             | 
|Total                                |  | $               | 415,558,752 |                          | $ | 20,900,210                |  | $                     | 14,568,714 |  | $ | 421,890,248 | 
|                                     |  |                 |             |                          |   |                           |  |                       |            |  |   |             | 

|                                      |  |                 |             |                          |   |                           |  |                       |           |  |   |             | 
|------------------------------------- |  | --------------- | ----------- | ------------------------ | - | ------------------------- |  | --------------------- | --------- |  | - | ----------- | 
|                                      |  | Amortized
 Cost |             | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Estimated
 Fair Value |          
|                                      |  |                 |             |                          |   |                           |  |                       |           |  |   |             | 
|2007:                                 |  |                 |             |                          |   |                           |  |                       |           |  |   |             | 
|Fixed interest securities:            |  |                 |             |                          |   |                           |  |                       |           |  |   |             | 
|Agencies                              |  | $               | 169,873,681 |                          | $ | 5,821,768                 |  | $                     | 70,773    |  | $ | 175,624,676 | 
|U.S.
 government obligations          |  |                 | 70,392,594  |                          |   | 2,877,822                 |  |                       |          |  |   | 73,270,416  | 
|Corporate
 debt securities            |  |                 | 123,559,444 |                          |   | 2,616,974                 |  |                       | 2,184,508 |  |   | 123,991,910 | 
|Municipal
 securities                 |  |                 | 16,703,634  |                          |   | 1,034,683                 |  |                       | 11,284    |  |   | 17,727,033  | 
|Mortgage and
 asset-backed securities |  |                 | 305,115,601 |                          |   | 2,605,015                 |  |                       | 1,801,871 |  |   | 305,918,745 | 
|                                      |  |                 |             |                          |   |                           |  |                       |           |  |   |             | 
|                                      |  |                 |             |                          |   |                           |  |                       |           |  |   |             | 
|Total                                 |  | $               | 685,644,954 |                          | $ | 14,956,262                |  | $                     | 4,068,436 |  | $ | 696,532,780 | 
|                                      |  |                 |             |                          |   |                           |  |                       |           |  |   |             | 

The Company
did not have an aggregate investment in a single entity, other than the U.S.
Treasury securities, in excess of 10% of total investments at December 31, 2008
and 2007.

105

---



The investments that have unrealized loss positions as
of December 31, 2008 and 2007, aggregated by investment category and the length
of time they have been in a continued unrealized loss position, are as
follows:

|                                      |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |            | 
|------------------------------------- |  | ------------------- | ----------- | ----------------- | - | ---------- |  | ---------------- | ----------- | ---------- | - | ---------------- |  | - | ----------- |  | - | ---------- | 
|                                      |  | Less Than 12 Months |             | 12 Months or More |   | Total      | 
|                                      |  |                     |             |                   |   |            | 
|                                      |  | Fair Value          |             | Unrealized
 Loss  |   | Fair Value |  | Unrealized
 Loss |             | Fair Value |   | Unrealized
 Loss | 
|                                      |  |                     |            
|2008:                                 |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |            | 
|Fixed income securities               |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |            | 
|Agencies                              |  | $                   |            |                   | $ |           |  | $                |            |            | $ |                 |  | $ |            |  | $ |           | 
|U.S. government obligations           |  |                     |            |                   |   |           |  |                  |            |            |   |                 |  |   |            |  |   |           | 
|Corporate debt securities             |  |                     | 39,994,277  |                   |   | 2,329,422  |  |                  | 10,937,059  |            |   | 2,107,462        |  |   | 50,931,336  |  |   | 4,436,884  | 
|Municipal securities                  |  |                     | 10,862,873  |                   |   | 347,136    |  |                  |            |            |   |                 |  |   | 10,862,873  |  |   | 347,136    | 
|Mortgage and asset-backed securities  |  |                     | 61,019,974  |                   |   | 7,896,072  |  |                  | 12,840,269  |            |   | 1,888,622        |  |   | 73,860,243  |  |   | 9,784,694  | 
|                                      |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |            | 
|Total temporarily impaired securities |  | $                   | 111,877,124 |                   | $ | 10,572,630 |  | $                | 23,777,328  |            | $ | 3,996,084        |  | $ | 135,654,452 |  | $ | 14,568,714 | 
|                                      |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |            | 
|2007:                                 |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |            | 
|Fixed income securities               |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |            | 
|Agencies                              |  | $                   |            |                   | $ |           |  | $                | 12,818,236  |            | $ | 70,773           |  | $ | 12,818,236  |  | $ | 70,773     | 
|U.S. government obligations           |  |                     |            |                   |   |           |  |                  |            |            |   |                 |  |   |            |  |   |           | 
|Corporate debt securities             |  |                     | 11,098,200  |                   |   | 96,030     |  |                  | 74,991,556  |            |   | 2,088,478        |  |   | 86,089,756  |  |   | 2,184,508  | 
|Municipal securities                  |  |                     | 1,388,716   |                   |   | 11,284     |  |                  |            |            |   |                 |  |   | 1,388,716   |  |   | 11,284     | 
|Mortgage and asset-backed securities  |  |                     | 8,135,608   |                   |   | 28,230     |  |                  | 117,044,250 |            |   | 1,773,641        |  |   | 125,179,858 |  |   | 1,801,871  | 
|                                      |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |            | 
|Total temporarily impaired securities |  | $                   | 20,622,524  |                   | $ | 135,544    |  | $                | 204,854,042 |            | $ | 3,932,892        |  | $ | 225,476,566 |  | $ | 4,068,436  | 
|                                      |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |            | 

As of December
31, 2008, 48 out of 151 securities were in unrealized loss positions compared
to 71 out of 168 securities as of December 31, 2007. As at December 31, 2008
the Companys gross unrealized loss position was $14.6 million compared to $4.1
million at December 31, 2007. The increase is primarily related to increases of
$2.3 million and $8.0 million in corporate securities and mortgage and
asset-backed securities, respectively. The increase in the unrealized losses as
at December 31, 2008 is primarily attributable to the market reaction to
corporate bonds and the current economic climate, and therefore
management does not believe these investments to be other than temporarily
impaired and intends to hold these investments until recovery. The
investments held by the Company are considered to be available-for-sale but the
Company has the ability and the intent to hold these investments until the
security recovers its value, or to their contractual maturity. Unrealized gains
and losses relating to investments are currently recorded in accumulated other
comprehensive (loss)/income in shareholders equity as the Company generally
holds these investments to maturity. The unrealized gains and losses are
expected to decrease as the investment approaches maturity and the Company
expects to realize a value substantially equal to amortized cost.

The amortized
cost and estimated fair value of fixed interest securities classified as
available for sale as of December 31, 2008, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without call
or prepayment penalties.

|                                       |  |                 |             |                       |   |             | 
|-------------------------------------- |  | --------------- | ----------- | --------------------- | - | ----------- | 
|                                       |  | Amortized
 Cost |             | Estimated
 Fair Value |  
|                                       |  |                 |             |                       |  
|2008                                   |  |                 |             |                       |   |             | 
|Less than one year                     |  | $               | 28,973,849  |                       | $ | 29,146,866  | 
|Due after one year through five years  |  |                 | 99,044,483  |                       |   | 98,545,240  | 
|Due after five years through ten years |  |                 | 61,002,645  |                       |   | 66,739,690  | 
|Due after ten years                    |  |                 | 79,419,222  |                       |   | 88,343,271  | 
|Mortgage and asset-backed securities   |  |                 | 147,118,553 |                       |   | 139,115,181 | 
|                                       |  |                 |             |                       |   |             | 
|                                      
|Total                                  |  | $               | 415,558,752 |                       | $ | 421,890,248 | 
|                                       |  |                 |             |                       |   |             | 

Proceeds from
maturities and sales of investments in fixed interest securities available for
sale during 2008, 2007, and 2006 were $517,447,080, $128,096,094, and
$118,996,819 respectively. Gross gains of $10,252,643, $6,007 and $nil in 2008,
2007, and 2006, respectively, and gross losses of $2,140,491, $10,227, and
$1,002,055 in 2008, 2007, and 2006, respectively, were realized on those sales.

106

---



During the
year ended December 31, 2008, the Company recognized other than temporary
impairments of $10.5 million. The Company recognized an additional $2.2 million
($3.6 million during 2007) relating to an investment with subprime exposure,
and the fair value of this investment was $0.2 million at December 31, 2008.
The Company had a second investment with subprime exposure on which it realized
a $0.1 million loss in 2008 and the fair value of this investment at December
31, 2008 was $0.2 million. Two other securities have been other than
temporarily impaired during the year. These were corporate bonds that realized
a total of $8.2 million of losses and the combined fair value of these
investments at December 31, 2008 was $0.9 million. The company has no material
investments in securities guaranteed by third parties and has no direct
investments in financial guarantors as at December 31, 2008 and 2007.

Major
categories of net investment income are summarized as follows:

|                                                    |  |      |            |      |   |            |   |   |            |  
|--------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                    |  | 2008 |            | 2007 |   | 2006       |  
|                                                    |  |      |            |      |   |            |   |   |            |  
|                                                    |  |      |            |      |   |            |   |   |            |  
|Interest
 from debt securities and cash equivalents |  | $    | 31,287,276 |      | $ | 33,684,707 |   | $ | 24,530,389 |  
|Net foreign
 exchange (losses)/gains                |  |      | (51,321    | )    |   | 37,928     |   |   | 59,951     |  
|Pension plan
 (losses)/gains                        |  |      | (1,033,612 | )    |   | 317,205    |   |   | 412,220    |  
|Investment
 expense                                 |  |      | (895,594   | )    |   | (891,300   | ) |   | (766,458   | )
|                                                    |  |      |            |      |   |            |   |   |            |  
|                                                    |  |      |            |      |   |            |   |   |            |  
|Net
 investment income                              |  | $    | 29,306,749 |      | $ | 33,148,540 |   | $ | 24,236,102 |  
|                                                    |  |      |            |      |   |            |   |   |            |  

|  |            
|- | -----------
|8 | REINSURANCE

On July 1,
2005, the Company entered into a retrocession agreement with a AA rated
financial guaranty company, which has subsequently been downgraded to Ba1 by
Moodys and BBB- by S&P, to retrocede certain business that exceeds
its single-risk limits on a facultative basis, thereby limiting its exposure
to loss from large individual risks. This retrocessional agreement does not
relieve RAM Re from its obligation to the reinsured. The retrocessional
agreement requires an annual minimum of $1.0 million written premiums or
$750,000 in premiums written and $1.5 million of adjusted gross premiums (a non
GAAP measure of business assumed during a period) on installment transactions.
As at December 31, 2008, the Company has complied with these requirements for
2008. This agreement has been terminated on a run-off basis effective
December 31, 2008. As a result of the downgrade of the retrocessionaire, the
Company has the right to terminate the agreement on a cutoff basis
and recapture all the policies previously ceded. The Company has not exercised
this right as of April 13, 2009. As at December 31, 2008, there
were no established losses recoverable on the retroceded business.

|  |                                         
|- | ----------------------------------------
|9 | CONTINGENT CAPITAL AND CREDIT FACILITIES

As of December
31, 2008 and 2007, RAM Re has contingent capital and credit facilities totaling
$180 million, the details of which are discussed in the following:

As of December
31, 2008 and 2007, the Company maintained a $90.0 million credit facility with
major commercial banks. The facility may be drawn upon by the Company if
cumulative losses exceed certain minimum thresholds in respect of cumulative
losses on public finance bonds and, in a limited capacity, asset-backed
securities reinsured by the Company. Loan obligations under this facility have
limited recourse and would be repayable from, and collateralized by, a pledge
of recoveries realized on defaulted reinsured obligations covered by the
facility, including certain installment premiums and other collateral. The
facility, which contains an annual extension provision subject to approval by
the banks, was not extended for an additional year on May 11, 2008. The
facility has a term ending on May 11, 2015. As of December 31, 2008 and 2007,
no amounts were outstanding nor have there been any borrowings under this
facility.

As of December
31, 2008 and 2007, the Company also maintained a second $40.0 million
contingent capital facility with two highly rated commercial banks. This
facility is essentially the same as the $90.0 million contingent capital
facility described above although it may be drawn upon only to cover
catastrophic losses, exceeding the minimum threshold, from public finance
obligations reinsured by RAM Re. Loan obligations under this facility also have
limited recourse and are repayable from, and collateralized by, a pledge of
recoveries realized on defaulted reinsured obligations covered by this
facility, including certain installment premiums and other collateral, on a
subordinate basis to the pledge made to secure the $90.0 million facility
described above. The $40.0 million facility has an annual extension feature,
subject to approval of the lenders, and was not extended for an additional year
on February 3, 2008. The facility has a term ending on February 3, 2014. As of
December 31, 2008 and 2007, no amounts were outstanding nor have there been any
borrowings under this facility.

On December 23, 2003, RAM Re
entered into a $50.0 million soft capital facility whereby it was granted the
right to exercise perpetual put options in respect of its Class B preference
shares against the counterparty to the option agreement, in return for which it
paid the counterparty a floating put option fee through February 17, 2009. The
counterparty was a trust established by an investment bank. The trust was
created as a vehicle for providing capital support to RAM Re by allowing it to
obtain, at its discretion and subject to the terms of the option agreement,
access to new capital through the exercise of a put option and the subsequent
purchase by the trust of RAM Re preference shares. In the years

107

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ended December
31, 2008, 2007 and 2006, $1.6 million, $0.8 million and $0.5 million,
respectively, of expenses relating to the operation of this facility were paid.
As of December 31, 2008, the put option had not been exercised. Subsequent to
December 31, 2008, on February 17, 2009, RAM Re exercised the put option in the
soft capital facility and issued 500.01 Class B preference shares to the trust
in exchange for $50,001,000 of proceeds. On March 16, 2009, RAM Re elected to
pay a fixed rate dividend on the Class B preference shares, as a result of
which the Class B preference shares were distributed to the holders of the
trusts securities and the trust is now in the process of dissolution. As a
result of the fixed rate election, dividends are payable on the Class B
preference shares every 90 days at a rate of 6.276%. The Class B preference
shares give investors the rights of an equity investor in RAM Re. Such rights
are subordinate to insurance claims, as well as the general unsecured creditors
of RAM Re. Dividends on the Class B preference shares are cumulative, only if
RAM Re pays dividends on its common shares without paying accrued and unpaid
dividends on the Class B preference shares. The Class B preference shares are
rated BBB by S&P. As of the date of filing of this Form 10-K, Moodys has
not assigned a rating to the Class B preference shares. RAM Re has the option
to redeem the Class B preference shares, subject to certain specified terms and
conditions. The fair value of the put option at the exercise date was $41.9
million and therefore the value of the preference shares will be $8.1 million,
being the difference between the proceeds received and the fair value of the
put option on the date of exercise.

|   |                                     
|-- | ------------------------------------
|10 | FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments under FAS
157

Effective
January 1, 2008, the Company adopted FAS 157. FAS 157 establishes a hierarchy
of inputs in measuring fair value, with the highest level being observable
inputs and the lowest being unobservable data, with the standard requiring that
the use of observable inputs is maximized (see Note 4 Derivative Instruments
for a description of each of the three levels). The following table presents
the fair value measurement levels for assets and liabilities, which the Company
has recorded at fair value as of December 31, 2008. As required by FAS 157,
items are classified in their entirety based on the lowest level of input that
is significant to the fair value measurement:

|                               |  |       |             |         |   |             |   |         |             |   |   |            |  
|------------------------------ |  | ----- | ----------- | ------- | - | ----------- | - | ------- | ----------- | - | - | ---------- | -
|                               |  | Total |             | Level 1 |   | Level 2     |   | Level 3 |            
|                               |  |       |             |         |   |             |   |         |            
|                               |  |       |             |         |   |             |   |         |            
|                               |  |       |             |         |   |             |   |         |             |   |   |            |  
|Financial Assets:              |  |       |             |         |   |             |   |         |             |   |   |            |  
|Fixed
 maturity investments    |  | $     | 421,890,248 |         | $ | 100,160,253 |   | $       | 321,519,872 |   | $ | 210,123    |  
|Cash and
 cash equivalents     |  |       | 8,763,063   |         |   | 8,763,063   |   |         |            |   |   |           |  
|Restricted
 cash               |  |       | 8,284,458   |         |   | 8,284,458   |   |         |            |   |   |           |  
|Other
 financial instruments   |  |       | 43,083,370  |         |   |            |   |         |            |   |   | 43,083,370 |  
|% of assets at fair value      |  |       | 100         | %       |   | 24          | % |         | 67          | % |   | 9          | %
|                               |  |       |             |         |   |             |   |         |             |   |   |            |  
|Financial Liabilities:         |  |       |             |         |   |             |   |         |             |   |   |            |  
|Derivative
 liabilities (1)    |  | $     | 85,353,670  |         | $ |            |   | $       |            |   | $ | 85,353,670 |  
|                               |  |       |             |         |   |             |   |         |             |   |   |            |  
|% of liabilities at Fair value |  |       | 100         | %       |   |            |   |         |            |   |   | 100        | %

|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(1) | See Note 4
 Derivative Instruments for further disclosures on the application of FAS 157
 to the Companys derivative liabilities.

The Companys
fair values of fixed maturity and short-term investments are based on prices
obtained from nationally recognized independent pricing services. Where
available, the prices are obtained from market quotations in active markets.
Where there is no quoted price for an identical security, then the pricing
service may use matrix pricing or model processes, such as the option adjusted
spread model, to estimate the fair value of a security. The matrix pricing or
model processes consist primarily of observable inputs, which may include; benchmark
yields, reported trades, broker/dealer quotes, issuer spreads, two-sided
markets, benchmark securities, bids, offers and reference data. The Company
receives at least one fair value price for each of its investment securities
and has not adjusted any of the prices received from the pricing services.

At December
31, 2008, all but one of the Companys investments were valued using the
independent pricing services. One security, which had a fair value of $0.2
million, has no active market and includes subprime exposure, was valued using
a non-binding broker quote. This security is included within level 3 in the
fair value hierarchy.

As management
is ultimately responsible for determining the fair value measurements for all
securities, the Company assesses the reasonableness of the fair values received
by comparing them to other pricing information readily available and
managements knowledge of the current markets. The Company also assesses the
pricing methodologies and related inputs used by the pricing services to
estimate fair value. Any prices that, in managements opinion, may not be
representative of fair value are challenged with the pricing service. Based on
the information obtained from the above reviews, the Company evaluated the
fixed income securities in the investment portfolio to determine the
appropriate FAS 157 fair value hierarchy level based on trading activity and
observability of inputs. Based on the Companys evaluation, each security was
classified as Level 1, 2, or 3. Prices on money market funds and US treasuries
were classified as Level 1, prices with observable

108

---



market inputs
were classified as Level 2, and valuations with no significant observable
inputs were classified as Level 3 as of December 31, 2008.

At January 1,
2008, two securities within the Companys fixed maturity portfolio were valued
using unobservable inputs, therefore the valuations were assessed as Level 3.
During the year ended December 31, 2008, one of these securities fully paid
down and therefore only one security is included in the level 3 classification
at December 31, 2008. The following table presents the fixed maturity
investments for which fair value was measured under Level 3 for the year to
December 31, 2008:

|                                                                        |  |  |                               |            |  
|----------------------------------------------------------------------- |  |  | ----------------------------- | ---------- | -
|Fair value measurement using significant unobservable inputs (Level
 3) |  |  |                               |            |  
|                                                                       
|                                                                        |  |  | Year Ended
 December 31, 2008 |           
|                                                                        |  |  |                               |           
|                                                                        |  |  |                               |            |  
|Balance,
 beginning of period                                           |  |  | $                             | 3,847,504  |  
|                                                                        |  |  |                               |            |  
|Total
 realized losses included in earnings                             |  |  |                               | (1,962,476 | )
|Total
 unrealized losses included in other comprehensive income         |  |  |                               | (4,061     | )
|Purchases,
 issuances and settlements                                   |  |  |                               | (1,670,844 | )
|Transfers in
 and/or out of Level 3                                     |  |  |                               |           |  
|                                                                        |  |  |                               |            |  
|                                                                        |  |  |                               |            |  
|Balance, December 31, 2008                                              |  |  | $                             | 210,123    |  
|                                                                        |  |  |                               |            |  

The Companys
fair value on Other Financial Instruments relates to the put option on the
Companys preference share soft capital facility, which represents the value to
the Company in the current market environment. The put option is a financial
instrument and is required to be fair valued. As at December 31, 2008, the
unrealized gain on this put option was $43.1 million and is included in other
financial instruments on the consolidated balance sheet. The unrealized gain on
this financial instrument was $35.3 million at December 31, 2007. The movement
in fair value of $7.8 million for the year ended December 31, 2008 is included
as an unrealized gain on other financial instruments in the statement of
operations. Valuations are based on unobservable inputs including assumptions
over the Companys performance and future outlook, the facility, the current
market conditions, and other similar instruments in the market. Assumptions
include the current rate paid for the facility (LIBOR plus 300 bps at December
31, 2008), the term of the facility and the Companys rating, along with
judgmental factors such as the market perception of the facility and the
Company.

The following
table presents the Other Financial Instruments for which fair value was
measured under Level 3 for the year ended December 31, 2008:

|                                                                        |  |  |                               |            | 
|----------------------------------------------------------------------- |  |  | ----------------------------- | ---------- | 
|                                                                        |  |  |                              
|Fair value measurement using significant unobservable inputs (Level
 3) |  |  |                              
|                                                                       
|                                                                        |  |  | Year Ended
 December 31, 2008 |           
|                                                                        |  |  |                               |           
|                                                                        |  |  |                               |            | 
|Balance,
 beginning of period                                           |  |  | $                             | 35,330,000 | 
|                                                                        |  |  |                               |            | 
|Total
 unrealized gains included in earnings                            |  |  |                               | 7,753,370  | 
|Purchases,
 issuances and settlements                                   |  |  |                               |           | 
|Transfers in
 and/or out of Level 3                                     |  |  |                               |           | 
|                                                                        |  |  |                               |            | 
|                                                                        |  |  |                               |            | 
|Balance,
 December 31, 2008                                             |  |  | $                             | 43,083,370 | 
|                                                                        |  |  |                               |            | 

Since, as of
December 31, 2008, there is no active market for the put option and due to the
significant number of the unobservable inputs used in the valuation, the put
option valuation was classified as a Level 3 fair value measurement.

Other fair value disclosures

Management has
estimated the fair value of certain financial instruments based upon market
information using appropriate valuation methodologies.

The carrying
amounts of cash and cash equivalents, interest and premiums receivable, other
assets, accounts payable and accrued liabilities and other liabilities are
considered reasonable estimates of their fair values.

As of December
31, 2008, the fair value of the Companys $75.0 million redeemable preference
shares was approximately $10.4 million. The fair values of the Companys long-term debt
is estimated to be approximately $12.0 million. Accrued interest payable is assumed
to approximate carrying value..

The carrying
amount of unearned premiums represents the Companys future earned premium
revenue on policies where the premium was received at the inception of the
policy and the risk is not yet expired. The fair value of the unearned premiums
is the value the Company would receive as the Companys market would be the
ceding company from which we originally assumed the business; we perceive the
market value

109

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to approximate
the carrying value. For installment premiums, consistent with industry
practice, there is no carrying amount since the Company will receive premiums
on an installment basis over the term of the reinsurance contract. Similar to
the treatment of unearned premiums, the fair value of installment premiums is
estimated as the present value of the future contractual premiums that are
expected to be received under a reinsurance agreement. The present value of
future installment premiums, discounted at a rate of 3.00% and 4.26%, was
$120.2 million and $234.2 million at December 31, 2008 and 2007, respectively.

|   |                                
|-- | -------------------------------
|11 | LOSSES AND LOSS EXPENSE RESERVE

The Companys
liability for losses and loss adjustment expenses consists of case-basis loss
reserves and an unallocated reserve. Movement in the provision for losses and
loss adjustment expenses is summarized as follows:

|                                                    |  |      |             |      |   |            |   |   |            |  
|--------------------------------------------------- |  | ---- | ----------- | ---- | - | ---------- | - | - | ---------- | -
|                                                    |  | 2008 |             | 2007 |   | 2006       |  
|                                                    |  |      |             |      |   |            |  
|Case-basis
 loss reserves:                          |  |      |             |      |   |            |   |   |            |  
|Balance 
 Beginning of year                        |  | $    | 30,447,036  |      | $ | 3,009,524  |   | $ | 6,257,286  |  
|Less:
 Recoverables on paid losses                  |  |      | (1,807,941  | )    |   | (915,900   | ) |   | (1,279,503 | )
|                                                    |  |      |             |      |   |            |   |   |            |  
|Net balance
  Beginning of year                    |  |      | 28,639,095  |      |   | 2,093,624  |   |   | 4,977,783  |  
|                                                    |  |      |             |      |   |            |   |   |            |  
|Additions to
 case-basis reserves related to:       |  |      |             |      |   |            |   |   |            |  
|Current year                                        |  |      |            |      |   | 8,036,791  |   |   |           |  
|Prior years                                         |  |      | 234,171,794 |      |   | 18,134,969 |   |   | (3,939,903 | )
|                                                    |  |      |             |      |   |            |   |   |            |  
|Total
 additions to case reserves                   |  |      | 234,171,794 |      |   | 26,171,760 |   |   | (3,939,903 | )
|                                                    |  |      |             |      |   |            |   |   |            |  
|Net losses
 paid related to:                        |  |      |             |      |   |            |   |   |            |  
|Current year                                        |  |      |            |      |   |           |   |   |           |  
|Prior years                                         |  |      | 182,820,511 |      |   | (373,711   | ) |   | (1,055,744 | )
|                                                    |  |      |             |      |   |            |   |   |            |  
|Total paid                                          |  |      | 182,820,511 |      |   | (373,711   | ) |   | (1,055,744 | )
|                                                    |  |      |             |      |   |            |   |   |            |  
|Net balance
  End of year                          |  |      | 79,990,378  |      |   | 28,639,095 |   |   | 2,093,624  |  
|Add:
 Recoverables on paid losses                   |  |      | 1,796,842   |      |   | 1,807,941  |   |   | 915,900    |  
|                                                    |  |      |             |      |   |            |   |   |            |  
|Balance 
 End of year                              |  |      | 81,787,220  |      |   | 30,447,036 |   |   | 3,009,524  |  
|                                                    |  |      |             |      |   |            |   |   |            |  
|Unallocated
 loss reserve:                          |  |      |             |      |   |            |   |   |            |  
|Balance 
 Beginning of year                        |  |      | 33,350,708  |      |   | 11,496,254 |   |   | 10,337,582 |  
|Net
 provision for unallocated reserves established |  |      | 4,189,200   |      |   | 21,854,454 |   |   | 1,158,672  |  
|Transfers to
 case reserves                         |  |      | (23,532,874 | )    |   |           |   |   |           |  
|                                                    |  |      |             |      |   |            |   |   |            |  
|Balance 
 End of year                              |  |      | 14,007,034  |      |   | 33,350,708 |   |   | 11,496,254 |  
|                                                    |  |      |             |      |   |            |   |   |            |  
|Total losses
 and loss expense reserve              |  | $    | 95,794,254  |      | $ | 63,797,744 |   | $ | 14,505,778 |  
|                                                    |  |      |             |      |   |            |   |   |            |  
|                                                    |  |      |             |      |   |            |   |   |            |  

The
deterioration in the US residential mortgage markets has resulted in the
establishment of a significant amount of case-basis loss reserves being recorded
on the policies that have defaulted or have a high probability of defaulting.
Additions to case-basis reserves of $234.2 million in 2008, $26.2 million in
2007, and ($3.9) million in 2006 represent the Companys proportionate share of
loss reserves established by ceding companies and are based on notification by
ceding companies and the judgment of management. The net unallocated reserve
increase of $4.2 million in 2008 includes (i) additional calculated amounts of
$26.5 million relating to US residential mortgage-backed securities (RMBS)
exposure where the development of a default is probable and $7.1 million on
other structured finance products, offset by (ii) a decrease in par of the
inforce insured portfolio primarily as a result of the commutations during the
year (see Note 16). During the year ended December 31, 2008, $23.5 million was
transferred from unallocated to case reserves. The company has insured par
relating to US RMBS exposure of $1.3 billion, of which $445.3 million has case
reserves amounting to $48.7 million at December 31, 2008. RMBS exposure
includes obligations backed by Alt-A, subprime, closed-end second mortgage
loans and home equity lines of credit. The Companys estimate of loss reserves
related to RMBS exposure represent managements best estimate of total losses
for these exposures but actual losses may differ materially from these
estimates. The Company continues to monitor the performance of these exposures
and will update estimates of loss as new information reflecting future
performance is available. The increase of the unallocated reserve of $21.9
million in 2007 is partially due to the increase in exposure reinsured by the
Company as well as an additional calculated amount of $15.6 million relating to
residential mortgage-backed securities (RMBS) exposure where the development
of a default is probable but the actual loss has not been specifically
identified. The

110

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increase of
the unallocated reserve of $1.2 million in 2006 are due primarily to the
combination of increased exposures reinsured by the Company in the ordinary
course of business and changes in unallocated reserve factors applied in
estimating the unallocated loss reserve.

Individual
primaries began recording these remediation benefits in their case reserves in
mid-2008, with all of our ceding companies recording remediation benefits at
year end. Prior to the fourth quarter we did not have access to sufficient
information to assess the reliability of the remediation benefits ceded by the
primaries. In the fourth quarter, we began to record our pro rata share of the
remediation benefits in the ceded case reserves as a result of additional
supporting information received from the primaries,

As of December
31, 2008 the Company gave credit of $28.8 million in its case reserves for the
benefit of expected recoveries in 18 RMBS transactions resulting from required
repurchases by the originators due to contractual breaches of representations
and warranties in the RMBS securitization agreements. The $28.8 million of
credit given matches the credit reported to the Company by the primaries. The
primaries performed detailed examinations of sampled RMBS loan files to
determine whether the loans conformed to the representation and warranties made
by the originators. The sampled loans were either in later stages of
delinquency or had been charged off. Those loans that showed a material breach
of representations and warranties are in the process of being put-back to the
originators for repurchase. All of the primaries have stated that they intend to vigorously
pursue enforcement of the contractual repurchase obligations of the
originators. The Company views the obligation to repurchase as a standard
provision of RMBS securitizations that has been enforced for many years. Thus
the Company views the inclusion of remediation credit taken by the primaries in
its case reserves to be probable and estimable and has assumed its
proportionate share of the credit given by the primaries when establishing its
case reserves.

To determine the
adequacy of its aggregate reserves, the Company considers the case reserves
established by its ceding companies for the exposures it has reinsured as well
as the methodologies used by the ceding companies to calculate such ceded case
reserves. When the ceding companies provide additional non-case-basis reserves
associated with ceded exposures, the Company also takes these reserves into
consideration and is generally included in our unallocated loss reserves if not
already included in our case reserves. To further evaluate the ceded reserve
amounts established by the ceding companies, the Company uses its own loss
forecasting methodology. For RMBS, the Company takes into account the first
loss protective features inherent in the structure of the insured exposure,
collateral losses to date, current delinquency rates and loan product
characteristics such as loan-to-value ratio and credit score. The first-loss
protection in most of the Companys RMBS transactions is provided by excess
spread, overcollateralization, subordination, and in some cases mortgage pool
insurance.

For RMBS, the
Companys loss reserving methodology assumes that all 90+ day delinquent
loans are liquidated, and the loss severity for these loans is equal to 100%
for second liens, 55% for subprime and 45% for Alt-A and prime loans, while the
remainder of the collateral pool experiences losses based on loss assumptions
determined by the vintage year in the case of Home Equity Lines of Credit
(HELOCs), Subprime, Alt-A and Prime mortgages. Borrower credit quality is also
considered in the case of Closed-End Seconds (CES). Correlation is not one of
the inputs in our loss reserving methodology for RMBS.

The following
table sets forth the general guidelines the Company uses for our remaining loss
assumptions (expressed as a percent of the outstanding principal balance of
loans less than 90 days delinquent) for 2005-2007 vintage US RMBS. Our
exposures to US RMBS vintages from earlier vintages have minimal case reserves
and are therefore analyzed using different assumptions applied on a
case-by-case basis.

|         |  |                  |  |              |  |              |      |              |  |     
|-------- |  | ---------------- |  | ------------ |  | ------------ | ---- | ------------ |  | ----
|Product  |  | Borrower
 Credit |  | 2005 Vintage |  | 2006 Vintage |      | 2007 Vintage
|         |  |                  |  |              |  |              |      |             
|         |  |                  |  |              |  |              |      |             
|HELOC    |  | NA               |  | 15.0         |  |              | 25.0 |              |  | 30.0
|         |  |                  |  |              |  |              |      |              |  |     
|Subprime |  | NA               |  | 6.0          |  |              | 15.0 |              |  | 25.0
|         |  |                  |  |              |  |              |      |              |  |     
|CES      |  | Good             |  | 6.0          |  |              | 20.0 |              |  | 35.0
|         |  |                  |  |              |  |              |      |              |  |     
|CES      |  | Fair             |  | 10.0         |  |              | NA   |              |  | 40.0
|         |  |                  |  |              |  |              |      |              |  |     
|CES      |  | Poor             |  | NA           |  |              | NA   |              |  | 70.0
|         |  |                  |  |              |  |              |      |              |  |     
|Alt-A    |  | NA               |  | 12.0         |  |              | 18.0 |              |  | 18.0
|         |  |                  |  |              |  |              |      |              |  |     
|Prime    |  | NA               |  | 8.5          |  |              | 8.5  |              |  | 12.0

Our risk
management staff reviews each transaction and may make adjustments to the above
assumptions depending on the information provided by the primaries and the
historical performance of each transaction. Other key assumptions include the
spread between the prime rate and 1-month LIBOR for HELOC transactions, which is
assumed to be fixed at 240 basis points, and the remaining average life of the
collateral pool, which is generally assumed to be four years.

111

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The following
table summarizes the subordination and overcollateralization (OC) in the
Companys 2005-2007 US RMBS exposures by product type and vintage. The severity
of loss (or loss given default) is the Companys lifetime severity assumption.
The table also sets forth the mortgage collateral lifetime default and
cumulative lifetime loss rates that result from our modeling methodology, our
assumptions and the performance to date of our exposures.

|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|------------ |  | ------- |  | ------------------------------------ | - | --------------------------- | ---- | ----------------- |  | ----------------------- | - |  | ---- | -
|Product Type |  | Vintage |  | Remaining
 Subordination
 and OC (1) |   | Lifetime
 Default Rate
 (2) |      | Severity of
 Loss |  | Cum. Lifetime
 Loss (2)
|             |  |         |  |                                      |   |                             |      |                   |  |                        
|HELOC        |  | 2005    |  | 2.0                                  | % |                             | 9.8  | %                 |  | 100                     | % |  | 9.8  | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|HELOC        |  | 2006    |  | 0.3                                  | % |                             | 27.6 | %                 |  | 100                     | % |  | 27.6 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|HELOC        |  | 2007    |  | 6.3                                  | % |                             | 32.9 | %                 |  | 100                     | % |  | 32.9 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|CES          |  | 2005    |  | 19.2                                 | % |                             | 16.2 | %                 |  | 100                     | % |  | 16.2 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|CES          |  | 2006    |  | 0.5                                  | % |                             | 30.4 | %                 |  | 100                     | % |  | 30.4 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|CES          |  | 2007    |  | 2.5                                  | % |                             | 42.7 | %                 |  | 100                     | % |  | 42.7 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|Subprime     |  | 2005    |  | 11.3                                 | % |                             | 18.1 | %                 |  | 55                      | % |  | 10.0 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|Subprime     |  | 2006    |  | 36.1                                 | % |                             | 25.3 | %                 |  | 55                      | % |  | 13.9 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|Subprime     |  | 2007    |  | 12.7                                 | % |                             | 50.4 | %                 |  | 55                      | % |  | 27.7 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|Alt-A        |  | 2005    |  | 25.6                                 | % |                             | 29.9 | %                 |  | 45                      | % |  | 13.5 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|Alt-A        |  | 2006    |  | 48.4                                 | % |                             | 50.2 | %                 |  | 45                      | % |  | 22.6 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|Alt-A        |  | 2007    |  | 14.4                                 | % |                             | 35.7 | %                 |  | 45                      | % |  | 16.1 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|Prime        |  | 2005    |  | 38.1                                 | % |                             | 14.1 | %                 |  | 45                      | % |  | 6.3  | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|Prime        |  | 2006    |  | 12.4                                 | % |                             | 22.4 | %                 |  | 45                      | % |  | 10.1 | %
|             |  |         |  |                                      |   |                             |      |                   |  |                         |   |  |      |  
|Prime        |  | 2007    |  | 13.0                                 | % |                             | 28.8 | %                 |  | 45                      | % |  | 12.9 | %

|    |                                                    
|--- | ---------------------------------------------------
|(1) | Percent of
 current outstanding collateral balance.
|    |                                                    
|(2) | Percent of
 original collateral balance.           

If the
Companys remaining loss assumption is increased by 25% over our current
assumptions (which approximates the effect of estimated peak monthly default
rates continuing for an additional six months beyond the Companys current
nine-month assumption for second liens and 24-month assumption for first liens),
we estimate the addition to our total loss and LAE reserve for 2005-2007
vintage US RMBS would be approximately $31.9 million. Management believes
extending the peak default rate by 6 months is representative of a typical
stress scenario and a prolonged recession period. Such estimated increase
assumes our current remediation recovery estimates remain constant; however,
our actual remediation recoveries could be lower than our current estimates if
the sponsors of these transactions either: i) fail to honor their obligations
to repurchase the mortgage loans; ii) successfully dispute the primaries
breach findings; or iii) no longer have the financial means to fully satisfy
their obligations under the transaction documents. In addition, such estimated increase
does not include the effect of the stress scenario on approximately $89.1
million par outstanding of 2005-2007 vintage RMBS for which the Company has
insufficient data to perform this analysis.

The Company
believes that it is appropriate to determine its total loss and LAE reserves
    using the loss and LAE reserves ceded by the
    ceding companies as a key input and the analysis
    performed by the Company, which validates or results in adjustments to the
    ceding company reserves. Although the Company believes its methodology for
    determining loss reserves is appropriate, there can be no assurance that
    actual, ultimate losses will not be higher or lower than the Companys
    reserves. The ultimate performance of the Companys RMBS transactions
    remains highly uncertain and may be subject to considerable volatility due
    to the influence of many factors, including the level and timing of loan
    defaults, changes in housing prices and other variables.

112

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RAM primarily
identifies problem credits through information provided by the primary insurers
at least on a quarterly basis. Such information generally consists of
surveillance and underwriting reports and quarterly conference calls with the
primary ceding companies analysts. The Risk Management staff supplements this
input with their own research to identify and assess the status of individual
credits. Research performed includes reviews of rating agency and fixed income
research publications and analysis of historical performance data. Each of the
ceding companies maintains a watch list for credits that have been identified
as requiring greater than the usual level of ongoing scrutiny and/or
intervention. The ceding companies notify us when any transaction they have
reinsured has been placed on such a watch list. The Management Committee is
comprised of RAMs senior officers and meets quarterly to formally review the
Companys Watch List and approve case and unallocated reserves.

RAM maintains
its own Watch List to identify those transactions requiring increased
monitoring. The Company typically places transactions on the Watch List if the
ceding company places a transaction on its watch list, and RAM generally
employs a mapping of each watch list category of each primary insurer to the
Companys own Watch List categories. Risk Management surveys market segments on
an as-needed basis based on market trends, and may add transactions to the
Watch List as a result of such survey even if the ceding company has not added
the transaction to its watch list.

Transactions
on the Watch List are divided into four categories generally based upon the
following definitions. Category 1 includes transactions for which performance
of the issue or that of an issuance participant is sufficiently below
expectations where increased monitoring is required; however, the risk of loss
remains remote. Category 2 transactions include those for which performance of
an issue or that of an issuance participant is sufficiently below expectations where
increased monitoring is required and remedial intervention by the ceding
company is either planned or already in progress. Performance issues occur when
the performance of an issue does not stabilize or improve over the intermediate
term and concerns about the transactions ability to meet its debt service
obligations may arise. If performance has deteriorated to the point where
concerns about the issuers continued ability to meet debt service requirements
on a timely basis are substantial, such transaction would be classified as a
Category 3 transaction. Category 3 includes transactions where claims have been
paid but recoveries are forecast for the claims. Category 4 transactions
include those for which claims or loss adjustment expense payments are likely.
Designation of a transaction as Category 4 generally coincides with the
establishment of a case-basis loss reserve. Each transaction in Category 3 or 4
of the Watch List is generally reviewed quarterly to determine whether material
changes are noted by the ceding company or by the Risk Management staff. If
material adverse changes are identified, surveillance reports are requested
from the ceding company and discussions are held to assess the deterioration
and outlook for the credit.

RAMs
Management Committee establishes reserves that it believes are adequate to
cover the present value of ultimate liability for losses and loss adjustment
expenses. These reserves are based on estimates and may vary materially from
actual results. Adjustments based on actual loss experience are recorded in the
periods in which they become known.

RAM does not
perform loss mitigation activities and instead relies on the loss mitigation
efforts of the ceding companies, who report RAMs proportionate share of the
expenses incurred and liability for such activities. RAM pays the ceding
companies a ceding commission for all policies reinsured. The ceding commission
represents RAMs portion of the cost to the ceding companies to write the
transaction, perform ongoing surveillance and engage in loss mitigation
activities. Ceding commissions are deferred and expensed as each policys
exposure matures and is included as an asset in deferred policy acquisition
costs and as acquisition expenses in the statement of operations. RAM reports
loss expenses associated with claims as a liability in loss reserves on the
balance sheet and in loss and loss adjustment expenses of the statement of
operations.

113

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The following table provides information about the financial guaranty
policies and related loss reserves in each of RAMs Watch List categories as of
December 31, 2008:

|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|---------------------------------------------------- |  | ----------------------- | ----- | ---------- | - | ---------- |  | ---------- | ----- | ----- | - | ----- | - | - | ------- | -
|                                                     |  | Surveillance Categories |       |            |  
|                                                     |  |                         |       |            |  
|($ in
 millions)                                     |  | Category 1              |       | Category 2 |   | Category 3 |  | Category 4 |       | Total |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |  
|Number of
 policies                                  |  |                         | 55    |            |   | 31         |  |            | 36    |       |   | 71    |   |   | 193     |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Remaining
 weighted average contract period (in yrs) |  |                         | 20    |            |   | 22         |  |            | 24    |       |   | 25    |   |   | 23      |  
|Insured
 contractual payments outstanding:           |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Principal                                            |  | $                       | 401.3 |            | $ | 496.3      |  | $          | 178.7 |       | $ | 633.0 |   | $ | 1,709.3 |  
|Interest                                             |  | $                       | 268.2 |            | $ | 466.7      |  | $          | 48.7  |       | $ | 342.1 |   | $ | 1,125.6 |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Total                                                |  | $                       | 669.5 |            | $ | 963.0      |  | $          | 227.4 |       | $ | 975.1 |   | $ | 2,834.9 |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Gross claim
 liability                               |  | $                       |      |            | $ |           |  | $          | 19.8  |       | $ | 184.4 |   | $ | 204.2   |  
|Less:                                                |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Gross potential recoveries                           |  | $                       |      |            | $ |           |  | $          | (21.9 | )     | $ | (38.1 | ) | $ | (59.9   | )
|Discount, net                                        |  | $                       |      |            | $ |           |  | $          | 0.3   |       | $ | (64.5 | ) | $ | (64.2   | )
|Net claim
 liability                                 |  | $                       |      |            | $ |           |  | $          | (1.8  | )     | $ | 81.8  |   | $ | 80.0    |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Unearned
 premium revenue                            |  | $                       | 6.6   |            | $ | 0.1        |  | $          | 0.3   |       | $ | 2.5   |   | $ | 9.4     |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Net claim
 liability reported in the balance sheet   |  |                         |       |            |   |            |  |            |       |       |   |       |   | $ | 80.0    |  
|                                                     |  |                         |       |            |   |            |  |            |       |       |   |       |   |   |         |  
|Reinsurance
 recoverables                            |  |                         |      |            |   |           |  |            |      |       |   |      |   |   |        |  

The above table includes all financial guarantee contracts on the
Companys Watch List at December 31, 2008. Policies written in credit
derivative form are not included in the above table.

|   |                     
|-- | --------------------
|12 | OUTSTANDING EXPOSURE

Financial
guarantees are unconditional commitments that guaranty the performance of
obligations under a debt service schedule. The Companys potential liability in
the event of non-performance by the issuer of the reinsured obligation is
represented by its proportionate share of the aggregate outstanding principal
and interest payable on such insured obligations.

We have not
written any credit default swap (CDS) contracts on a direct basis, meaning
that we have not written any individual International Swaps and Derivatives
Association, Inc. (ISDA) contracts. However, we have reinsured quota share
portions of CDS insured by our ceding companies. Our ceding companies generally
do not provide us with payment terms of their insured credit derivatives unless
the transaction is on their Watch List. We may also request the payment information
on policies but the primaries are not contractually obligated to provide this
to us and we have not received complete information from all of the primaries.

Based on the
public reports of our ceding companies, the payment terms of their CDS contracts
are generally pay as you go, meaning they insure payment of timely interest
and ultimate principal or ultimate principal only at final maturity. However,
based on these reports, in some cases payment terms are other than pay as you
go. For example, in some cases payments are required upon settlement of
individual referenced collateral losses in excess of policy-specific
deductibles and subordination. The deductible or loss threshold is the amount
of losses experienced with respect to the underlying or referenced collateral
that would be required to occur before a claim against the ceding companys
insurance policy can be made.

Further, based
on the public reports of our ceding companies, their credit derivative
transactions are governed by ISDA documentation and operate differently from
financial guaranty insurance policies. For example, unlike financial guaranty
insurance policies, a credit derivative may be terminated for a breach of the
ISDA documentation or other specific early termination event, such as
insolvency of or failure to pay by the ceding company. If a credit derivative
is terminated early, a ceding company could be required to make a
mark-to-market payment as determined under the ISDA documentation. We believe
our contractual obligation to indemnify the ceding companies for losses under
our reinsurance contracts only extends to defaults in the underlying
transaction covered by the ISDA documentation and not defaults by the primary
company or its affiliates under the ISDA documentation.

In determining
the timing and terms of potential payments under our insured credit
derivatives, all of our insured credit derivatives are pay as you go, unless
the transaction is on our Watch List and the ceding company states that the
insured credit derivatives have different payment terms. We believe that
defaults are probable only with respect to policies in category 4 of our Watch
List, and because we know the payment

114

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terms of these
transactions, our liquidity risk is mitigated. However, we are at risk of
unanticipated loss payments under insured credit derivative policies that are
not on our Watch List. Such an unanticipated payment could have an adverse
effect on our liquidity. If an unexpected loss were to arise, we have a highly
liquid and short duration investment portfolio in place to handle any
unanticipated losses.

As of December
31, 2008 and 2007, the Companys outstanding principal reinsured was $30.0
billion and $45.4 billion, respectively. If a primary financial guaranty
insurance company pays a claim and has recourse through subrogation rights, the
Company would benefit based on its proportionate share of risk.

Outstanding
principal reinsured as of December 31, 2008 and 2007 by credit sector was (in
millions) (1):

|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|------------------------------------- |  | ------ | ------ | ---- |  | ---- | ------ |  | - | ------ |  |  | ----- | -
|(dollars in millions)                 |  | 2008   |        | 2007 | 
|                                      |  |        |        |      | 
|US Public
 Finance                    |  | OS Par |        | %    |  |      | OS Par |  | % |       
|                                      |  |        |        |      |  |      |        |  |   |       
|General
 obligation and lease         |  | $      | 6,859  |      |  | 22.9 | %      |  | $ | 7,964  |  |  | 17.5  | %
|Tax-backed                            |  |        | 2,095  |      |  | 7.0  | %      |  |   | 2,571  |  |  | 5.7   | %
|Transportation                        |  |        | 2,803  |      |  | 9.4  | %      |  |   | 3,078  |  |  | 6.8   | %
|Healthcare                            |  |        | 1,672  |      |  | 5.6  | %      |  |   | 2,570  |  |  | 5.7   | %
|Utility                               |  |        | 3,032  |      |  | 10.1 | %      |  |   | 3,723  |  |  | 8.2   | %
|Investor-owned utilities              |  |        | 609    |      |  | 2.0  | %      |  |   | 769    |  |  | 1.7   | %
|Other                                 |  |        | 1,118  |      |  | 3.7  | %      |  |   | 1,545  |  |  | 3.4   | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|Total US Public Finance               |  | $      | 18,190 |      |  | 60.7 | %      |  | $ | 22,219 |  |  | 48.9  | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|                                      |  | 2008   |        | 2007 | 
|                                      |  |        |        |      | 
|US
 Structured Finance                |  | OS Par |        | %    |  |      | OS Par |  | % |       
|                                      |  |        |        |      |  |      |        |  |   |       
|Commercial
 ABS2 and CDOs             |  | $      | 4,147  |      |  | 13.8 | %      |  | $ | 9,221  |  |  | 20.3  | %
|RMBS                                  |  |        | 1,324  |      |  | 4.4  | %      |  |   | 2,488  |  |  | 5.5   | %
|Other
 Structured Finance & Corporate |  |        | 1,012  |      |  | 3.4  | %      |  |   | 1,422  |  |  | 3.1   | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|Total US Structured Finance           |  | $      | 6,483  |      |  | 21.6 | %      |  | $ | 13,131 |  |  | 28.9  | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|                                      |  | 2008   |        | 2007 | 
|                                      |  |        |        |      | 
|International                         |  | OS Par |        | %    |  |      | OS Par |  | % |       
|                                      |  |        |        |      |  |      |        |  |   |       
|Asset-backed                          |  | $      | 2,529  |      |  | 8.4  | %      |  | $ | 5,052  |  |  | 11.1  | %
|Public
 Finance                       |  |        | 1,575  |      |  | 5.3  | %      |  |   | 3,119  |  |  | 6.9   | %
|Investor-owned utilities and Other    |  |        | 1,180  |      |  | 3.9  | %      |  |   | 1,873  |  |  | 4.1   | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|Total International                   |  | $      | 5,284  |      |  | 17.6 | %      |  | $ | 10,044 |  |  | 22.1  | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|Total                                 |  | $      | 29,957 |      |  | 100  | %      |  | $ | 45,394 |  |  | 100.0 | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  

115

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The following table sets
forth our in-force portfolio net exposure outstanding as of each of the years
indicated, by product line and bond type for transactions issued both in the
U.S. and internationally.

|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|------------------------------------- |  | ------ | ------ | ---- |  | ---- | ------ |  | - | ------ |  |  | ----- | -
|(dollars in millions)                 |  | 2008   |        | 2007 | 
|                                      |  |        |        |      | 
|US Public
 Finance                    |  | OS Exp |        | %    |  |      | OS Exp |  | % |       
|                                      |  |        |        |      |  |      |        |  |   |       
|General
 obligation and lease         |  | $      | 11,284 |      |  | 22.2 | %      |  | $ | 13,160 |  |  | 18.3  | %
|Tax-backed                            |  |        | 3,921  |      |  | 7.7  | %      |  |   | 4,742  |  |  | 6.6   | %
|Transportation                        |  |        | 4,942  |      |  | 9.7  | %      |  |   | 5,799  |  |  | 8.1   | %
|Healthcare                            |  |        | 3,179  |      |  | 6.3  | %      |  |   | 4,885  |  |  | 6.8   | %
|Utility                               |  |        | 5,490  |      |  | 10.8 | %      |  |   | 6,586  |  |  | 9.2   | %
|Investor-owned utilities              |  |        | 1,338  |      |  | 2.6  | %      |  |   | 1,601  |  |  | 2.2   | %
|Other                                 |  |        | 2,368  |      |  | 4.6  | %      |  |   | 3,256  |  |  | 4.6   | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|Total US Public Finance               |  | $      | 32,522 |      |  | 64.1 | %      |  | $ | 40,028 |  |  | 55.7  | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|                                      |  | 2008   |        | 2007 | 
|                                      |  |        |        |      | 
|US
 Structured Finance                |  | OS Exp |        | %    |  |      | OS Exp |  | % |       
|                                      |  |        |        |      |  |      |        |  |   |       
|Commercial
 ABS and CDOs              |  | $      | 5,475  |      |  | 10.8 | %      |  | $ | 11,296 |  |  | 15.7  | %
|RMBS                                  |  |        | 1,522  |      |  | 3.0  | %      |  |   | 2,783  |  |  | 3.9   | %
|Other
 Structured Finance & Corporate |  |        | 1,772  |      |  | 3.5  | %      |  |   | 1,908  |  |  | 2.6   | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|Total US Structured Finance           |  | $      | 8,768  |      |  | 17.3 | %      |  | $ | 15,987 |  |  | 22.2  | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|                                      |  | 2008   |        | 2007 | 
|                                      |  |        |        |      | 
|International                         |  | OS Exp |        | %    |  |      | OS Exp |  | % |       
|                                      |  |        |        |      |  |      |        |  |   |       
|Asset-backed                          |  | $      | 3,402  |      |  | 6.7  | %      |  | $ | 5,868  |  |  | 8.2   | %
|Public
 Finance                       |  |        | 2,977  |      |  | 5.9  | %      |  |   | 5,650  |  |  | 7.8   | %
|Investor-owned utilities and Other    |  |        | 3,062  |      |  | 6.0  | %      |  |   | 4,377  |  |  | 6.1   | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|Total International                   |  | $      | 9,441  |      |  | 18.6 | %      |  | $ | 15,895 |  |  | 22.1  | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  
|Total                                 |  | $      | 50,731 |      |  | 100  | %      |  | $ | 71,911 |  |  | 100.0 | %
|                                      |  |        |        |      |  |      |        |  |   |        |  |  |       |  

|    |                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All exposure outstanding
 in this table is reported with a one-quarter lag. 2008 data excludes amounts commuted back
 to MBIA per the Commutation Agreement dated November 30, 2008. Due to rounding, the numbers may not add
 up to the totals.
|   
|(2) | Asset-backed securities
 (ABS).                                                                                                                                                                                                               

116

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Outstanding
principal reinsured at December 31, 2008 and 2007 by geographic location was
(in millions) (1)
:

|                   |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|------------------ |  | ------ | ------ | ---- |  | ----- | ------ |  | - | ------ |  |  | ----- | -
|                   |  | 2008   |        | 2007 | 
|                   |  |        |        |      | 
|                   |  | OS Par |        | %    |  |       | OS Par |  | % |       
|                   |  |        |        |      |  |       |        |  |   |       
|Multi-state        |  | $      | 5,804  |      |  | 19.4  | %      |  | $ | 12,859 |  |  | 28.3  | %
|International      |  |        | 5,284  |      |  | 17.6  | %      |  |   | 10,044 |  |  | 22.1  | %
|California         |  |        | 3,111  |      |  | 10.4  | %      |  |   | 3,618  |  |  | 8.0   | %
|New York           |  |        | 2,161  |      |  | 7.2   | %      |  |   | 2,652  |  |  | 5.8   | %
|Illinois           |  |        | 1,247  |      |  | 4.2   | %      |  |   | 1,358  |  |  | 3.0   | %
|Florida            |  |        | 1,201  |      |  | 4.0   | %      |  |   | 1,559  |  |  | 3.4   | %
|Other U.S.
 States |  |        | 11,149 |      |  | 37.2  | %      |  |   | 13,304 |  |  | 29.3  | %
|                   |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|                  
|                   |  | $      | 29,957 |      |  | 100.0 | %      |  | $ | 45,394 |  |  | 100.0 | %
|                   |  |        |        |      |  |       |        |  |   |        |  |  |       |  

The Company
attempts to limit its exposure to credit risk through risk management
guidelines, the objectives of which are to ensure that the Company maintains a
reinsured portfolio that is of high quality and is sufficiently diversified to
protect the Company from unexpected severe deterioration in any particular
credit sector or geographic location.

(1)As a reinsurer we report outstanding
exposure on a one-quarter lag, which is consistent with the reinsurance
industry practice, data excludes amounts commuted back to MBIA per the Commutation Agreement dated November
30, 2008. However, we closely monitor any credit changes on an ongoing basis
through discussions with the ceding companies and rating agencies and our loss
and loss expense reserves are current as of the end of the applicable quarter
reported.

|   |                                       
|-- | --------------------------------------
|13 | PENSION AND PROFIT PARTICIPATION PLANS

The Company
maintains qualified and non-qualified, non-contributory, defined contribution
pension plans for the benefit of eligible employees. These plans are
administered by a third party. The Companys contributions are based upon a
fixed percentage of employee compensation. Pension expense, which is funded as
accrued, for the years ended December 31, 2008, 2007, and 2006 was $0.4
million, $0.4 million, and $0.5 million, respectively.

The Company
maintains a rabbi trust for deferred compensation plans for executives. The
rabbi trust holds assets such as cash, fixed income and equity securities in
the form of mutual funds. These assets of the rabbi trust are consolidated with
those of the Company and are reflected in other assets. These assets are
classified as trading securities and reported at fair value with changes in
fair value reflected in net investment income. The related deferred
compensation obligation is carried at fair value and reflected in other
liabilities with changes reflected as a corresponding increase or decrease to
administrative expenses.

On November 11, 2008, the Company approved certain technical amendments
to the deferred compensation plan for highly compensated U.S. citizen
executives (the Affected Executives) in order to comply with Section 409A of
the U.S. Internal Revenue Code. Under recently enacted Section
457A of the U.S. internal Revenue Code, unless further regulations are
promulgated that would exempt the Company from its application, the Affected
Executives would be unable to defer income tax on contributions to the deferred
compensation plan in respect of services rendered after December 31, 2008. Consequently, the deferred
compensation plan was also amended to provide that no further contributions to
the deferred compensation plan would be made by the Company after December 31,
2008. Further, the Company approved permitting the Affected Executives to make
a change in their payment elections under the 409A transition rules on or
before December 31, 2008. As a consequence of elections made by the
Affected Executives, subsequent to December 31, 2008, all of the funds held in
the rabbi trust established under the deferred compensation plan were paid out
to the Affected Executives. It is not expected that additional funds will be
deposited in the rabbi trust because the Company has ceased contributing to the
deferred compensation plan, but the Affected Executives are permitted to
continue to make contributions to the deferred compensation plan at their
election.

|   |                  
|-- | -----------------
|14 | OTHER RECEIVABLES

The Company renewed its Directors & Officers (D&O) insurance
in February 2008. One of the policies forming part of the total coverage
involved a premium of $5.0 million, $4.0 million of which is refundable to the
Company if no claims are made under the policy by the end of the annual period
of coverage. The Company believes that there has not been a transfer of
significant insurance risk on this part of the coverage and accordingly has
accounted for the policy as a non risk transferring contract. Of the $5.0
million paid for this part of the coverage, $4.0 million, representing the
amount currently expected to be recovered from the insurers, has been accounted
for as a receivable in other receivables on the balance sheet and the Company
has expensed the $1.0 million premium which it does not expect to recover.

117

---



|   |                             
|-- | ----------------------------
|15 | REINSURANCE BALANCES PAYABLE

Reinsurance balances payable consist of the following balances at
December 31, 2008 and 2007:

|                                             |  |                     |            |                     |   |         | 
|-------------------------------------------- |  | ------------------- | ---------- | ------------------- | - | ------- | 
|                                             |  | December
 31,
 2008 |            | December
 31,
 2007 |  
|                                             |  |                     |            |                     |  
|                                            
|Accrual for
 ceding commissions on downgrade |  |                     | 19,965,482 |                     |   |        | 
|Net payable
 on assumed reinsurance          |  |                     | 4,655,629  |                     |   |        | 
|Net payable
 on ceded reinsurance            |  |                     |           |                     |   | 539,394 | 
|                                             |  |                     |            |                     |   |         | 
|                                             |  | $                   | 24,621,111 |                     | $ | 539,394 | 
|                                             |  |                     |            |                     |   |         | 

On June 4, 2008, S&P lowered its financial strength rating of RAM
Re from AAA on credit watch with negative implications to AA with a negative
outlook. On September 24, 2008, S&P further lowered RAM Res financial
strength rating to A+ (with negative outlook). As a result of these downgrades
certain of the ceding companies have a right under some of our treaty
agreements to increase the ceding commission charged to RAM Re on the U.S.
statutory unearned premium balance, as well as premiums payable after the
downgrade. This increase applies to all financial guaranty and derivative
policies covered by the relevant treaties. As at December 31, 2008, RAM Re
estimates the increase in ceding commission on U.S. statutory unearned premiums
to be $20.3 million and has recorded this in deferred acquisition costs on the
balance sheet. These additional ceding commissions are being expensed in
proportion to the earning of the remaining unearned premium. As of December 31,
2008, $20.0 million of this balance has been accrued to reinsurance balances
payable, and the remainder has been paid to one of RAM Res ceding companies
under the terms of the agreements.

On August 7, 2008, Moodys downgraded its financial strength rating on
RAM Re from Aa3 to A3 and, on December 4, 2008, Moodys further downgraded RAM
Re to Baa3 with outlook developing. At this time, RAM is unable to conclude if
there will be any further additional ceding commissions associated with Moodys
downgrade because Moodys has not yet established the amount of reinsurance
credit RAM Re will provide its ceding companies at the Baa3 level. Subsequent
to December 31, 2008, RAM Re withdrew their rating from Moodys. This is not
expected to have an effect the amount additional ceding commissions accrued.

As at December 31, 2008 and 2007, $4.7 million and $Nil, respectively,
was due to primary insurers in the ordinary course of business, representing
RAM Res proportionate share of paid losses net of premiums receivable and
ceding commission on the periodic cessions received from the primary insurers.

As at December 31, 2008 and 2007, $Nil and $0.5 million, respectively,
was owing to the counterparty of the Companys retrocession agreement,
representing written premiums ceded net of ceding commissions.

|   |             
|-- | ------------
|16 | COMMUTATIONS

MBIA commutation:

Effective November 30, 2008, RAM Re entered into a commutation
agreement with MBIA Insurance Corporation and its affiliates (MBIA), to
commute its entire portfolio of business previously assumed from MBIA back to
MBIA. As consideration for the commutation RAM Re paid MBIA $156.5 million. The
commutation reduced the outstanding par amount of RAMs insured portfolio by
$10.6 billion, including $439.3 million of collateralized debt obligations of
asset-backed securities (ABS CDOs) (all structured as credit derivatives), $2.4
billion of collateralized debt obligations of commercial mortgage-backed
securities (CMBS CDOs) and $453.0 million of 2005 - 2008 vintage U.S. RMBS.

The effect of the MBIA commutation on the Companys results of
operations was to (i) reduce gross written premiums and unearned premiums by
$36.4 million, resulting in no impact on earned premiums (ii) increase net
change in fair value of credit derivatives by a gain of $110.7 million, and
(iii) increase loss and loss adjustment expenses by a loss of $61.4 million,
resulting in an overall gain to net income at the time of commutation of $49.3
million.

XLFA commutation:

On July 25, 2008, RAM Re entered into a Commutation Agreement with Syncora
Guaranty Re (formerly XL Financial Assurance Ltd.) (XLFA), whereby RAM Re
transferred all business previously ceded to RAM Re by XLFA back to XLFA and
each of RAM Re and XLFA released each other from claims under the reinsurance
agreements. As consideration for the Commutation Agreement, RAM Re paid $94.4
million which comprised the repayment of $8.6 million of unearned premiums, net
of ceding commission, $16.1 million towards estimated loss reserves on RMBS and
$69.7 million towards unrealized losses on ABS CDOs. The transaction reduced
the par amount of RAMs insured

118

---



portfolio by
$3.5 billion of which $711 million related to 2005 - 2007 vintage ABS CDOs (all
structured as credit derivatives) and $280 million of 2005 - 2007 vintage RMBS.

The effect of
the XLFA commutation on the Companys results of operations was to (i) reduce
gross written premiums by $11.4 million, (ii) increase net earned premiums by
$1.1 million, (iii) increase net change in fair value of credit derivatives by
a gain of $26.0 million, (iv) reduce loss and loss adjustment expenses by a
gain of $15.5 million and (v) increase acquisition expenses by $0.3 million,
resulting in an overall gain to net income of $42.3 million.

Other commutations:

During the
second quarter of 2008, the Company entered into partial commutation agreements
with two of the Companys primary insurers. Under these agreements $1.0 billion
in par outstanding of insurance policies previously reinsured by the Company
was commuted back to the primary insurers. All the Companys obligations with
respect to these policies were terminated on commutation. The Company paid $7.1
million in consideration of these commutations, calculated as U.S statutory
unearned premiums net of ceding commissions at the effective date of the
commutations. The effect of these commutations on the Companys income
statement was to reduce (i) gross written premiums by $10.2 million, (ii) net
earned premiums by $1.8 million and (iii) acquisition expenses by $0.6 million,
giving an overall reduction to net income of $1.2 million.

|   |                  
|-- | -----------------
|17 | STOCK OPTION PLAN

Prior to
January 1, 2006, share options were issued to senior management and directors
on an ad hoc basis and accounted for under Accounting Principles Board Opinion
(APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25),
and related Interpretations as permitted by Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation (FAS 123). Under
APB 25 the fair value per share at the grant date was estimated as book value
at the most recent quarterly reporting period and the strike price of the
options granted was the book value at the date of grant. Therefore, the
intrinsic value is zero for all options granted under APB 25 that have the same
fair value and strike price and no compensation expense is recognized for the
cost of the share options.

Effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised), Share-Based Payment (FAS 123R), utilizing the
prospective transition method. Under the prospective transition method,
compensation costs recognized relate to the estimated fair value at the grant
date of share options granted subsequent to January 1, 2006 in accordance with
FAS 123R. The Company continues to account for share options issued under APB
25, where no compensation expense is recognized in net income for share options
granted under the plan as the exercise price is equal to the fair value of the
underlying common shares at the date of grant. In accordance with the
provisions of FAS 123R, options granted prior to January 1, 2006 using APB 25,
have not been restated to reflect the adoption of FAS 123R. For the periods
ended December 31, 2008, 2007, and 2006, the Company recognized $0.1 million,
$0.1 million and $0.1 million, respectively, of compensation expense in the
period for share options with an exercise price less than the market value of
the underlying common shares on the date of the grant.

As of April
26, 2006, the Company adopted the RAM Holdings Ltd. 2006 Equity Plan (the
Plan). The number of common shares that may be delivered under the Plan may
not exceed 2,470,000. In the event of certain transactions affecting the common
shares of RAM Holdings Ltd., the number or type of shares subject to the Plan,
the number and type of shares subject to outstanding awards under the Plan, and
the exercise price of awards under the Plan, may be adjusted. The Plan
authorizes the grant of share options, share appreciation rights, share awards,
restricted share units, performance units, or other awards that are based on
the Companys common shares. The awards granted are contingent on the
achievement of service conditions during a specified period, and may be subject
to a risk of forfeiture or other restrictions that will lapse upon the
achievement of one or more goals relating to completion of service by the
participant. Awards under the Plan may accelerate and become vested upon a
change in control of the Company. The Plan is administered by the compensation
committee of the Board of Directors. The plan is subject to amendment or
termination by the board.

As at December
31, 2008, outstanding awards under the Plan of 1,552,297 share options and
139,626 restricted share units had been granted to the Companys officers and
employees. Each of the options will vest in equal annual installments over a
four-year period and will expire on the seventh anniversary of the date of
grant. The grant price is the average of the highest and lowest quoted selling
price on the grant date. The exercise price of the options at December 31, 2008
ranges from $1.45 to $16.20. Restricted share units will vest in equal annual
installments over a four-year period.

119

---



Stock Options

The Company
has used the Black-Scholes option pricing model to estimate the fair value of
share options using the following weighted average assumptions as at December
31, 2008, 2007 and 2006:

|                                       |  |                                  |       |      |   |       |   |   |      |  
|-------------------------------------- |  | -------------------------------- | ----- | ---- | - | ----- | - | - | ---- | -
|                                       |  | Twelve Months Ended December 31, |      
|                                       |  |                                  |      
|                                       |  | 2008                             |       | 2007 |   | 2006  |  
|                                       |  |                                  |       |      |   |       |  
|                                      
|Dividend yield                         |  |                                  | 0     | %    |   | 0     | % |   | 0    | %
|Expected volatility                    |  |                                  | 57.61 | %    |   | 23.05 | % |   | 25.7 | %
|Risk-free interest rate                |  |                                  | 2.3   | %    |   | 4.6   | % |   | 4.9  | %
|Expected life of options (in years)    |  |                                  | 4.0   |      |   | 4.0   |   |   | 4.1  |  
|Weighted-average grant-date fair value |  | $                                | 0.68  |      | $ | 4.04  |   | $ | 3.90 |  

These
assumptions are based on a number of factors as follows: (i) dividend yield was
determined based on the Companys historical dividend payments which have been
nil and expected dividend payments in the future which are also expected to be
nil, (ii) expected volatility was determined using the historical volatility of
the share price of the Company and similar companies within the financial
guaranty industry, (iii) the expected term of the options is based on the
period of time that the options granted are expected to be outstanding and (iv)
the risk-free rate is the U.S. Treasury rate effective at the time of grant for
the duration of the options granted. Compensation cost is recognized on a
straight-line basis over the vesting period and is net of estimated prevesting
forfeitures. The estimated forfeiture rate is based on actual forfeitures
adjusted for future forfeiture expectations due to limited historical
forfeiture data. At December 31, 2008, the weighted average grant date fair
value, using FAS 123 for disclosure purposes was $1.96.

As at December
31, 2008, there was $1.6 million of unrecognized compensation expense related
to the share options granted under FAS 123R which is expected to be recognized
over the remaining service period of 2.61 years. The following tables summarize
the share option activity for the years ended December 31, 2008, 2007, and
2006:

|                                                                            |  |                   |           |                                             |   |                                           |  |                             |            |  |   |   | 
|--------------------------------------------------------------------------- |  | ----------------- | --------- | ------------------------------------------- | - | ----------------------------------------- |  | --------------------------- | ---------- |  | - | - | 
|12 Months
 Ended December 31, 2008                                          |  | Number of
 shares |           | Weighted average
 exercise price per
 share |   | Weighted-AverageRemainingContractual Life |  | AggregateIntrinsicValue (1) |           
|                                                                            |  |                   |           |                                             |   |                                           |  |                             |           
|Options                                                                     |  |                   |           |                                             |   |                                           |  |                             |            |  |   |   | 
|Outstanding  Beginning of year                                             |  |                   | 1,252,197 |                                             | $ | 12.66                                     |  |                             |            |  |   |   | 
|Forfeited                                                                   |  |                   | (109,200  | )                                           |   | 11.16                                     |  |                             |            |  |   |   | 
|Granted during the period                                                   |  |                   | 973,500   |                                             |   | 1.47                                      |  |                             |            |  |   |   | 
|                                                                           
|                                                                            |  |                   |           |                                             |   |                                           |  |                             |            |  |   |   | 
|                                                                            |  |                   |           |                                             |   |                                           |  |                             |            |  |   |   | 
|Outstanding  End of period                                                 |  |                   | 2,116,497 |                                             |   | 7.59                                      |  |                             | 5.61 years |  | $ |  | 
|                                                                            |  |                   |           |                                             |   |                                           |  |                             |            |  |   |   | 
|                                                                            |  |                   |           |                                             |   |                                           |  |                             |            |  |   |   | 
|Exercisable  End of period                                                 |  |                   | 734,271   |                                             |   | 12.08                                     |  |                             |           |  | $ |  | 
|                                                                            |  |                   |           |                                             |   |                                           |  |                             |            |  |   |   | 
|                                                                            |  |                   |           |                                             |   |                                           |  |                             |            |  |   |   | 
|Weighted average fair value per share of
 options granted during the period |  | $                 | 0.68      |                                             |   |                                           |  |                             |            | 
|                                                                            |  |                   |           |                                             |   |                                           |  |                             |            | 

| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1)
 The aggregate intrinsic value was calculated based on the market value of
 $0.37 as at December 31, 2008, and is calculated as the difference between
 the market value and the exercise price of the underlying options.

120

---



|                                                                                    |  |                 |           |                                             |   |                                           |  |                             |            |  |   |   | 
|----------------------------------------------------------------------------------- |  | --------------- | --------- | ------------------------------------------- | - | ----------------------------------------- |  | --------------------------- | ---------- |  | - | - | 
|12 Months
 Ended December 31, 2007                                                  |  | Number ofshares |           | Weighted average
 exercise price per
 share |   | Weighted-AverageRemainingContractual Life |  | AggregateIntrinsicValue (1) |           
|                                                                                    |  |                 |           |                                             |   |                                           |  |                             |           
|Options                                                                             |  |                 |           |                                             |   |                                           |  |                             |            |  |   |   | 
|Outstanding
  Beginning of year                                                    |  |                 | 1,141,504 |                                             | $ | 12.10                                     |  |                             |            |  |   |   | 
|Forfeited                                                                           |  |                 | (201,864  | )                                           |   | 13.70                                     |  |                             |            |  |   |   | 
|Granted
 during the period                                                          |  |                 | 312,557   |                                             |   | 15.39                                     |  |                             |            |  |   |   | 
|                                                                                    |  |                 |           |                                             |   |                                           |  |                             |            |  |   |   | 
|                                                                                    |  |                 |           |                                             |   |                                           |  |                             |            |  |   |   | 
|Outstanding  End of period                                                         |  |                 | 1,252,197 |                                             |   | 12.66                                     |  |                             | 6.14 years |  | $ |  | 
|                                                                                    |  |                 |           |                                             |   |                                           |  |                             |            |  |   |   | 
|                                                                                    |  |                 |           |                                             |   |                                           |  |                             |            |  |   |   | 
|Exercisable  End of period                                                         |  |                 | 607,989   |                                             |   | 11.50                                     |  |                             |           |  | $ |  | 
|                                                                                    |  |                 |           |                                             |   |                                           |  |                             |            |  |   |   | 
|                                                                                    |  |                 |           |                                             |   |                                           |  |                             |            |  |   |   | 
|Weighted average exercise price per share
 of options granted during the period (2) |  | $               | 4.04      |                                             |   |                                           |  |                             |            | 
|                                                                                    |  |                 |           |                                             |   |                                           |  |                             |            |  |   |   | 

| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1)
 The aggregate intrinsic value was calculated based on the market value of
 $4.94 as at December 31, 2007, and is calculated as the difference between
 the market value and the exercise price of the underlying options.

|                                                                                    |  |                 |           |                                             |   |                                               |  |                               |            |  |   |           | 
|----------------------------------------------------------------------------------- |  | --------------- | --------- | ------------------------------------------- | - | --------------------------------------------- |  | ----------------------------- | ---------- |  | - | --------- | 
|12 Months
 Ended December 31, 2006                                                  |  | Number ofshares |           | Weighted average
 exercise price per
 share |   | Weighted-Average
 Remaining
 Contractual Life |  | AggregateIntrinsic
 Value (1) |           
|                                                                                    |  |                 |           |                                             |   |                                               |  |                               |           
|Options                                                                             |  |                 |           |                                             |   |                                               |  |                               |            |  |   |           | 
|Outstanding
  Beginning of year                                                    |  |                 | 752,700   |                                             | $ | 11.18                                         |  |                               |            |  |   |           | 
|Purchased
 from employee (2)                                                        |  |                 | (31,200   | )                                           |   | 11.12                                         |  |                               |            |  |   |           | 
|Forfeited                                                                           |  |                 | (46,800   | )                                           |   | 11.12                                         |  |                               |            |  |   |           | 
|Granted
 during the period                                                          |  |                 | 466,804   |                                             |   | 13.42                                         |  |                               |            |  |   |           | 
|                                                                                    |  |                 |           |                                             |   |                                               |  |                               |            |  |   |           | 
|                                                                                    |  |                 |           |                                             |   |                                               |  |                               |            |  |   |           | 
|                                                                                    |  |                 |           |                                             |   |                                               |  |                               |            |  |   |           | 
|Outstanding  End of period                                                         |  |                 | 1,141,504 |                                             |   | 12.10                                         |  |                               | 7.08 years |  | $ | 2,499,857 | 
|                                                                                    |  |                 |           |                                             |   |                                               |  |                               |            |  |   |           | 
|                                                                                    |  |                 |           |                                             |   |                                               |  |                               |            |  |   |           | 
|Exercisable  End of period                                                         |  |                 | 389,241   |                                             |   | 11.15                                         |  |                               | 7.51 years |  | $ | 1,216,491 | 
|                                                                                    |  |                 |           |                                             |   |                                               |  |                               |            |  |   |           | 
|                                                                                    |  |                 |           |                                             |   |                                               |  |                               |            |  |   |           | 
|Weighted average exercise price per share
 of options granted during the period (3) |  | $               | 3.90      |                                             |   |                                               |  |                               |            | 
|                                                                                    |  |                 |           |                                             |   |                                               |  |                               |            |  |   |           | 

| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1)
 The aggregate intrinsic value was calculated based on the market value of
 $14.29 as at December 31, 2006, and is calculated as the difference between
 the market value and the exercise price of the underlying options.
| |                                                                                                                                                                                                                                
| | (2)During
 the year ended December 31, 2006, the Company purchased from employees 31,200
 options that were fully vested at an expense of $0.1 million.                                                                        
| |                                                                                                                                                                                                                                
| | (3)
 FAS 123R was adopted on January 1, 2006, prior to that share options were
 accounted for under APB 25.                                                                                                                    

121

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Restricted Share
Units

The Company
has granted restricted share units to employees of the Company. Restricted
shares vest annually over a four year period.

The following
table summarizes the restricted share unit activity for the years ended
December 31, 2008, 2007, and 2006:

|                                   |  |                         |         |                                                      |   |       | 
|---------------------------------- |  | ----------------------- | ------- | ---------------------------------------------------- | - | ----- | 
|12 Months
 Ended December 31, 2008 |  | Number of
 share units  |         | Weighted average
 grant date fair
 value per share   |  
|Restricted Share Units             |  |                         |         |                                                      |   |       | 
|Non-vested 
 Beginning of year    |  |                         | 50,415  |                                                      |   | 15.56 | 
|Granted                            |  |                         | 106,969 |                                                      |   | 1.51  | 
|Vested                             |  |                         | (12,619 | )                                                    |   | 15.55 | 
|Forfeited                          |  |                         | (5,138  | )                                                    |   | 14.69 | 
|                                   |  |                         |         |                                                      |   |       | 
|                                   |  |                         |         |                                                      |   |       | 
|Non-vested 
 End of period        |  |                         | 139,627 |                                                      | $ | 4.82  | 
|                                   |  |                         |         |                                                      |   |       | 
|                                   |  |                         |         |                                                      |   |       | 
|12 Months
 Ended December 31, 2007 |  | Number of 
 share units |         | Weighted average 
 grant date fair 
 value per share |  
|Restricted Share Units             |  |                         |         |                                                      |   |       | 
|Non-vested 
 Beginning of year    |  |                         | 19,044  |                                                      |   | 13.39 | 
|Granted                            |  |                         | 48,079  |                                                      |   | 16.19 | 
|Vested                             |  |                         | (4,221  | )                                                    |   | 13.38 | 
|Forfeited                          |  |                         | (12,487 | )                                                    |   | 15.42 | 
|                                   |  |                         |         |                                                      |   |       | 
|                                   |  |                         |         |                                                      |   |       | 
|Non-vested 
 End of period        |  |                         | 50,415  |                                                      | $ | 15.56 | 
|                                   |  |                         |         |                                                      |   |       | 
|                                   |  |                         |         |                                                      |   |       | 
|12 Months
 Ended December 31, 2006 |  | Number of 
 share units |         | Weighted average 
 grant date fair 
 value per share |  
|Restricted Share Units             |  |                         |         |                                                      |   |       | 
|Non-vested 
 Beginning of year    |  |                         |        |                                                      |   |      | 
|Granted                            |  |                         | 20,032  |                                                      |   | 13.39 | 
|Vested                             |  |                         |        |                                                      |   |      | 
|Forfeited                          |  |                         | (988    | )                                                    |   | 13.45 | 
|                                   |  |                         |         |                                                      |   |       | 
|                                   |  |                         |         |                                                      |   |       | 
|Non-vested 
 End of period        |  |                         | 19,044  |                                                      | $ | 13.39 | 
|                                   |  |                         |         |                                                      |   |       | 

The Company
expensed $0.2 million and $0.2 million in compensation expense related to the
restricted share units for 2008 and 2007 respectively (2006 - immaterial). The
compensation expense for restricted share units is expensed on a prorated basis
over the vesting period. At December 31, 2008, there is unrecognized
compensation expense related to the non-vested restricted share units of $0.5
million, which will be recognized over the weighted average remaining service
period of 2.90 years.

Other

As of June 30,
2005, the Company entered into Payment Agreements that terminated both the
Contingent Share Agreements and 472,420 vested Stock Options of three
management employees. On June 30, 2006, the Company paid $1.6 million to the
employees and subsequently paid an additional $0.7 million in the third quarter
of 2006 which represented the remaining value of the ultimate liability. In
December 2008, RAM Re commuted a further $158.3 million in par outstanding on
two policies with another primary insurer. One policy was a partial commutation
of $41.8 million par outstanding on a 2007 subprime RMBS whereas RAM Res total
obligations on the second policy were terminated fully. The Commutation payment
of $3.1 million reduced the total loss reserve accordingly.

|   |                              
|-- | -----------------------------
|18 | COMMITMENTS AND CONTINGENCIES

During 2007,
the Company renewed its agreement to lease office space for the two years
ending December 31, 2009. As of December 31, 2008, the future minimum
commitment under the lease, for the year remaining, is $0.3 million. Rental
expense for the aforementioned lease amounted to $0.3 million in all years
presented.

122

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|   |                         
|-- | ------------------------
|19 | RISKS AND
 UNCERTAINTIES

As at December 31, 2008, RAM Re had been assigned
an A+ rating with negative outlook from S&P and a Baa3, with developing
outlook rating from Moodys. S&P stated that the A+ rating, issued on
September 24, 2008, reflects its view that the diversity and scope of RAM Res
reinsurance relationships have suffered as more of the primary insurers new
business production has declined in the current environment. These changes
raise the likelihood in S&Ps view that RAM Res new business generation
will be limited until the primary insurers can stabilize their franchises. The
rating changes also reflect the difficulty S&P believes RAM Re may face, in
light of the current environment, toward improving its historically below-average
return on equity (ROE). Finally, S&P stated that the rating changes reflect
S&Ps view of RAM Res weakened capital adequacy position, which is the
result of a significant amount of projected losses relating primarily to
reinsured subprime and second-lien RMBS and, secondarily, CDOs of ABS. Although
the companys capital adequacy margin of safety in S&Ps analysis was at
the low end of the range of 1.0x -1.1x, which exceeds S&Ps A criteria of
0.8x, it has declined from prior years when the margin of safety was in excess
of 1.25x. Moodys stated that its rating action on December 4, 2008, reflected
Moodys views on RAM Res overall credit profile in the current environment,
including the potential for increased losses among its mortgage-related exposures
and significantly constrained new business prospects. Moodys stated that the
downgrade resulted from three primary factors, the first being Moodys
expectations of greater losses on mortgage-related exposures, reflecting
continued adverse delinquency trends. Moodys stated that although RAM Re has
reduced the size of its RMBS and ABS CDO portfolios through recent commutation
transactions with MBIA and Syncora, loss expectations relating to RAM Res
direct RMBS portfolio were material relative to capital. The second factor was
Moodys view of diminished business prospects as reflected by low underwriting
volume. The third factor according to Moodys was the Companys impaired
financial flexibility.

The downgrade of RAM Res ratings has had a
material adverse affect on RAM Res ability to compete in the financial
guaranty reinsurance industry and significantly decreased the value of the
reinsurance provided. Due to the above mentioned downgrades, certain ceding
companies have the right to increase the ceding commission, as stipulated in
the treaties, or terminate the treaties and recapture the business previously
ceded to RAM Re whether written in financial guaranty or credit derivative
form. To the extent policies are recaptured, RAM must forfeit to the ceding
company an amount determined by formula under each treaty which generally
consists of RAMs allocated share of the U.S. statutory unearned premium,
net of the ceding commission paid by RAM to the ceding company (subject to a
penalty amount in some cases), and loss reserves established with respect to
the policies ceded, as applicable. U.S statutory premiums usually earn at a
slower rate than GAAP premiums and therefore any forfeiture of U.S. statutory
unearned premiums would result in a loss on a GAAP basis. The difference
between U.S. statutory unearned premiums and GAAP unearned premiums was $31.0
million at December 31, 2008. In some cases, the ceding companies have the
right to select specific years of business written to recapture, and a decision
by a ceding company to recapture, for example, all business written prior to
2006, could have a material adverse effect on RAM Re because of the projected
losses associated with the business written in the last three years. As of
April 13, 2009, none of the primaries have recaptured any business. The commutations
negotiated during the year were not a result of these treaty terms. As at December
31, 2008, we have accrued or paid additional ceding commissions related to the
S&P downgrade totaling $20.3 million which is
being expensed as the related premiums are earned. See Note 15, Reinsurance balances
payable, for disclosure on the financial statement effect of increased ceding
commission relating to these downgrades.

During 2008, RAM Re renewed two treaties that were
effective in the first quarter with AAA-rated ceding companies, both of which
were subsequently downgraded by Moodys (but not S&P) to the Aa-level. RAM
Re has not renewed these treaties in 2009. This means that RAM Re does not expect to
write any financial guaranty reinsurance business in the current year but this
does not reduce our in-force business, unless the business is commuted or
recaptured by the primaries. The remaining treaties
that were in effect in 2007 were cancelled or expired in 2008. New business
written in 2008 was minimal as a result of a number of factors arising out of
the effect of the subprime and credit crisis on the financial guaranty
industry, including the following:

| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | RAM Re has been downgraded and was in a rating agency
 capital constrained position    
| |   |                                                                                        
| |  | RAM Re discontinued treaties with four ceding companies
 that were downgraded below AAA
| |   |                                                                                        
| |  | There were only two AAA-rated ceding companies with
 which RAM Re had treaties in 2008.
| |   |                                                                                        
| |  | Reduced structured finance issuances                                                   
| |   |                                                                                        
| |  | Lower insured penetration of the public finance market                                 

The Company has not renewed
its reinsurance treaties with any of the primaries or otherwise written any new
business in 2009. This means that we do not expect to write any financial
guaranty reinsurance in the current year but this does not reduce our in-force
business, unless the business is commuted or recaptured by the primaries.

RAM Holdings is a holding company and therefore our
liquidity, both on a short-term basis (for the next 12 months) and a long-term
basis (beyond the next year), is largely dependent upon (1) the ability of RAM
Re to pay dividends or make other payments to the Company and (2) its ability
to access debt and equity markets, which is unlikely in the near term given
current market conditions and the Companys current share valuation. RAM Res
ability to declare and pay dividends to us may be influenced by a variety of
factors such as additional losses, amount and timing of claims payments, the
amounts required to be held in trust for the benefit of U.S. regulated
customers, adverse market changes, insurance regulatory changes, changes in
general economic conditions beyond the next twelve months and Bermuda law.
Further

123

---



increases in loss reserves and credit impairments
would require RAM Re to deposit additional collateral in the applicable trust
account(s); and resulting claims payments in respect of those losses and
impairments would increase cash outflows and could decrease the size of RAM
Res investment portfolio, in turn decreasing income from investments. RAM
Holdings principal uses of liquidity are for payment of interest on its senior
notes, payment of dividends on preference shares if declared by the Board of
Directors of RAM Holdings and capital investments in RAM Re.

|   |                
|-- | ---------------
|20 | LONG-TERM
 DEBT

On March 26, 2004, RAM
Holdings Ltd. issued $40.0 million of unsecured senior notes (the Notes) to a
qualified institutional buyer as defined in Rule 144A of the Securities Act.
The term of the Notes is 20 years with the full principal amount due at
maturity. The Notes rank pari passu in right of repayment with RAM Holding
Ltd.s other unsecured senior debt, of which there is currently none. The net
proceeds from the Notes have been used to provide capital for RAM Reinsurance
Company Ltd.

The applicable interest rate
is 6.875% and is payable semi-annually. The Notes are subject to redemption at
the option of RAM Holdings Ltd., in whole or in part at any time upon 30 days
advance notice by paying principal, accrued interest and the Make Whole Amount,
amounting to a portion of the future scheduled payments over the principal
amount. There are no financial covenants in place. Interest expense amounting
to $2.8 million for each of the years ended December 31, 2008, 2007 and 2006
has been recorded.

|   |                              
|-- | -----------------------------
|21 | REDEEMABLE
 PREFERENCE SHARES

On December 14, 2006, the
Company issued 75,000 preference shares at $1,000 per share for total
consideration of $75.0 million. The preference shares bear a non-cumulative,
non mandatory dividend rate of 7.50% which is payable semi-annually on June 15
and December 15 each year upon declaration by the Board of Directors. Unless
previously redeemed, the preference shares have a mandatory redemption date of
December 15, 2066. The Company can redeem the preference shares at any time
from December 15, 2016 with no penalty to the Company. Prior to December 15, 2016, the Company can redeem the preference shares at
the redemption price and a make-whole amount, amounting to dividends for the
remainder of the period to December 15, 2016. During the years ended December 31, 2008 and 2007 dividends
amounting to $5.6 million have been declared and paid. There were no dividends
declared or paid in 2006. The payment of preference
share dividends is classified as interest expense.

|   |                            
|-- | ---------------------------
|22 | RELATED
 PARTY TRANSACTIONS

As at December 31, 2005,
MBIA, one of the four major primary insurers, owned 11.4% of our aggregate
issued and outstanding common shares. MBIA sold all of its RAM Holdings shares
in our initial public offering, which closed on May 2, 2006, and is no longer a
related party. During the year ended December 31, 2008, the Company commuted
all business previously assumed from MBIA, back to MBIA, see Note 16
Commutations, for further details of this transaction. Prior to the initial
public offering, MBIA Capital, a wholly-owned subsidiary of the parent company
to MBIA, had been engaged to provide the Company with investment advisory and
management services. The Company had agreed to pay an annual investment
management fee payable quarterly in arrears based on the average market value
of the assets under management for each quarter. In addition, the Company had
agreed to reimburse custodian fees, transfer agent fees and brokerage costs,
fees and commissions and certain other out-of -pocket expenses. During the year
ended December 31, 2008, the Company ceased to use MBIA Capital for its
investment advisory and management services.

In December 2003, two of our
shareholders became investors in FGIC Corporation, an insurance holding company
whose subsidiary FGIC was one of the four largest U.S. based primary financial
guaranty insurance companies through December 2007. In the ordinary course of
business, we have entered into treaty and facultative reinsurance agreements
with FGIC. The treaty agreement was not renewed in 2008. In 2008, 2007 and
2006, financial guarantee gross premiums written plus premiums received on CDS
policies ceded from FGIC accounted for 7%, 26% and 12% of total premiums
received by the Company, respectively (prior to taking effect of premiums
returned on commutations in 2008). In 2008, RAM Re paid $3.1 million to FGIC to
settle disputes under certain reinsurance agreements. There were no amounts due
from FGIC as of December 31, 2008 and 2007.

|   |               
|-- | --------------
|23 | SHARE
 CAPITAL

As at December 31, 2008 and 2007, authorized share
capital was 90,000,000 common shares and 10,000,000 undesignated preference
shares with a par value of $0.10 each. Shares issued and outstanding as at December 31, 2008 and 2007 were
27,251,595 and 27,238,976, respectively. During the years ended
December 31, 2008 and 2007, 12,619 and 4,221, respectively, restricted stock
units vested and were issued as share capital, increasing the common shares
issued and outstanding.

124

---



|   |         
|-- | --------
|24 | TAXATION

The Company has received an
undertaking from the Bermuda government exempting it from all local income,
withholding and capital gains taxes until March 28, 2016. At the present time
no such taxes are levied in Bermuda.

The Company does not consider
itself to be engaged in trade or business in the U.S. and, accordingly, does
not expect to be subject to U.S. taxation.

|   |                        
|-- | -----------------------
|25 | STATUTORY
 REQUIREMENTS

RAM Re is registered under
the Bermuda Insurance Act 1978, amendments thereto and related Regulations (the
Act), which require that they maintain minimum levels of solvency and
liquidity. For the years ended December 31, 2008 and 2007 these requirements
have been met. The minimum required statutory capital and surplus was $15.3
million and $16.7 million and actual statutory capital and surplus was $158.4
million and $369.7 million as of December 31, 2008 and 2007, respectively. The
minimum required level of liquid assets was $217.6 million and $268.1 million
and actual liquid assets were $444.5 million and $727.1 million as of December
31, 2008 and 2007, respectively.

The Act limits the maximum
amount of the annual distributions paid by RAM Reinsurance without notifying
the Bermuda Monetary Authority of such payment. The maximum amount of dividends
that could be paid by RAM Reinsurance as a reduction of statutory capital,
without such notification, was $39.6 million and $51.5 million as at December
31, 2008 and 2007, respectively without consideration of GAAP retained
earnings.

RAM
Re must also comply with the provisions of the
Bermuda Companies Act regulating the payment of dividends and making of
distributions from contributed surplus. A company is prohibited from declaring
or paying a dividend, or making a distribution out of contributed surplus, if there
are reasonable grounds for believing that: (a) the company is, or would after
the payment, be unable to pay its liabilities as they become due; or (b) the
realizable value of the companys assets would thereby be less than the
aggregate of its liabilities and its issued share capital and share premium
accounts.

Statutory financial
statements prepared under the Act differ from financial statements prepared in
accordance with US GAAP, principally due to the exclusion of non-admitted
assets such as deferred policy acquisition costs, prepaid expenses and the fair
value adjustment of derivative instruments in excess of credit impairments, a
non-GAAP measure.

|   |                                             
|-- | --------------------------------------------
|26 | QUARTERLY
 FINANCIAL INFORMATION (unaudited)

A summary of selected
quarterly statement of operations information follows:

|                                                     |  |       |          |        |   |         |   |        |         |   |   |         |  
|---------------------------------------------------- |  | ----- | -------- | ------ | - | ------- | - | ------ | ------- | - | - | ------- | -
|($ in
 thousands, except per share data)2008         |  | First |          | Second |   | Third   |   | Fourth |        
|                                                     |  |       |          |        |   |         |   |        |        
|Gross written premiums                               |  | $     | 17,647   |        | $ | (161    | ) | $      | 2,673   |   | $ | (31,372 | )
|Net written premiums                                 |  |       | 16,647   |        |   | (183    | ) |        | 2,673   |   |   | (30,860 | )
|Net earned premiums                                  |  |       | 13,198   |        |   | 19,471  |   |        | 20,727  |   |   | 15,181  |  
|Net change in fair value
 of credit derivatives      |  |       | (163,770 | )      |   | 154,247 |   |        | (1,249  | ) |   | 18,740  |  
|Net investment income                                |  |       | 8,213    |        |   | 8,320   |   |        | 7,098   |   |   | 5,677   |  
|Net realized investment
 gains (losses)              |  |       | (912     | )      |   | 665     |   |        | (4,997  | ) |   | 2,888   |  
|Net unrealized gains on
 other financial instruments |  |       | 1,340    |        |   | 3,580   |   |        | 1,500   |   |   | 1,333   |  
|Loss and loss adjustment
 expenses                   |  |       | (37,528  | )      |   | (45,752 | ) |        | (50,011 | ) |   | (81,537 | )
|Other expenses                                       |  |       | (10,010  | )      |   | (14,271 | ) |        | (13,499 | ) |   | (18,102 | )
|Net income (loss)                                    |  |       | (189,469 | )      |   | 126,260 |   |        | (40,431 | ) |   | (55,820 | )
|Earnings per share (1) :                             |  |       |          |        |   |         |   |        |         |   |   |         |  
|Basic                                                |  | $     | (6.95    | )      | $ | 4.63    |   | $      | (1.48   | ) | $ | (2.05   | )
|Diluted                                              |  | $     | (6.95    | )      | $ | 4.63    |   | $      | (1.48   | ) | $ | (2.05   | )

125

---



|                                                     |  |       |        |        |   |         |   |        |         |   |   |          |  
|---------------------------------------------------- |  | ----- | ------ | ------ | - | ------- | - | ------ | ------- | - | - | -------- | -
|($ in
 thousands, except per share data) 2007        |  | First |        | Second |   | Third   |   | Fourth |        
|                                                     |  |       |        |        |   |         |   |        |        
|Gross written premiums                               |  | $     | 20,714 |        | $ | 27,797  |   | $      | 26,193  |   | $ | 23,797   |  
|Net written premiums                                 |  |       | 20,714 |        |   | 27,797  |   |        | 26,193  |   |   | 23,045   |  
|Net earned premiums                                  |  |       | 12,509 |        |   | 12,045  |   |        | 13,777  |   |   | 12,673   |  
|Net change in fair value
 of credit derivatives      |  |       | 979    |        |   | 1,164   |   |        | (26,498 | ) |   | (147,450 | )
|Net investment income                                |  |       | 7,645  |        |   | 8,404   |   |        | 8,409   |   |   | 8,690    |  
|Net realized investment
 gains (losses)              |  |       |       |        |   | (8      | ) |        |        |   |   | (3,596   | )
|Net unrealized gains on
 other financial instruments |  |       |       |        |   |        |   |        |        |   |   | 35,330   |  
|Loss and loss adjustment
 expenses                   |  |       | 1,014  |        |   | (935    | ) |        | (1,273  | ) |   | (46,833  | )
|Other expenses                                       |  |       | (7,823 | )      |   | (11,554 | ) |        | (9,077  | ) |   | (11,711  | )
|Net income (loss)                                    |  |       | 14,324 |        |   | 9,116   |   |        | (14,662 | ) |   | (152,897 | )
|Earnings per share (1) :                             |  |       |        |        |   |         |   |        |         |   |   |          |  
|Basic                                                |  | $     | 0.53   |        | $ | 0.33    |   | $      | (0.54   | ) | $ | (5.61    | )
|Diluted                                              |  | $     | 0.52   |        | $ | 0.33    |   | $      | (0.54   | ) | $ | (5.61    | )

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Per share amounts for the
 quarters and the full years have each been calculated separately. Accordingly,
 quarterly amounts may not add to the annual amounts because of differences in
 the average common shares outstanding during each period and, with regard to
 diluted per share amounts only, because of the inclusion of the effect of
 potentially dilutive securities only in the periods in which such effect
 would have been dilutive.

Investments are discussed in
note 7, Derivatives in note 4 and Losses and loss expense reserves in note 11
to these financial statements.

|   |                   
|-- | ------------------
|27 | SUBSEQUENT
 EVENTS

See Note 9 Contingent
Capital and Credit Facilities regarding the exercise of the Companys soft
capital facility put option subsequent to year end.

On April 7, 2009, RAM Re
entered into a commutation agreement (the Ambac Commutation Agreement)
with Ambac Assurance Corporation and its affiliate (Ambac). The Ambac
Commutation Agreement provided, among other things, for RAM Re to pay a $97 million
settlement payment and $1.3 million of claims payments, by means of a release
to Ambac of securities in Ambacs trust account valued at $97.8 million
and a cash payment of $0.5 million, to commute the entire $7.4 billion insured
portfolio assumed from Ambac, and for each party thereto to release the other
party from all liabilities and obligations under all reinsurance agreements
between the parties. The securities in the trust account and cash payment were
received by Ambac, and the releases set forth in the Commutation Agreement
became effective, on April 8, 2009. If the Ambac commutation had been effective
at December 31, 2008, it would have resulted in a reduction of RAM Res statutory
capital and surplus under Bermuda law from $158.4 million to approximately $148.4 million.

126

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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 9. | Changes
 in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

|         |                          
|-------- | -------------------------
|Item 9A. | Controls
 and Procedures.

Managements Report on Internal Control over Financial
Reporting. Management
of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting. The Companys internal control over
financial reporting is a process designed under the supervision of the
Companys principal executive and principal financial officers to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States of America.

The Companys internal
control over financial reporting includes policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect transactions and dispositions of assets; (2) provide
reasonable assurances that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and
expenditures are being made only in accordance with authorizations of
management and the directors of the Company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Companys assets that could have a material effect on
the Companys financial statements.

Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

As of December 31, 2008,
management conducted an assessment of the effectiveness of the Companys
internal control over financial reporting based on the framework established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment and
those criteria, management has determined that the Companys internal control
over financial reporting as of December 31, 2008 was effective. The Companys
management report on internal control over financial reporting is included in
Item 8, Financial Statements and Supplementary Data.

Evaluation of Disclosure Controls and Procedures. RAM Holdings Ltd.s management, with the
participation of RAM Holdings Ltd.s Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of RAM Holdings Ltd.s
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered by this report. Based on
this evaluation, RAM Holdings Ltd.s Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, all
material information relating to the Companys disclosure controls and
procedures was received in a timely fashion and disclosure controls and
procedures are effective in recording, processing, summarizing and reporting,
on a timely basis, information required to be disclosed by RAM Holdings Ltd.
(including its consolidated subsidiaries) in the reports that it files or
submits under the Exchange Act. During the fourth quarter of 2008, there were
no changes in internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.

|         |                    
|-------- | -------------------
|Item 9B. | Other
 Information.

None.

Part III

|         |                                                        
|-------- | -------------------------------------------------------
|Item 10. | Directors, Executive Officers and Corporate
 Governance

Composition of the
Board of Directors

There
are currently ten directors on the boards of each of RAM Holdings and RAM Re,
with one vacancy. We believe that all of our directors qualify as independent
directors under the NASDAQ rules except for Mr. Endo and Ms. Guest. Each of our
directors is elected by our shareholders to serve until the next annual meeting
or until their successors are duly elected and qualify. The total number of
directors who serve on the board at any given time is set at eleven, but this
number may increase up to a maximum of fifteen board members, subject to the
following exception: pursuant to the certificate of designation, preferences
and rights, which sets forth the terms relating to RAM Res Class B preference
shares, the size of RAM Res board may automatically be expanded by two members
(subject to the consent of RAM Res shareholders) upon a failure by RAM Re to
pay dividends to holders of RAM Res Class B preference shares for a period in
excess of eighteen consecutive months.

127

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Director Biographies

Set
forth below is biographical information concerning each director of RAM
Holdings and RAM Re, including each such individuals principal occupation and
the period during which such person has served as a director of RAM Holdings
and RAM Re. Information about share ownership of each of the directors can be
found in the section titled Information about the Owners of our Common Shares
below.

|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Steven J. TynanAge 54Director since 1998Chairman of the Board ofDirectors since 2001 |  | Mr. Tynan
 co-founded High Ridge Capital LLC, a private equity firm that specializes in
 the insurance sector, in 1995 and has served as a member of the firm since
 that time. In his capacity with High Ridge, Mr. Tynan has served on the
 boards of numerous private insurance, reinsurance and related entities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Vernon M. Endo
 Age 54
 President and Chief
 Executive Officer
 Director since 2003  |  | Mr. Endo
 joined the Company in 2003 from GFGC LLC, a startup venture formed to
 establish a European-based financial guaranty company, where he was CEO and
 co-founder. Mr. Endo was a managing director and member of the corporate
 leadership team and board of directors at FGIC from 1991 to 2001. During his
 tenure at FGIC, he was responsible for various business segments including
 structured finance, bond insurance underwriting (including public finance and
 international), capital markets and new products. Between 1988 and 1991, Mr.
 Endo was a managing director responsible for the mortgage finance unit and
 was later a member of the financial institutions group at Prudential
 Securities. He began his career at Citibank in 1976. He is Vice Chairman and
 a director of the Association of Financial Guaranty Insurers. Mr. Endo
 attended Williams College where he graduated with a B.A. in political
 science.                                                                                                                                                                                                                                                                                                                                                             
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Edward F. Bader
 Age 67
 Director since 2004                                         |  | Mr. Bader
 owns Bader & Associates, a consulting firm. Prior to founding Bader &
 Associates in August 2001, Mr. Bader was a partner in the Insurance Services
 Practice of Arthur Andersen LLP with more than 37 years of experience in
 accounting and auditing concentrating in the insurance industry. He served as
 the head of Andersens World Wide Insurance Practice Group. Mr. Bader
 received a B.S. degree in Economics from Fairfield University.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|David L. Boyle
 Age 62
 Director since 2005                                          |  | Mr. Boyle
 retired as Vice Chairman and Head of Portfolio Risk Management for Ambac
 Financial Group, Inc. in 2005, where he served in many different executive
 management capacities for eight years. Previously, Mr. Boyle was a Managing
 Director at Citibank, N.A. where he had various management responsibilities
 over a career spanning from 1974 to 1996. He is the former chairman of the
 Association of Financial Guaranty Insurers, and currently serves on the Board
 of Trustees of Wittenberg University. Mr. Boyle received a B.S. from
 Wittenberg University and an M.B.A. from the Fisher College of Business at
 The Ohio State University.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Allan S. BufferdAge 71
 Director since 2006                                          |  | Mr. Bufferd
 retired in June 2006 after a thirty-four year career at Massachusetts
 Institute of Technology, most recently as Treasurer and the Founding
 President of the MIT Investment Management Company. During his tenure, Mr.
 Bufferd participated in the management of MITs investment portfolio. Mr.
 Bufferd serves as a director of Och-Ziff Capital Management Group, a NYSE
 listed company and City of London Investment Management Group, a London AIM
 listed company. Mr. Bufferd serves as a Trustee of the Whiting Foundation and
 a Trustee of the Robert Wood Johnson Foundation. He is also an investment
 advisor to the Grayce B. Kerr Foundation, and an investment advisor to the
 National University of Singapore. In addition, he is the Chairman of the
 Harvard Cooperative Society and of the Controlled Risk Insurance Company/Risk
 Management Foundation (CRICO/RMF); and a Director of the Harvard Cooperative
 Society, the Beth Israel Deaconess Medical Center, CRICO/RMF, Adveq
 (Switzerland), Morgan Stanley Prime Property Fund, Bessemer Trust BGO Fund,
 Boston Advisors LLC, International Data Group, M Funds and Makena LLC. Mr.
 Bufferd holds three MIT degrees in materials engineering: the S.B., S.M. and
 Sc.D., as well as a J.D. from Suffolk University.
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Joseph M. Donovan
 Age 54
 Director since 2007                                       |  | Prior to his
 retirement in January 2007, Mr. Donovan was chairman of Credit Suisses
 asset-backed securities and debt financing group, which he led for nearly
 seven years. Prior thereto, Mr. Donovan was a managing director and head of
 asset finance at Prudential Securities (1998-2000) and Smith Barney
 (1995-1997). Mr. Donovan began his banking career at The First Boston
 Corporation in 1983, ultimately becoming a managing director at CS First
 Boston, where he served as Chief Operating Officer of the Investment Banking                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

128

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|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                       |  | Department
 from 1992 to 1995. Mr. Donovan received his MBA from The Wharton School and
 has a degree in Accountancy from the University of Notre Dame. Mr. Donovan is
 the Lead Independent Director and Chairman of the Audit Committee of Babcock
 & Brown Air Limited, a NYSE listed aircraft leasing company headquartered
 in Dublin, Ireland and a director of First Again, LLC, a consumer finance
 company in San Diego, California.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Victoria W. GuestAge 42General Counsel andSecretaryDirector since 2009 |  | Victoria W.
 Guest joined the Company in January 2006 from Heller Ehrman LLP where she had
 been a corporate associate since 1997. As a corporate associate, Ms. Guest
 worked on a wide variety of business transactions and provided advice to both
 venture-backed and public companies in connection with securities offerings,
 mergers and acquisitions and corporate governance matters. From 1996  1997
 Ms. Guest conducted corporate investigations for Beau Dietl & Associates,
 a private investigative firm. Ms. Guest began her legal career as a corporate
 associate with Simpson Thacher & Bartlett from 1993  1996. Ms. Guest has
 a J.D., cum laude, from Harvard Law School and a B.A. in Modern Thought &
 Literature, phi beta kappa, from Stanford University. Ms. Guest serves as a
 director of The Bessemer Group, Incorporated, a manager of Bessemer
 Securities LLC and a trustee of Phipps Houses Group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Michael J. NormileAge 58Director since 2008                            |  | From 2004
 until to his retirement in September 2006, Mr. Normile was Managing Director,
 Fixed Income Capital Markets and Head of Structured Finance, Americas for
 HSBC Securities, Inc. From 1993 to 2003, Mr. Normile held various Managing
 Director positions with Merrill Lynch & Co. in New York and London,
 including Head of Principal Finance and Head of Global Insurance Markets.
 From 1985 to 1993, Mr. Normile worked in the asset securitization area for
 Solomon Brothers Inc, ultimately becoming the Head of Asset Securitization.
 From 2003 to 2005, Mr. Normile was a director of St. Josephs Regional
 Medical Center in Patterson, New Jersey. He began his career at Irving Trust
 Company in 1973. Mr. Normile received his BA in Economics and Communications
 from Fordham University in 1973.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Lloyd A. PorterAge 49Director since 2008                               |  | Lloyd A.
 Porter is Executive Vice President, Chief Risk Officer for The PMI Group,
 Inc. (PMI). Mr. Porter is responsible for PMIs Risk Management department.
 His responsibilities include portfolio management and risk exposure
 optimization, reinsurance, reserving, pricing, corporate credit policy and
 asset disposition. Prior to assuming this role Mr. Porter managed PMIs
 non-US mortgage insurance activities. Residing in Dublin, Ireland, he oversaw
 the companys activities in Australia, Europe, Hong Kong, and Canada. Other
 assignments included establishing PMIs Hong Kong business and directing the
 acquisition and integration of PMIs Australian venture, MGICA. He also lived
 and worked in Sydney, Australia. Mr. Porter also led the 2001 acquisition of
 CGUs mortgage insurance business in Australia/New Zealand. Prior to assuming
 the leadership role for international markets, Porter managed institutional
 markets, implementing the use of PMIs automated underwriting system in the
 capital markets. Mr. Porter is a founding board member of Habitat for
 Humanity Ireland. A graduate of the University of California at Los Angeles,
 Mr. Porter holds bachelors degrees in economics and psychology and has
 received advanced training at Northwestern Universitys executive management
 program. He was awarded Faculty Fellow by the U.S. Mortgage Bankers
 Association for commitment and excellence in teaching in the School of
 Mortgage Banking.
|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Conrad P. VoldstadAge 59Director since 2006                            |  | From 2002
 through 2006, Mr. Voldstad was a founding Principal of Arlington Hill
 Investment Management LLC, which managed Arlington Hill Debt Strategies
 (Master), Ltd. a Cayman Islands debt and currency hedge fund. From 2001 to
 2002, Mr. Voldstad was Chief Executive Officer of Polestar Capital Group,
 LLC, a structured finance company that developed a proprietary technique for
 financing tenant improvements associated with commercial real estate leases.
 In 2000, Mr. Voldstad advised Dresdner Kleinwort Benson regarding its
 strategy for investment banking in the U.S. From 1988 to 1999, Mr. Voldstad
 was employed at Merrill Lynch, first in London (1988 to 1997) and then in New
 York. At Merrill Lynch in London, Mr. Voldstad became the Head of European
 Debt Markets (1995 to 1997). From 1997 to 1998, he was Co-Head of Global Debt
 Markets. From 1998 to 1999, he was a member of the Oversight Committee that
 liquidated the assets and positions of Long Term Capital. Mr. Voldstad began
 his career at J.P. Morgan & Co. in 1974 where he was employed until 1988.
 Mr. Voldstad has a J.D. degree from Fordham University, an                                                                                                                                                                                                                                                                                                                                              

129

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| |  |                                                                                                                                                                                        
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | M.B.A. from
 the Amos Tuck School of Business at Dartmouth College and a B.A. degree from
 Boston College. Mr. Voldstad is a member of the Board of Overseers at the
 Amos Tuck School.

Executive Biographies

Set forth
below is biographical information concerning each current executive officer who
is not a director. The biographical
information for Mr. Endo, our President and Chief Executive Officer, and Ms.
Guest, our General Counsel and Secretary, is included above at Director
Biographies. Subject to rights pursuant to any employment
agreements, officers serve at the pleasure of our Board of Directors.

|                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Edward U. Gilpin |  | Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Age 47           |  | Mr. Gilpin
 joined us in January, 2008 from ACA Capital (OTC BB: ACAH.PK), a holding
 company that provides asset management services and credit protection
 products, where he was Executive Vice President and Chief Financial Officer
 and a Director. Prior to joining ACA Capital in 2001, Mr. Gilpin was Vice
 President in the Financial Institutions Group at Prudential Securities,
 Inc.s investment banking division. From 1998-2000, Mr. Gilpin served in
 the capacity of chief financial officer for an ACA Capital affiliated AAA
 start-up venture, developing the financial plans and spearheading the capital
 raising process. From 1991-1998, Mr. Gilpin was with MBIA, Inc., holding
 various positions in the finance area. His most recent position with MBIA was
 Director, Chief of Staff for MBIA Insurance Companys President. Mr. Gilpin
 began his career as an Assistant Vice President in the Mutual Funds
 Department of BHC Securities, Inc. Mr. Gilpin holds an M.B.A. from Columbia
 University and a B.S. from St. Lawrence University.                                                             
|                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|David K. Steel   |  | Chief Risk Manager                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Age 51           |  | Mr. Steel
 has been our Chief Risk Manager since 2005. In this role, Mr. Steel is
 responsible for credit policy and approval, portfolio surveillance, risk
 reporting, loss reserving and treaty negotiations. Mr. Steel joined us in
 August 2005 from Hanover Capital Mortgage Holdings, Inc. where he was a
 Managing Director and Portfolio Manager. Prior to Hanover, Mr. Steel served
 as head of the Domestic Mortgage Insurance and Reinsurance business at ACE
 Capital Re, Inc. from 2002 to 2004. Prior to ACE, Mr. Steel worked at FGIC
 from 1990 to 2002 where he was a member of the corporate leadership team and
 headed the Mortgage-Backed Securities and Investments business. He began his
 career at Lehman Brothers in 1984. Mr. Steel holds an M.B.A. from the
 University of California, Los Angeles and a B.S. from California State
 University, Sacramento.                                                                                                                                                                                                                                                    
|                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|James P. Gerry   |  | Managing Director, Municipal & Infrastructure Finance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Age 46           |  | Mr. Gerry
 has been our Managing Director of public finance underwriting since 1998. In
 this role, Mr. Gerry is responsible for underwriting in domestic and
 international public finance and investor owned utility transactions. He has
 worked for us since February 1998 when RAM Re was formed. Prior to joining
 us, Mr. Gerry was underwriting manager for MBIAs southern region with
 responsibility for all analysis, underwriting and marketing of tax-backed
 deals in the southern U.S. Later, he also analyzed utility, transportation
 and higher-education bonds. Before joining MBIA, Mr. Gerry analyzed and
 underwrote all tax-backed and non-health care related revenue bonds
 originating in the western U.S. for Bond Investors Guaranty Insurance
 Company, or BIG, in their San Francisco office. Previously at BIG, he
 specialized in the underwriting of utility, transportation and special
 revenue bonds for new and secondary market issues. Mr. Gerry attended
 Syracuse University where he received a B.A. in economics and political
 science and an M.P.A. from the Maxwell School of Public Affairs.
|                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

130

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Board of Directors Committees

We
have an audit committee, a compensation committee, a nominating and corporate
governance committee, and a risk management committee, all of which consist
exclusively of members who we believe would qualify as independent directors
under the applicable NASDAQ requirements.

|                    |  |                  |   |                         |   |                                                  |  |                             |   |  |   |  
|------------------- |  | ---------------- | - | ----------------------- | - | ------------------------------------------------ |  | --------------------------- | - |  | - | -
|Director            |  | Audit
 Committee |   | Compensation
 Committee |   | Nominating and
 Corporate
 Governance
 Committee |  | Risk
 Management
 Committee
|                    |  |                  |   |                         |   |                                                  |  |                            
|Edward F.
 Bader    |  | X                | * |                         | X |                                                  |  |                             |   |  |   |  
|David L.
 Boyle     |  | X                |   |                         |   |                                                  |  |                             |   |  | X | *
|Allan S.
 Bufferd   |  |                  |   |                         |   |                                                  |  | X                           | * |  | X |  
|Joseph M.
 Donovan  |  |                  |   |                         |   |                                                  |  |                             |   |  | X |  
|Vernon M.
 Endo     |  |                  |   |                         |   |                                                  |  |                             |   |  |   |  
|Victoria W.
 Guest  |  |                  |   |                         |   |                                                  |  |                             |   |  |   |  
|Michael J.
 Normile |  |                  |   |                         | X |                                                  |  |                             |   |  |   |  
|Lloyd A.
 Porter    |  |                  |   |                         |   |                                                  |  |                             |   |  |   |  
|Steven J.
 Tynan    |  | X                |   |                         | X |                                                  |  | X                           |   |  | X |  
|Conrad P.
 Voldstad |  |                  |   |                         | X | *                                                |  |                             |   |  | X |  

|  |         
|- | --------
| 
|* | Chairman

The
composition of any or all committees may change, subject to the results of
elections of directors at shareholders meetings or for other reasons.
Additionally, we may from time to time form other committees as circumstances
warrant with such authorities and responsibilities as are delegated by our
board.

We
believe each member of the Audit Committee is independent within
the meaning of the NASDAQ rules and Sarbanes-Oxley rules and that its Chairman,
Edward F. Bader, has the attributes of an audit committee financial expert as
defined by the Sarbanes-Oxley rules.

Report of the Audit Committee

Management
has the primary responsibility for establishing and maintaining adequate
internal financial controls, preparing the financial statements, and the public
reporting process. The Audit Committees primary purpose is to assist the Board
of Directors in fulfilling its responsibilities to oversee the participation of
management in the financial reporting process and the role and responsibilities
of the independent auditors.

The
Audit Committee is composed of three directors, each of whom the Board of Directors
has determined is independent under NASDAQ listing standards and applicable
rules promulgated under the Sarbanes-Oxley Act. The Board of Directors has also
determined that Edward F. Bader, Chairman of the Audit Committee, is an audit
committee financial expert under the Sarbanes-Oxley Act. The Audit Committee
operates under a written charter adopted and approved by the Board of
Directors, and which is available on our website at www.ramre.com.

131

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The
Audit Committee has reviewed and discussed the December 31, 2008 audited
consolidated financial statements with management and with
PricewaterhouseCoopers, Hamilton, Bermuda, the independent auditors for RAM
Holdings.

The
Audit Committee has discussed with PricewaterhouseCoopers the matters required
to be discussed by Statement on Auditing Standards No. 61, as amended. The
Audit Committee has also discussed with PricewaterhouseCoopers the written
disclosures and the letter required by Public Company Accounting Oversight
Board Rule 3526, Communications with Audit
Committees Concerning Independence, and has discussed with
PricewaterhouseCoopers their independence.

Based
upon the review and discussions referred to above, and in reliance on the
information, opinions, reports or statements presented to the Audit Committee
by management and PricewaterhouseCoopers, the Audit Committee recommended to
the Board of Directors that the December 31, 2008 audited consolidated
financial statements of RAM Holdings be included in the Form 10-K.

| |                            
| | ---------------------------
| | The Audit Committee        
| |                            
| | Edward F.
 Bader (Chairman)
| | David L.
 Boyle            
| | Steven J.
 Tynan           

The foregoing
Report of the Audit Committee shall not be deemed to be incorporated by
reference in any previous or future documents filed by RAM Holdings with the Securities
and Exchange Commission under the Securities Act of 1933 or the Exchange Act,
except to the extent that RAM Holdings specifically incorporates the Report by
reference in any such document.

Section 16(a) Beneficial Ownership Reporting
Compliance

The
U.S. federal securities laws require the filing of certain reports by officers,
directors and beneficial owners of more than ten percent (10%) of RAM Holdings
securities with the Securities and Exchange Commission. Specific due dates have
been established and we are required to disclose any failure to file by these
dates. Based solely on a review of copies of the filings furnished to us, we
believe that during fiscal year 2008, our officers, directors and 10%
shareholders satisfied all such filing requirements with the exception of one
filing on Form 4 with respect to a purchase of shares by Stephen J. Tynan which
was one day late.

Code of Conduct

Our
Code of Conduct, which is our code of ethics applicable to all directors and
employees, embodies our principles and practices relating to the ethical
conduct of our business and our commitment to honesty, fair dealing and full
compliance with all laws affecting our business. The Code of Conduct is
available at www.ramre.com by first clicking Investor Information and then
Corporate Governance.

|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Director
Compensation

Our
Nominating and Corporate Governance Committee has responsibility for
establishing and reviewing director compensation.

Directors
who are independent as defined under Section 301 of the Sarbanes-Oxley Act of
2002 and the rules thereunder relating to Audit Committee members (which,
unlike the Nasdaq rules, preclude directors affiliated with controlling
shareholders from being determined to be independent), and the non-employee
Chairman of the Board of Directors, receive the following compensation:

| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Annual cash
 retainer for Board service of $35,000                                                                                                                       
| |   |                                                                                                                                                                          
| |  | Annual cash
 retainer for Audit Committee service of $5,000                                                                                                              
| |   |                                                                                                                                                                          
| |  | Annual cash
 retainer for service on the Compensation Committee, Nominating and Corporate
 Governance Committee and Risk Management Committee of $4,000 each             
| |   |                                                                                                                                                                          
| |  | Annual cash
 retainer for service as the Chair of the Audit Committee of $10,000                                                                                         
| |   |                                                                                                                                                                          
| |  | Annual cash
 retainer for service as the Chair of the Compensation Committee, Nominating
 and Corporate Governance Committee and Risk Management Committee of $6,000 each
| |   |                                                                                                                                                                          
| |  | Annual cash
 retainer for service as the Chair of the Board of Directors of $25,000                                                                                      
| |   |                                                                                                                                                                          
| |  | Initial
 award of options to purchase 13,000 Common Shares of RAM Holdings for new
 directors                                                                            
| |   |                                                                                                                                                                          
| |  | Annual award of $40,000 fair value of options or restricted
 share units for all directors                                                                               

132

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The
above cash retainer amounts are all additive. For example, the Chair of the
Audit Committee receives the Board retainer of $35,000, the Audit Committee
retainer of $5,000 and the Audit Committee Chair retainer of $10,000, for a
total of $50,000. The cash retainers are paid on a calendar quarterly basis
(1/4 each quarter) and are not dependent upon meeting attendance.

In
March of each of 2008 and 2009, the Nominating and Corporate Governance
Committee determined not to grant an annual award of options to any of the
non-employee directors. This determination was made in consideration of the
negative financial results in 2007 and 2008, respectively, and the limited
number of shares available under the 2006 Equity Plan, discussed further under
Executive Compensation, below.

All
directors have entered into indemnification agreements with us pursuant to
which we are obligated to provide legal defense and indemnification, including
advancement of expenses, in the event certain claims are asserted against the
covered individuals. We also provide directors and officers liability
insurance for our directors and officers.

We
reimburse all directors for their reasonable travel and related expenses in
connection with attending board and committee meetings.

The
table below summarizes the compensation paid by us to non-employee directors
for fiscal year 2008.

DIRECTOR COMPENSATION TABLE

|                      |  |                                 |  |                   |  |                    |  |                                      |  |                                                                               |  |                          |  |           |   |  |  |   |  |        |  | 
|--------------------- |  | ------------------------------- |  | ----------------- |  | ------------------ |  | ------------------------------------ |  | ----------------------------------------------------------------------------- |  | ------------------------ |  | --------- | - |  |  | - |  | ------ |  | 
|(a)                   |  | (b)                             |  | (c)               |  | (d)                |  | (e)                                  |  | (f)                                                                           |  | (g)                      |  | (h)       |  
|Name                  |  | FeesEarned orPaid inCash ($)(1) |  | StockAwards($)(2) |  | OptionAwards($)(3) |  | Non-EquityIncentive PlanCompensation |  | Change in
 Pension Value
 and
 Nonqualified
 Deferred
 Compensation
 Earnings |  | All OtherCompensation($) |  | Total ($) |  
|                      |  |                                 |  |                   |  |                    |  |                                      |  |                                                                               |  |                          |  |           |  
|Edward F. Bader       |  | 54,000                          |  |                   |  |                   |  | 5,095                                |  |                                                                               |  |                         |  |           |  |  |  |  |  | 59,095 |  | 
|Victor J. Bacigalupi* |  |                                |  |                   |  |                   |  |                                     |  |                                                                               |  |                         |  |           |  |  |  |  |  |       |  | 
|David L. Boyle        |  | 50,000                          |  |                   |  |                   |  | 5,095                                |  |                                                                               |  |                         |  |           |  |  |  |  |  | 55,095 |  | 
|Allan S. Bufferd      |  | 43,000                          |  |                   |  |                   |  | 14,530                               |  |                                                                               |  |                         |  |           |  |  |  |  |  | 57,530 |  | 
|Joan H. Dillard*      |  | 39,000                          |  |                   |  |                   |  | 10,068                               |  |                                                                               |  |                         |  |           |  |  |  |  |  | 49,068 |  | 
|Joseph M. Donovan     |  | 39,000                          |  |                   |  |                   |  | 5,555                                |  |                                                                               |  |                         |  |           |  |  |  |  |  | 44,555 |  | 
|Mark F. Milner*       |  |                                |  |                   |  |                   |  |                                     |  |                                                                               |  |                         |  |           |  |  |  |  |  |       |  | 
|Michael J. Normile    |  | 29,250                          |  |                   |  |                   |  | 1,616                                |  |                                                                               |  |                         |  |           |  |  |  |  |  | 30,866 |  | 
|Lloyd A. Porter       |  |                                |  |                   |  |                   |  |                                     |  |                                                                               |  |                         |  |           |  |  |  |  |  |       |  | 
|Bradley M. Shuster*   |  |                                |  |                   |  |                   |  |                                     |  |                                                                               |  |                         |  |           |  |  |  |  |  |       |  | 
|Dirk A. Stuurop*      |  | 50,000                          |  |                   |  |                   |  | 5,095                                |  |                                                                               |  |                         |  |           |  |  |  |  |  | 55,095 |  | 
|Steven J. Tynan       |  | 77,000                          |  |                   |  |                   |  |                                     |  |                                                                               |  |                         |  |           |  |  |  |  |  | 77,000 |  | 
|Conrad P. Voldstad    |  | 49,000                          |  |                   |  |                   |  | 16,490                               |  |                                                                               |  |                         |  |           |  |  |  |  |  | 65,490 |  | 

|    |                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Director served during all
or part of 2008 but resigned prior to the date of this report.                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                           
|(1) | Our policy is to provide
compensation only to our directors who are independent under the
Sarbanes-Oxley rules applicable to Audit Committee members. All directors in
2008 other than Mr. Endo and Mr. Porter, and former director Messrs.
Bacigalupi, Milner and Shuster, are independent under the Sarbanes-Oxley
rules.           
|    |                                                                                                                                                                                                                                                                                                                                           
|(2) | No stock awards were
granted in fiscal year 2008 or were outstanding at fiscal year end 2008.                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                           
|(3) | The amounts included in
column (d) are the dollar amounts recognized in the financial statements for
the fiscal year ended December 31, 2008 in accordance with FAS 123(R) for
stock option awards per the Companys Equity Plan. Mr. Normile received a
grant of 13,000 stock options upon his appointment to the board on March 5,
2008.

The
table below sets forth the grant date fair value of each award granted in 2008
to directors (other than Mr. Endo and Ms. Guest).

|                    |  |                               |  |                             | 
|------------------- |  | ----------------------------- |  | --------------------------- | 
|Name                |  | Options
 Granted in
 2008 (#) |  | Grant Date
 Fair
 Value ($) | 
|                    |  |                               |  |                             | 
|Michael J.
 Normile |  | 13,000                        |  | 8,703                       | 

133

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The
table below sets forth the aggregate number of shares underlying option awards
outstanding at fiscal year end 2008 for each director who has received option
awards (other than Mr. Endo).

|                    |  |                                              |        | 
|------------------- |  | -------------------------------------------- | ------ | 
|Name                |  | Shares
 Underlying
 Options at
 FYE 2008 (#) |       
|                    |  |                                              |       
|Edward F.
 Bader    |  |                                              | 20,800 | 
|David L.
 Boyle     |  |                                              | 18,200 | 
|Allan S.
 Bufferd   |  |                                              | 15,600 | 
|Joan H.
 Dillard*   |  |                                              | 13,000 | 
|Joseph M.
 Donovan  |  |                                              | 13,000 | 
|Michael J.
 Normile |  |                                              | 13,000 | 
|Dirk A.
 Stuurop*   |  |                                              | 20,800 | 
|Conrad P.
 Voldstad |  |                                              | 15,600 | 

|  |                                                                                           
|- | ------------------------------------------------------------------------------------------
|* | Director served during all
 or part of 2008 but resigned prior to the date of this report.

Share
options granted to the directors under our 2001 Stock Option Plan prior to 2006
vest quarterly over a three year period. Share Options granted to directors
beginning in 2006 under the 2006 Equity Plan vest in four equal annual
installments on the first four anniversaries of the date of grant.

Compensation Committee Interlocks and Insider
Participation

No
member of the Compensation Committee in 2008 is or was formerly an officer or
employee of RAM Holdings or any of its subsidiaries or had any relationship
required to be disclosed under Certain Relationships and Related Transactions
below. During 2008, no executive officer of RAM Holdings or any of its
subsidiaries served on the compensation committee (or equivalent), or the Board
of Directors, of another entity whose executive officer(s) served on the
Compensation Committee or Board of Directors of RAM Holdings.

Compensation Discussion and Analysis

Compensation Committee Report

The
Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K
under the Securities and Exchange Act of 1934, as amended. Based on this review
and discussion, the Compensation Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis (set forth below) be
included in this annual report on Form 10-K.

| |                               
| | ------------------------------
| | The Compensation Committee    
| | (for fiscal
 year 2008)       
| |                               
| | Conrad P.
 Voldstad (Chairman)
| | Edward F.
 Bader              
| | Michael J.
 Normile           
| | Steven J.
 Tynan              

|   |                      
|-- | ---------------------
|I. | Compensation Overview

Company Background

Our company
was founded in 1998 as a Bermuda-based provider of financial guaranty
reinsurance. We provide financial guaranty reinsurance for public and
structured finance obligations, covering risks in both the U.S. and
international markets. See the Business and Management Discussion &
Analysis of Financial Condition and Results of Operations sections of this
annual report on Form 10-K for a discussion of adverse developments in the
financial guaranty business and our industry from the latter half of 2007 to
date.

Compensation Background

In this
section, we discuss the compensation of those officers whose compensation is
required to be disclosed, which in our case includes our Chief Executive
Officer, Vernon Endo, our Chief Financial Officer, Ted Gilpin, and our next
three most highly compensated officers, David Steel, James Gerry and Victoria
Guest. We refer to these officers as the named executive officers.

In
understanding our compensation program, it is important to know that:

134

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|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                   | Our business is a long tail business in which it is generally
 difficult to influence revenues in the short term.
 Our business is a long tail business in that underwriting decisions
 generally will have results over a long period of time, including premium
 that is earned over the life of the insured securities, which may be thirty
 years or more, and credit losses, if any, that may materialize, over the life
 of the insured securities. For this reason, we have designed a compensation
 program under which a portion of compensation is not related directly to
 current year financial results but varies based on achievement of specific
 operational or business production goals which we believe will result in
 longer term benefits to the Company, including increased revenues in future
 years.                                                                                                                                                                                                                                            
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                   | We need to retain our small staff of highly experienced executives.
 Our tax advantaged Bermuda domicile and operating leverage are essential
 components to the financial success of our business model. We have determined
 that employing a small number of highly qualified employees located in
 Bermuda is the most efficient approach to staffing. Of our sixteen employees,
 six are senior executives, five of whom have extensive experience in the
 financial guaranty industry. However, having a small number of employees
 causes us to be more vulnerable to employee turnover than larger
 organizations. We have generally replaced senior executives who leave the
 company with executives from outside the company because our organizational
 design generally does not include middle management positions. Recruiting
 executives from outside the company is costly and may require Bermuda
 Department of Immigration approval of work permits, and therefore retention
 of our management team is an important objective of our compensation program.
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                   | We compete for professional talent with a small group of primary
 insurers and reinsurers, almost all of which have substantially greater
 resources than we do. In order to attract and retain
 qualified personnel, we have to provide compensation that is competitive with
 the compensation offered by these larger market participants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                   | We are a ratings sensitive company and we experience extensive rating
 agency oversight. Our financial strength rating from
 S&P is an important element in our business model because it determines
 the amount of capital credit our customers receive for our reinsurance.
 Therefore, in our compensation program we seek to balance incentives to
 increase shareholder returns with incentives to consider the long-term
 implications of business decisions on our financial strength.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                   | Our
 Bermuda location imposes costs on our compensation program. Our
 Bermuda location is necessary to our business model, but imposes significant
 additional costs on our compensation program. All of our named executive
 officers were recruited from the U.S.. Our compensation program compensates
 our named executives for relocating to Bermuda, for the high cost of living
 in Bermuda and the insecurity caused by the work permit regime in Bermuda,
 which effectively gives the Bermuda government discretion in determining the
 time period our employees are allowed to work in Bermuda.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                   | Our business was negatively affected in 2008 and 2007 by our exposure
 to residential mortgages. In 2008 and 2007, we had
 net losses of $159.4 million and $144.1 million, respectively. These negative
 results were directly attributable to our reinsurance of 2005  2007 vintage
 residential mortgage-backed securities (RMBS) and collateralized debt
 obligations (CDOs) of asset-backed securities (ABS) containing
 residential mortgage collateral. We failed to achieve our financial results
 targets in 2008 by a substantial amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                   | Our business is operating under stressed market conditions and
 actions need to be taken in the short term to safeguard the value of the
 company. While historically our business strategy
 and compensation program have had a long-term focus, our strategy in the near
 term is to take prompt actions to reduce our exposure to insured risk,
 preserve our free cash resources and, if feasible, deleverage our capital structure.
 As such, our Compensation Committee determined not to award any cash
 incentive compensation to named executive officers for 2008 performance,
 except for one executive officer as required in the related employment
 contract and disclosed in the Summary Compensation Table below, and intends
 to structure an incentive program for 2009 based upon the strategic goals set
 forth in Item I  Business  Our Business Strategy of this Annual Report on
 Form 10-K.                                                                                                                                                        
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Compensation Objectives                            
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|The objectives
 of our compensation program are to:
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                   | Retain and
 motivate a highly-skilled, small group of professionals to work together as a
 team to achieve the following strategic goals:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increasing
 the return to our shareholders                                                                                                                        
| |   |                                                                                                                                                                   
| |  | Maintaining
 the value and integrity of our franchise                                                                                                             
| |   |                                                                                                                                                                   
| |  | In the
 current stressed market environment, reduce our exposure to insured risk,
 preserve our cash resources and, if feasible, deleverage our capital
 structure
| |   |                                                                                                                                                                   
| |  | Improving
 the effectiveness of our operations                                                                                                                    

135

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Elements of Compensation

The elements
of our compensation program for our named executives are:

|  |                                                                                
|- | -------------------------------------------------------------------------------
| | Base salary                                                                    
|  |                                                                                
| | Incentive
 compensation awards tied to performance goals                       
|  |                                                                                
| | Share option
 awards                                                           
|  |                                                                                
| | Relocation
 related benefits, including cost of living allowance, as applicable
|  |                                                                                
| | Other
 standard benefits                                                       

Benchmarking

We have not
engaged in formal benchmarking in 2008 and 2009 because we do not believe that
a peer group comparison would provide a meaningful benchmark in the current
environment. Our peers in the financial services industry have suffered varying
levels of stress due to the adverse developments of the past two years and have
responded to these developments in a wide variety of manners depending upon
their respective financial conditions and strategies. As such, we have tailored
our compensation program to our own financial circumstances and strategy.

Input of our Executive Officers

Our
Compensation Committee is charged with overall responsibility for our
compensation program. Our Chief Executive Officer provides recommendations with
respect to executive compensation to the Compensation Committee. See
Directors, Executive Officers and Corporate Governance  Board of Directors
Committees, above. Under the Compensation Committees Charter, the
Compensation Committee only reviews compensation for employees with a base
salary of more than $175,000.

Employment Agreements

We have an
employment agreement with each of our named executive officers. We believe that
employment agreements provide security necessary to recruit executive officers
to work in Bermuda. A summary of the terms of the employment agreements is
provided below under the Summary Compensation Table and in Potential Payments
upon Termination or Change in Control. Apart from different salaries, bonus
targets and cost of living allowance, the terms of employment for all of our
named executive officers are substantially the same. We believe that having the
same employment terms promotes teamwork, a sense of equality and ease of
administration.

|    |                     
|--- | --------------------
|II. | Compensation Program

Base Salary

We set initial
base salary based on negotiations with the executive officers we are
recruiting. As noted above, most of our named executive officers have joined
the company since 2003. Salaries have not been increased since 2006. We review
base salaries of our named executives on an annual basis, as required by each
named executives employment agreement, to ensure they are competitive and
commensurate with each executives job responsibilities and performance. The
Compensation Committee did not approve any base salary increases for 2008 or
2009 because the company had losses in 2007 and 2008. The employment agreements
for our named executives who are U.S. citizens contain a tax equalization
provision that obligates us to provide a gross up payment to them as a result
of changes in U.S. tax law that adversely affect them, as summarized below
under Employment Agreements. Any adverse tax law change effectively reduces
the net compensation based on which the employee agreed to take the position.

Incentive Compensation

The payment of
incentive compensation to the named executives is determined based on
achievement of performance targets approved by the Compensation Committee.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Establishment of Target Amounts and Mix of Cash and Equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Since our
 initial public offering in 2006, our Compensation Committee has adjusted the
 amount of incentive compensation and the mix of cash and equity components to
 address changes in circumstances. The employment agreements with our named
 executive officers establish bonus targets as a percentage of base salary.
 The bonus target established in the employment agreements is generally 100%
 - 125% of base salary for the named executive officers. Prior to 2006, the
 bonus was paid entirely in cash. In 2006, the Compensation Committee
 determined to pay the 2006 bonus in a mixture of cash and RSUs and intended
 to continue this practice going forward. However, due to the depletion of
 shares available in our 2006 Equity Plan, the Compensation Committee
 discontinued this practice for the 2007 and 2008 bonuses.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have not
 yet finalized the formal business plan for 2009 and have therefore not yet
 established an incentive compensation pool or adopted incentive compensation
 performance targets for 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Performance Measures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The
 Compensation Committee establishes performance measures for each fiscal year.
 We first establish our business plan and strategic objectives for the company
 for the applicable fiscal year. We then determine how our executives can
 achieve the companys objectives and set these tasks as the performance
 measures for individual executives or groups of executives with similar job
 functions. In this way, we seek to link executive performance and
 compensation directly to company performance and motivate our executives to
 implement our strategy and business plan.                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Our strategy
 for 2008 was to maintain ratings at a minimum of AA/Aa level in order to
 provide our customers with adequate capital benefit not lower than the
 competition. Our aim was to create additional capital cushion to withstand
 potential adverse credit developments and write profitable new business. Our
 intent was to achieve these measures by reducing our existing insured
 portfolio through commutations of various contracts and limiting portfolio
 growth. However, we believed these objectives needed to be bounded by an
 acceptable level of cost, that is, forfeited unearned premium and installment
 premium. Based on this strategy, we chose the following performance measures:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |           Maintain
 minimum AA/Aa ratings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |           Achieve
 $35 million in excess capital of the greater of Moodys and S&Ps minimum
 requirements for AA/Aa ratings at year end 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |           Achieve
 Adjusted Operating Book Value of $654 million at year end 2008. The Company
 believes measures of operating (and adjusted operating) book value per share
 to be useful because it gives a measure of the value of the Company,
 excluding non-operating items of unrealized gains and losses on (a) other
 financial instruments and (b) credit derivatives. We derive operating book
 value by beginning with GAAP book value and adding back (i) the fair value of
 other financial instruments and (ii) the derivative asset or liability
 excluding the impact of credit impairments and unearned premiums on credit
 derivatives. Adjusted operating book value per share begins with operating
 book value as calculated above and then adding or subtracting the value of:
 a) Net unearned premium reserve; b) Deferred acquisition costs; c) The
 present value of estimated future installment premiums net of ceding
 commissions; and d) Unrealized gains/(losses) on investments
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |           Maintain
 treaties with AAA-rated customers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |           Achieve
 certain operational goals related to risk management and financial reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 incentive targets primarily related to increasing our rating agency capital
 cushion and decreasing risk in our portfolio, and therefore were not intended
 to encourage risk taking that could lead to volatile results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Determination of Award Amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The
 Compensation Committee first assesses the Companys performance against the
 established financial performance measures in determining the amount of
 compensation to award. Generally, the Compensation Committee would expect to
 fund a bonus pool such that each executive receives a bonus within his or her
 target range. In 2008, we started with the presumption that 100% achievement
 of performance measures would result in a payout of 65% of target because we
 expected our financial results for 2008 to be adversely affected by our
 existing exposure to RMBS securities. However, the Compensation Committee
 retains overall discretion in determining whether to award incentive
 compensation and the amount of incentive compensation to award. Although the
 Compensation Committees discretion is not limited, the following are
 illustrative examples of circumstances in which the Compensation Committee
 might use its discretion:
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |           If
 the Company or an executive achieves extraordinary results, the Compensation
 Committee might award incentive compensation in excess of the target range to
 recognize extraordinary achievement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |           If
 the Company or an executive fails to satisfy a performance measure that the
 Compensation Committee believes should have been achievable, the Compensation
 Committee might award a lower amount or no amount overall.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |           If
 the Company or an executive is unable to meet a performance target as a
 result of unforeseen obstacles, the Compensation Committee may take this into
 account in determining whether to award some amount in respect of the
 performance measure.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |           If
 an unforeseen negative event occurs, such as very disappointing financial
 performance, a rating agency downgrade or failure to meet legal requirements,
 the Compensation Committee may determine not to pay bonuses even if some or
 all of the performance measures are satisfied.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

137

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The
Compensation Committee believes it needs to retain discretion in determining
the final amount of awards because adjustments may be needed for compensation
to be fair to both the named executive officer and the company.

Impact of Performance on Compensation.

Our
Compensation Committee determined in its discretion not to pay any incentive
compensation to the named executives with respect to performance in 2008,
except for one executive officer as required in the related employment contract
and disclosed in the Summary Compensation Table below. We did not achieve our
financial performance targets for 2008. Our ratings were downgraded below AA/Aa
and therefore we did not achieve our ratings or capital cushion targets. Our
Adjusted Operating Book Value (as measured above under Performance Measures)
decreased from $657.9 million at December 31, 2007 to $280.1 at December 31,
2008. We did not achieve our adjusted operating book value target because our
commutations of exposures, while beneficial in reducing risk, were much larger
than we anticipated, resulting in forfeiture of unearned premium and
installment premium. We met our target of maintaining our treaties with
AAA-rated customers in 2008 and generally achieved our operational goals.
However, our Compensation Committee determined that the adverse financial
results in 2008 and 2007, and the goal of preserving cash, outweighed the
benefits of the operational goals achieved by management and therefore used its
discretion not to pay any incentive compensation to the named executives.

Share Option Grants

Our
Compensation Committee began to grant annual share option awards in 2006. Our
Compensation Committee awards share options, which vest over four years in
equal annual installments, because share options are the compensation tool
which most closely aligns the interests of our named executive officers with
the interests of our shareholders.

The
Compensation Committee awarded share options to the named executives in 2008 in
respect of 2007 performance in its discretion as discussed in our Proxy
Statement dated March 23, 2008. These awards resulted in the 2006 Equity Plan
having only approximately 700,000 shares available for future grants. Because
of our losses in 2008, the reduction in our share price below $1.00, and the
limited number of shares available under the 2006 Equity Plan, our Compensation
Committee determined not to award any share options in 2009 in respect of 2008
performance. Our Compensation Committee determined that the share options
awarded in 2008 at an exercise price of $1.45 per share continue to provide a
sufficient incentive to management to increase shareholder value.

Repricing of Share Options.

We have not
repriced or replaced share options. Our policy, consistent with the terms or
our 2006 Equity Plan, is that we would not reprice or replace underwater
options for our executive officers or directors without shareholder approval.
All of the options granted to our officers and directors are now substantially
underwater, meaning that the market price of our common shares is
substantially below the exercise prices of the options.

Grant Date Policy.

We have
adopted a policy that share options and restricted share units, other than for
new hires or newly elected directors, will be granted on an annual basis at the
first board meeting of the fiscal year. We anticipate very few employee hires,
and therefore whenever possible, share options and restricted share units for
new hires will be approved by the our Board of Directors at a regular meeting
in advance of the start date of employment with a grant date of the start date
of employment. In each case, the fair market value of RAM Holdings shares is
determined in accordance with the 2006 Equity Plan as the average of the high
and low sale price on the grant date.

Other Benefits

Supplemental Retirement Plan.

All of our
employees (not just our named executive officers) participate in one of our
Supplemental Retirement Plans, each of which has substantially the same terms
and is similar to a U.S. defined contribution plan, such as a 401(k) plan. We
believe a competitive pay package should include the opportunity to defer
compensation which may be used as savings toward retirement. We discontinued
contributions by us for the benefit of the named executive officers in 2009, as
discussed in more detail under Nonqualified Deferred Compensation, below.

Relocation-Related Benefits.

We pay a cost
of living allowance to our named executives who are U.S. citizens. The purpose
of the cost of living allowance is primarily to cover the cost of housing in
Bermuda, although its use is not restricted. We believe it is necessary to pay
a cost of living allowance to recruit U.S. based executives to live in Bermuda,
primarily because the cost of living in Bermuda is very high. In determining
the amount of the cost of living allowance, we have relied on anecdotal
evidence regarding the compensation packages offered by other financial
services companies located in Bermuda. We have not reviewed or increased the
amount of our cost of living allowances since 2003 and we have no plans to
adjust them in the near term. In early 2007, Johnson Associates reviewed the
cost of living allowances provided to our named executives in relation to those
provided to executives of other Bermuda companies and found our cost of living
allowances to be within the market range.

138

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In addition to
the cost of living allowance, we provide several additional benefits related to
the need to relocate our named executives from the U.S. to Bermuda. First, we
reimburse up to $70,000 of the cost of relocating to Bermuda. In addition, we
reimburse up to $50,000 of the cost of relocating back to the U.S. upon
termination of employment. Only the properly documented ordinary and necessary
expenses of relocation, which are reviewed by our accounting department and our
Chief Executive Officer, are eligible for reimbursement. In addition, we pay
for the airfare for our named executives and their immediate family members to
take one round trip to the East Coast of the U.S. per year. Finally, we
reimburse each named executive up to $7,500 per year for tax advice and
preparation services, because the U.S. income tax filings for U.S. citizens
living abroad are more complex than those for U.S. citizens residing in the
U.S. We believe that all of these benefits are standard benefits offered by
Bermuda-based financial services companies to recruit executives from overseas,
based on anecdotal evidence.

Health and Other Insurance Benefits.

We provide
customary health, disability and life insurance benefits to our named
executives. We provide the same insurance coverage to all of our other
employees.

Perquisites.

We do not
provide any material perquisites to our named executive officers, except as
described in relocation related benefits, above.

Indemnification

All officers
have entered into indemnification agreements with us pursuant to which we are
obligated to provide defense and indemnification, including advancement of
expenses, in the event certain claims are asserted against the covered
individuals. We also provide directors and officers liability insurance for
our directors and officers.

Termination of
Employment Provisions

The
compensation of our named executives upon termination of employment is
described under Potential Payments upon Termination or Change in Control,
below. The following discussion applies to the named executives. The
termination of employment provisions were negotiated with senior executives in
2006 in connection with our initial public offering and have been extended to
all new senior executives since that date for the sake of consistency and to
promote a team ethic.

Retirement.

Our named
executives are not entitled to any cash compensation that is specific to their
retirement. Under the terms of the share option awards and restricted share
units, if a named executive has at least ten years of service at the time of
retirement on or after age 55, all of his or her unvested awards vest upon
retirement. As a practical matter, we generally do not expect our named
executive officers to remain with the company until their retirement because of
impediments to long-term residence under the Bermuda immigration law and other
personal factors that make eventual relocation to the U.S. likely for most of
our named executives.

Involuntary Termination without Cause and
Termination by Executive For Good Reason.

In the case of
termination of employment without Cause or termination of employment by a named
executive with Good Reason, as those terms are defined below under Potential
Payments upon Termination or Change in Control, we generally pay one year of
severance in consideration of a one year non-compete and non-solicitation
provision.

We pay our
Chief Executive Officer up to two years of severance in consideration of a one
year non-compete and non-solicitation provision, subject to his duty to
mitigate the damages beginning in the second year by seeking other employment.
We have provided our Chief Executive Officer with a potentially longer severance
payment than our other named executive officers because there are only a very
limited number of positions in the industry available at the Chief Executive
Officer or equivalent level and therefore our Chief Executive Officer could
expect to spend a greater length of time securing new employment.

We allow the
named executives to earn or realize the value of incentive compensation
consistent with the one year of severance, discussed above. We pay incentive
compensation earned in the year prior to employment termination and not yet
paid and target incentive compensation anticipated to be earned in the year of
the employment termination. In addition, the vesting of restricted share units
previously granted as part of incentive compensation is accelerated. In contrast,
the vesting of options is not accelerated.

We allow the
named executive to continue to receive certain employee benefits for a limited
period of time to cover expected transition to new employment.

Death or Disability.

In the case of
termination of employment as a result of Disability, as that term is defined
below under Potential Payments upon Termination or Change in Control, or
death, our named executives are entitled to incentive compensation earned in
the year prior to employment termination and not yet paid and pro rata
incentive compensation for the year in which the employment agreement
terminates as a result of death or Disability because we view this compensation
as already earned. Similarly, because the value of the

139

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restricted
share units was fully earned upon award of the incentive compensation to
which they relate, we believe that it is fair for these awards to vest in full
under these circumstances.

In addition,
the vesting of share options is accelerated upon death or Disability as a
benefit to the named executive, or his or her family, if the executive has
provided at least three years of service to us because the executive is unable
to continue in service due to circumstances beyond his or her control.

We provide
continued salary payments for three months, in the case of death, and until
disability payments begin, in the case of Disability, and limited continued
benefits to cover the named executive or his or her family during the expected
period of adjustment to the termination of employment.

Expiration of Employment Agreement.

In the case of
termination of employment due to expiration of the employment agreement, the
named executives are entitled to incentive compensation earned in the year
prior to employment termination and not yet paid and pro rata incentive
compensation for the year in which their employment agreement expires in order
to provide them with an incentive to continue to try to achieve our performance
goals during this partial year. In addition, because the value of the
restricted share units was fully earned upon award of the incentive
compensation to which they relate, we believe that it is fair for these awards
to vest in full under these circumstances. In contrast, the vesting of option
awards is not accelerated in these circumstances.

Change in Control.

We do not
compensate our named executives solely as a result of a Change in Control, as
defined in Potential Payments upon Termination or Change in Control, below.
In the case of termination of employment by a third party without Cause in
anticipation of a Change in Control which actually occurs, or within one year
following a change of Control without Cause or by the named executive for Good
Reason, we provide the same compensation as in the case of any other
termination without Cause or for Good Reason, except that all unvested options
held by the named executive vest. We believe that this double trigger
approach provides an incentive to management to consider and even seek
strategic transactions in the best interests of the shareholders although it
may put their employment at risk.

Clawback.

The terms of
our share options and restricted share units provide that if the named
executive engages in competitive activities within one year following
termination of employment, other than termination upon expiration of the term
of the employment agreement, the Compensation Committee may require
cancellation of the vested and unvested portion of share options or restricted
share units, as applicable, and require repayment of gain on any share options
exercised or restricted share units settled, as applicable, within six months
prior to, or one year after, termination of employment.

Financial Restatement.

The
Compensation Committee will, to the extent permitted by law and the named
executive officers employment agreements, have the sole and absolute authority
to make retroactive adjustments to any cash or equity-based incentive
compensation paid to the named executive officers where the payment was
predicated upon the achievement of certain financial results that were
subsequently the subject of a restatement. Where applicable, we will seek to
recover any amount determined to have been inappropriately received by the
individual executive.

The
terminations of employment provisions have no impact on our determination of
current compensation for our named executive officers.

140

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2008, 2007 and 2006
Compensation of Named Executive Officers

The table
below summarizes the total compensation paid to or earned by each named
executive officer for fiscal years 2008, 2007 and 2006.

SUMMARY COMPENSATION TABLE

|                             |  |      |  |                |  |            |  |                       |  |                        |         |                                                   |  |                                                                                   |  |                                 |    |            |           |  |  |           | 
|---------------------------- |  | ---- |  | -------------- |  | ---------- |  | --------------------- |  | ---------------------- | ------- | ------------------------------------------------- |  | --------------------------------------------------------------------------------- |  | ------------------------------- | -- | ---------- | --------- |  |  | --------- | 
|(a)                          |  | (b)  |  | (c)            |  | (d)        |  | (e)                   |  | (f)                    |         | (g)                                               |  | (h)                                                                               |  | (i)                             |    | (j)        |          
|Name and Principal
 Position |  | Year |  | Salary
 ($)(1) |  | Bonus
 ($) |  | Stock
 Awards
 ($)(2) |  | Option
 Awards
 ($)(3) |         | Non-Equity
 Incentive
 Plan
 Compensation
 ($)(4) |  | Change in
 Pension Value
 and
 Nonqualified
 Deferred
 Compensation
 Earnings ($) |  | All Other
 Compensation
 ($)(5) |    | Total
 ($) |          
|                             |  |      |  |                |  |            |  |                       |  |                        |         |                                                   |  |                                                                                   |  |                                 |    |            |          
|Vernon M. Endo               |  | 2008 |  | 400,000        |  | __         |  | 56,337                |  |                        | 376,129 |                                                   |  | 0                                                                                 |  |                                 | __ |            | 464,252   |  |  | 1,296,718 | 
|President and CEO            |  | 2007 |  | 400,000        |  |           |  | 40,182                |  |                        | 285,794 |                                                   |  | 250,000                                                                           |  |                                 |   |            | 446,748   |  |  | 1,422,724 | 
|                             |  | 2006 |  | 383,646        |  |           |  |                      |  |                        | 198,992 |                                                   |  | 466,875                                                                           |  |                                 |   |            | 458,955   |  |  | 1,508,468 | 
|                             |  |      |  |                |  |            |  |                       |  |                        |         |                                                   |  |                                                                                   |  |                                 |    |            |           |  |  |           | 
|Edward U. Gilpin             |  | 2008 |  | 320,385        |  |           |  | 17,614                |  |                        | 9,067   |                                                   |  | 385,000                                                                           |  |                                 |   |            | 487,434   |  |  | 1,219,500 | 
|Chief Financial Officer      |  |      |  |                |  |            |  |                       |  |                        |         |                                                   |  |                                                                                   |  |                                 |    |            |           |  |  |           | 
|                             |  |      |  |                |  |            |  |                       |  |                        |         |                                                   |  |                                                                                   |  |                                 |    |            |           |  |  |           | 
|David K. Steel               |  | 2008 |  | 300,000        |  |           |  | 33,745                |  |                        | 127,011 |                                                   |  | 0                                                                                 |  |                                 |   |            | 305,830   |  |  | 766,586   | 
|Chief Risk Manager           |  | 2007 |  | 300,000        |  |           |  | 24,057                |  |                        | 70,947  |                                                   |  | 195,000                                                                           |  |                                 |   |            | 285,330   |  |  | 875,334   | 
|                             |  | 2006 |  | 284,231        |  |           |  |                      |  |                        | 24,262  |                                                   |  | 279,563                                                                           |  |                                 |   |            | 309,267   |  |  | 897,323   | 
|                             |  |      |  |                |  |            |  |                       |  |                        |         |                                                   |  |                                                                                   |  |                                 |    |            |           |  |  |           | 
|James P. Gerry               |  | 2008 |  | 260,000        |  |           |  | 28,820                |  |                        | 170,219 |                                                   |  | 0                                                                                 |  |                                 |   |            | 271,162   |  |  | 730,201   | 
|Managing Director            |  | 2007 |  | 260,000        |  |           |  | 20,558                |  |                        | 105,630 |                                                   |  | 132,600                                                                           |  |                                 |   |            | 258,750   |  |  | 777,538   | 
|                             |  | 2006 |  | 255,692        |  |           |  |                      |  |                        | 59,612  |                                                   |  | 238,875                                                                           |  |                                 |   |            | 1,020,284 |  |  | 1,574,463 | 
|                             |  |      |  |                |  |            |  |                       |  |                        |         |                                                   |  |                                                                                   |  |                                 |    |            |           |  |  |           | 
|Victoria W. Guest            |  | 2008 |  | 240,000        |  |           |  | 7,969                 |  |                        | 86,223  |                                                   |  | 0                                                                                 |  |                                 |   |            | 268,262   |  |  | 602,454   | 
|General Counsel              |  | 2007 |  | 240,000        |  |           |  | 5,672                 |  |                        | 66,237  |                                                   |  | 62,400                                                                            |  |                                 |   |            | 242,026   |  |  | 616,335   | 
|                             |  | 2006 |  | 228,923        |  |           |  |                      |  |                        | 47,674  |                                                   |  | 66,042                                                                            |  |                                 |   |            | 298,433   |  |  | 641,072   | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Mr. Endos salary was
increased from $350,000 to $400,000 effective April 26, 2006. Mr. Steels
salary was increased from $275,000 to $300,000 effective August 16, 2006. Mr.
Gerrys salary was increased from $225,000 to $260,000 effective February 11,
2006. Mr. Gilpin joined the company on January 28, 2008, and Ms. Guest joined
the company on January 16, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(2) | The amounts included in
column (e) are the dollar amounts recognized in the financial statements for
the fiscal year ended December 31, 2007 and 2008 in accordance with FAS
123(R) for Stock Awards per the Companys Equity Plan except that the
estimate of forfeitures related to service based vesting conditions is
disregarded. The Stock Awards reported are Restricted Share Units granted (i)
on February 20, 2007 as incentive compensation in respect of 2006 performance
in accordance with the companys determination to pay 25% of annual incentive
compensation awards in the form of Restricted Share Units and (ii) on January
28, 2008 and March 5, 2008 to Mr. Gilpin under the terms of his employment
agreement. Assumptions used in the calculation of the above amounts are
outlined in footnote 17 of the Companys audited financial statements for
December 31, 2008.                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(3) | The amounts included in
column (f) are the dollar amounts recognized in the financial statements for
the fiscal year ended December 31, 2006, 2007, and 2008, respectively, in
accordance with FAS 123(R) for stock option awards per the Companys Equity
Plan except that the estimate of forfeitures related to service based vesting
conditions is disregarded. The amount includes the expense associated with
the vesting of stock option awards and restricted share units granted under
FAS 123(R), awards granted prior to 2006 were accounted for under APB 25 and
there is no expense for financial statement purposes. For Mr. Endo, there is
an additional amount for options that were issued below market value in a
prior period with a related expense in subsequent years. Assumptions used in
the calculation of the above amounts are outlined in footnote 17 of the
Companys audited financial statements for December 31, 2008.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(4) | Under the Supplemental
Retirement Plan, executives may voluntarily defer a portion of their cash
compensation. The amounts in column (g) include the portion of each named
executives incentive award voluntarily deferred by the executive and
contributed to the Supplemental Retirement Plan as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|               |  |      |  |                                          |  | 
|-------------- |  | ---- |  | ---------------------------------------- |  | 
|Name           |  | Year |  | Amount of
 Incentive
 Award Deferred ($) | 
|               |  |      |  |                                          | 
|Vernon M. Endo |  | 2007 |  | 125,000                                  |  | 
|               |  | 2006 |  | 373,500                                  |  | 
|David K. Steel |  | 2007 |  | 19,500                                   |  | 
|               |  | 2006 |  | 41,934                                   |  | 

The named executives were
awarded 25% of their incentive compensation in 2007 in restricted share units
(RSUs) granted at a 25% discount to fair market value on the date of grant.
The amounts in column (g) do not include the incentive compensation amounts
awarded with respect to 2006 performance in RSUs under the Compensation
Committees policy. These amounts awarded in respect of 2006 performance and
granted in 2007 have been included in Column (e).

141

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|    |                                                
|--- | -----------------------------------------------
|(5) | All other compensation
 includes the following:

|                  |  |      |  |                                    |  |                                             |  |                                                                  |        |                        |  |                                            |  |                            |         |                         |  |                                    |  |                                    |  |         |  |  |           |  | 
|----------------- |  | ---- |  | ---------------------------------- |  | ------------------------------------------- |  | ---------------------------------------------------------------- | ------ | ---------------------- |  | ------------------------------------------ |  | -------------------------- | ------- | ----------------------- |  | ---------------------------------- |  | ---------------------------------- |  | ------- |  |  | --------- |  | 
|Name              |  |      |  | Cost of
 Living
 Allowance
 ($)(i) |  | Relocation
 Expense
 Reimbursement
 ($)(ii) |  | Contribution by
 RAM to
 Supplemental
 Retirement Plan
 ($)(iii) |        | Tax Gross
 Up
 ($)(iv) |  | Payment
 under
 Payment
 Agreement
 ($)(v) |  | Health
 Insurance
 ($)(vi) |         | Payroll Taxes
 ($)(vii) |  | All other
 compensation
 ($)(viii) |  | Total all other
 compensation
 ($) | 
|                  |  |      |  |                                    |  |                                             |  |                                                                  |        |                        |  |                                            |  |                            |         |                         |  |                                    |  |                                    | 
|Vernon M. Endo    |  | 2008 |  | 216,000                            |  | __                                          |  |                                                                  | 70,188 |                        |  | 96,831                                     |  |                            | __      |                         |  | 24,186                             |  | 48,230                             |  | 8,817   |  |  | 464,252   |  | 
|                  |  | 2007 |  | 216,000                            |  |                                            |  |                                                                  | 86,688 |                        |  | 71,191                                     |  |                            |        |                         |  | 22,797                             |  | 43,045                             |  | 7,028   |  |  | 446,748   |  | 
|                  |  | 2006 |  | 216,000                            |  |                                            |  |                                                                  | 72,345 |                        |  | 111,341                                    |  |                            |        |                         |  | 21,700                             |  | 31,401                             |  | 6,168   |  |  | 458,955   |  | 
|                  |  |      |  |                                    |  |                                             |  |                                                                  |        |                        |  |                                            |  |                            |         |                         |  |                                    |  |                                    |  |         |  |  |           |  | 
|Edward U. Gilpin  |  | 2008 |  | 153,785                            |  |                                            |  |                                                                  | 32,038 |                        |  | 70,750                                     |  |                            |        |                         |  | 18,291                             |  | 59,433                             |  | 153,137 |  |  | 487,434   |  | 
|                  |  |      |  |                                    |  |                                             |  |                                                                  |        |                        |  |                                            |  |                            |         |                         |  |                                    |  |                                    |  |         |  |  |           |  | 
|David K. Steel    |  | 2008 |  | 120,000                            |  | 6,538                                       |  |                                                                  | 52,606 |                        |  | 43,545                                     |  |                            |        |                         |  | 23,754                             |  | 48,230                             |  | 11,157  |  |  | 305,830   |  | 
|                  |  | 2007 |  | 120,000                            |  | 3,763                                       |  |                                                                  | 57,956 |                        |  | 31,924                                     |  |                            |        |                         |  | 22,387                             |  | 43,045                             |  | 6,255   |  |  | 285,330   |  | 
|                  |  | 2006 |  | 120,000                            |  | 21,966                                      |  |                                                                  | 40,913 |                        |  | 73,092                                     |  |                            |        |                         |  | 21,063                             |  | 22,536                             |  | 9,697   |  |  | 309,267   |  | 
|                  |  |      |  |                                    |  |                                             |  |                                                                  |        |                        |  |                                            |  |                            |         |                         |  |                                    |  |                                    |  |         |  |  |           |  | 
|James P. Gerry    |  | 2008 |  | 122,000                            |  |                                            |  |                                                                  | 41,914 |                        |  | 35,331                                     |  |                            |        |                         |  | 15,670                             |  | 48,230                             |  | 8,017   |  |  | 271,162   |  | 
|                  |  | 2007 |  | 122,000                            |  |                                            |  |                                                                  | 49,888 |                        |  | 23,632                                     |  |                            |        |                         |  | 14,771                             |  | 43,045                             |  | 5,415   |  |  | 258,750   |  | 
|                  |  | 2006 |  | 122,000                            |  |                                            |  |                                                                  | 56,644 |                        |  | 64,952                                     |  |                            | 721,293 |                         |  | 14,031                             |  | 31,401                             |  | 9,963   |  |  | 1,020,284 |  | 
|                  |  |      |  |                                    |  |                                             |  |                                                                  |        |                        |  |                                            |  |                            |         |                         |  |                                    |  |                                    |  |         |  |  |           |  | 
|Victoria W. Guest |  | 2008 |  | 120,000                            |  |                                            |  |                                                                  | 31,055 |                        |  | 38,549                                     |  |                            |        |                         |  | 22,977                             |  | 48,230                             |  | 7,451   |  |  | 268,262   |  | 
|                  |  | 2007 |  | 120,000                            |  | 918                                         |  |                                                                  | 30,604 |                        |  | 19,416                                     |  |                            |        |                         |  | 21,649                             |  | 43,045                             |  | 6,394   |  |  | 242,026   |  | 
|                  |  | 2006 |  | 114,462                            |  | 50,689                                      |  |                                                                  | 22,892 |                        |  | 54,836                                     |  |                            |        |                         |  | 18,300                             |  | 33,159                             |  | 4,095   |  |  | 298,433   |  | 

|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      
|(i)    | The Cost of Living
Allowance is set forth in the employment agreement for each named executive,
as discussed below under Employment Agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(ii)   | The relocation reimbursement
expense related to the named executives relocation to Bermuda is discussed
below under Employment Agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(iii)  | The terms of the
Supplemental Retirement Plan are described under Nonqualified Deferred
Compensation, below. The amounts as set forth above for 2006 represent
contributions by the company of 10% of salary paid in 2006 and 10% of the
2005 bonus which was paid in 2006. The amounts as set forth above for 2007
represent contributions by the company of 10% of salary paid in 2007 and 10%
of the 2006 bonus which was paid in 2007. The amounts as set forth above for
2008 represent contributions by the company of 10% of salary paid in 2008,
10% of the 2007 bonus which was paid in 2008 and 10% on the vested portion of
the 2006 bonus paid in 2007 as RSUs - one quarter vested on 2/20/08.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(iv)   | The tax gross-up is
explained under Compensation Discussion and Analysis  Compensation Program
 Base Salary, above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(v)    | On June 28, 2005, James P.
Gerry entered into a payment agreement with us, which replaced existing
option and contingent share agreements entered into by such senior
executives. The aggregate amounts paid to Mr. Gerry in 2006 under the terms
of the payment agreements on June 30, 2006 and August 9, 2006 are set forth
above. The payment agreements have been satisfied in full, and no other
amounts will be paid under the payment agreements.                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(vi)   | Health insurance includes
health, life, and long-term disability insurance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(vii)  | Under Bermuda law,
employers with payrolls of above $1 million are required to pay a payroll tax
of 14% (13.50% prior to Apr 1, 2008) on total remuneration up to a maximum
amount per annum, which was $235,000 per person in 2006 and 2007 and is now
$350,000 per person. Bermuda law permits employers to require employees to
bear up to 4.75% of the cost of the payroll tax. Under the Employment
Agreements, the Company has agreed to bear the full cost of payroll taxes.                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(viii) | All other compensation also
includes tax preparation reimbursement expenses up to $7,500, home computer
purchase reimbursement of up to 50% of the cost, but a maximum of $1,500,
flexible spending accounts of $1,500, travel allowances for annual home leave
to the U.S, legal services, social insurance, and tax services. Mr. Gilpin
was granted under his employment agreement $74,000 cash in lieu of options
and a sign on bonus of $75,000, along with $1,375 flexible spending account
and $2,762 in social insurance.                                                                                                                                                                            

142

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Employment Agreements

Our
employment agreements for each of our named executive officers are
substantially the same, except for the term, the amount of base salary, the
target bonus, and cost of living allowance. Our employment agreements for our
named executive officers have the standard terms set forth below. The
termination of employment provisions of the employment agreements are
summarized below under Potential Payments Upon Termination or Change in
Control.

The
following table and discussion summarizes the standard terms of our employment
agreements for our named executive officers.

|                                                         |  |          |           |            |   |           |   |           |          |           |   |           |   |   |           |  
|-------------------------------------------------------- |  | -------- | --------- | ---------- | - | --------- | - | --------- | -------- | --------- | - | --------- | - | - | --------- | -
|                                                         |  | Mr. Endo |           | Mr. Gilpin |   | Mr. Steel |   | Mr. Gerry |          | Ms. Guest |  
|                                                         |  |          |           |            |   |           |   |           |          |           |  
|Initial Term End Date1                                   |  |          | 3/31/2009 |            |   | 1/28/2010 |   |           | 8/1/2008 |           |   | 3/11/2008 |   |   | 1/16/2009 |  
|                                                         |  |          |           |            |   |           |   |           |          |           |   |           |   |   |           |  
|Annual Base Salary2                                      |  | $        | 400,000   |            | $ | 350,000   |   | $         | 300,000  |           | $ | 260,000   |   | $ | 240,000   |  
|                                                         |  |          |           |            |   |           |   |           |          |           |   |           |   |   |           |  
|Annual Bonus Award Target as a Percentage of Base Salary |  |          | 125       | %          |   | 110       | % |           | 100      | %         |   | 100       | % |   | 40        | %

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|1 | The term of
 employment is automatically extended for an additional year at the end of the
 initial term and, in the case of Mr. Endos employment agreement, each
 subsequent one year term, unless we or the named executive gives notice of
 termination at least six months prior to the then applicable expiration date.
 The employment agreements of our named executives, other than Mr. Gilpin, are
 currently in their renewal terms.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2 | Each named
 executives initial base salary is set forth in his or her employment
 agreement. The Board must review the base salary at least annually and the
 base salary cannot be reduced without the named executives consent.                                                                                                                                                                                                            

Named
executives are eligible to participate in the 2006 Equity Plan. In addition,
each named executive is eligible to participate in all employee benefit plans,
programs perquisites and arrangements and to receive all fringe benefits and
perquisites made generally available to the companys executives. Executives
are reimbursed for reasonable and ordinary business expenses, such as business
travel.

Named
executives are also entitled to the following payments related to their status
as expatriates:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A cost of
 living allowance of $10,000 per month, except for Mr. Endo who receives
 $18,000 per month, Mr. Gilpin who receives $14,000 and Mr. Gerry who receives
 $10,167 per month.                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Reimbursement
 for round trip tickets for the executive and his or her immediate family to
 take one trip each year to the east coast of the U.S..                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | A gross-up
 of the base salary or cost of living allowance if there is an amendment to
 the U.S. tax code regarding income tax and/or cost of living/housing
 allowances paid to U.S citizen resident in Bermuda that results in both the
 inclusion in the executives income subject to U.S. taxation of amounts paid
 by the company and not previously subject to such taxation and a decrease in
 the combined net after-tax base salary and cost of living allowance of the
 executive.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Reimbursement
 of up to $7,500 per year for personal tax advice and/or tax preparation.                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Reimbursement
 of up to $50,000 of reasonable and ordinary costs, plus a gross up for income
 tax payable on this amount, for relocation back to the U.S. occurring within
 six months of termination of employment other than for Cause.                                                                                                                                                                                                                                                   

Certain
named executives have terms of employment that vary from the standard terms as
follows.

Mr.
Endos employment agreement provides for his election as a director of RAM
Holdings and RAM Re as long as he continues to serve as their Chief Executive
Officer.

Mr.
Steels, Ms. Guests and Mr. Gilpins employment agreements provide for a
relocation allowance of up to $70,000 (and related gross-up payment). Mr. Steel
and Ms. Guest have been reimbursed for their relocation expenses in 2005
through 2008. The other named executives received this benefit upon relocation
to Bermuda prior to 2005 and therefore their amended and restated employment
agreements entered into in 2006 do not include this provision. Mr. Gilpin has
not yet claimed his relocation reimbursement.

Mr.
Gilpins employment agreement provides that with respect to the 2008 incentive
compensation payable in 2009, RAM Holdings Ltd. and RAM Reinsurance Company
Ltd. are required to pay Mr. Gilpin at least the target amount of $385,000. In
connection with the commencement of Mr. Gilpins employment, he received or
will receive the following awards and payments under the employment agreement:

143

---



(1)     A
one-time grant of 15,000 Restricted Share Units and 50,000 Share Options under
the 2006 Equity Plan on the start date of his employment, each vesting over
four years in equal annual installments and otherwise on the terms set forth in
RAM Holdings Ltd.s Form of Restricted Share Unit Award (Annual Bonus) and Form
of Share Option Award for employees (the Start Date Equity Awards).

(2)     A
one-time payment of $75,000 on the start date of Mr. Gilpins employment (the
Start Date Cash Award).

(3)     On
or prior to March 31, 2009, a grant of Share Options under the 2006 Equity
Plan, subject to approval of the Board of Directors of RAM Holdings Ltd.,
vesting over four years in equal annual installments and otherwise on the terms
set forth in RAM Holdings Ltd.s form of Share Option Award for employees, with
a value of up to $130,000 (the Additional Award).

The
Additional Award was satisfied by the grant of 38,621 Restricted Share Units on
March 5, 2008 (valued at $56,000) and the payment of the balance in cash.

The
Start Date Cash Award is subject to forfeiture if Mr. Gilpin terminates his
employment voluntarily without good reason (as defined in the employment
agreement) as follows: $75,000 if such termination occurs prior to January 28,
2009 and $37,500 if such termination occurs after January 28, 2009 but prior to
January 28, 2010. The portion of the Additional Award paid in cash is subject
to forfeiture if Mr. Gilpin terminates his employment voluntarily without good
reason (as defined in the employment agreement) prior to March 31, 2010.

Plan Based Awards

The
table below shows grants of awards to our named executive officers in fiscal
year 2008 under our 2006 Equity Plan.

GRANTS OF PLAN BASED AWARDS TABLE

|                  |  |             |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      |         |                                                        |  |                        |  |                                                            |      |  |  |         | 
|----------------- |  | ----------- |  | -------------- |  | ------------------------------------------------------------------- |  | ------------------------------------------------------------- |  | -------------- |  | --------------- |  | ------------ |  | ------------- |  | ------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------ | ------- | ------------------------------------------------------ |  | ---------------------- |  | ---------------------------------------------------------- | ---- |  |  | ------- | 
|                  |  |             |  |                |  | Estimated Future
 Payouts
 Under Non-Equity
 Incentive
 Plan Awards |  | Estimated Future Payouts
 Under Equity Incentive
 Plan Awards |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      |         |                                                        | 
|                  |  |             |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      |         |                                                        | 
|(a)               |  | (b)         |  | (bb)           |  | (c)                                                                 |  | (d)                                                           |  | (e)            |  | (f)             |  | (g)          |  | (h)           |  | (i)                                                                       |  | (j)                                                                                  |         | (k)                                                    |  | (l)                    |  | (m)                                                        |     
|                 
|Name              |  | Grant
 Date |  | Approval
 Date |  | Thresh
 old ($)                                                     |  | Target
 ($)                                                   |  | Maxi
 mum
 ($) |  | Thresho
 ld (#) |  | Targe
 t (#) |  | Maximu
 m (#) |  | All
 Other
 Stock
 Awards:
 Number
 of
 Shares
 of Stock
 or
 Units(#)(1) |  | All
 Other
 Option
 Awards:
 Number
 of
 Securiti
 es
 Underly
 ing
 Options
 (#)(2) |         | Exercise
 or Base
 Price of
 Option
 Awards
 ($/Sh)(3) |  | Closing
 Market
 Price |  | Grant
 Date
 Fair
 Value of
 Stock
 and
 Option
 Awards(4) |     
|                  |  |             |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      |         |                                                        |  |                        |  |                                                            |     
|Vernon M. Endo    |  | 3/5/2008    |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      | 300,000 |                                                        |  | 1.45                   |  |                                                            | 1.43 |  |  | 200,850 | 
|                  |  |             |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      |         |                                                        |  |                        |  |                                                            |      |  |  |         | 
|Edward U. Gilpin  |  | 1/28/2008   |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      | 50,000  |                                                        |  | 1.75                   |  |                                                            | 1.79 |  |  | 39,265  | 
|                  |  | 1/28/2008   |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  | 15,000                                                                    |  |                                                                                      |         |                                                        |  |                        |  |                                                            |      |  |  |         | 
|                  |  | 3/5/2008    |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  | 38,621                                                                    |  |                                                                                      |         |                                                        |  |                        |  |                                                            |      |  |  |         | 
|                  |  |             |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      |         |                                                        |  |                        |  |                                                            |      |  |  |         | 
|David K. Steel    |  | 3/5/2008    |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      | 198,500 |                                                        |  | 1.45                   |  |                                                            | 1.43 |  |  | 132,896 | 
|                  |  |             |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      |         |                                                        |  |                        |  |                                                            |      |  |  |         | 
|James P. Gerry    |  | 3/5/2008    |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      | 158,000 |                                                        |  | 1.45                   |  |                                                            | 1.43 |  |  | 105,781 | 
|                  |  |             |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      |         |                                                        |  |                        |  |                                                            |      |  |  |         | 
|Victoria W. Guest |  | 3/5/2008    |  |                |  |                                                                     |  |                                                               |  |                |  |                 |  |              |  |               |  |                                                                           |  |                                                                                      | 96,000  |                                                        |  | 1.45                   |  |                                                            | 1.43 |  |  | 64,272  | 

|    |                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | The RSUs were awarded to
Mr. Gilpin under the terms of his employment agreement.                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                       
|(2) | The options were awarded
under the Companys 2006 Equity Plan, which permits the Compensation
Committee to make awards of options or RSUs to employees in its discretion.                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                       
|(3) | In accordance with the 2006
Equity Plan of the Company, the exercise price was determined to be the
average of the high and low price on the date of grant. The average of the
high and low price of our shares on the grant date was lower than the
applicable closing price only with respect to the grant to Mr. Gilpin on
January 28, 2008 as shown in column (l).
|    |                                                                                                                                                                                                                                                                                                                                                                       
|(4) | The value shown is the full
grant date fair value of the awards computed in accordance with FAS 123R.                                                                                                                                                                                                                                                                 

144

---



OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
TABLE

|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|----------------- |  | ------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ------- | -------------------------------------------------------------------------------------------------------- |  | ---------------------------- |  | ------------------------ |  | -------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | ------ | -------------------------------------------------------------------------------------------------------------------------------------- |  | - |  | - | 
|Option Awards     |  | Stock Awards                                                              | 
|                  |  |                                                                           | 
|(a)               |  | (b)                                                                       |  | (c)                                                                         |         | (d)                                                                                                      |  | (e)                          |  | (f)                      |  | (g)                                                                  |  | (h)                                                                          |  | (i)                                                                                                                   |        | (j)                                                                                                                                    | 
|Name              |  | Number of
 Securities
 Underlying
 Unexercised
 Options
 (#)
 Exercisable |  | Number of
 Securities
 Underlying
 Unexercised
 Options
 (#)
 Unexercisable |         | Equity
 Incentive
 Plan
 Awards:
 Number of
 Securities
 Underlying
 Unexercised
 Unearned
 Options
 (#) |  | Option
 Exercise
 Price
 ($) |  | Option
 Expiration
 Date |  | Number
 of
 Shares
 or Units
 of Stock
 that
 Have
 Not
 Vested
 (#) |  | Market
 Value of
 Shares or
 Units of
 Stock
 That Have
 Not
 Vested
 ($)(1) |  | Equity
 Incentive
 Plan
 Awards:
 Number
 of
 Unearned
 Shares,
 Units or
 other
 rights
 That Have
 Not
 Vested
 (#) |        | Equity
 Incentive
 Plan
 Awards:
 Market or
 Payout
 Value of
 Unearned
 Shares,
 Units or
 other
 Rights
 That Have
 Not
 Vested
 ($) | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|Vernon M. Endo    |  | 325,000                                                                   |  |                                                                             | 0       |                                                                                                          |  |                             |  | 10.71                    |  | 11/1/2013                                                            |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  | 75,835                                                                    |  |                                                                             | 75,836  |                                                                                                          |  |                             |  | 13.45                    |  | 5/2/2013                                                             |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  | 19,305                                                                    |  |                                                                             | 57,915  |                                                                                                          |  |                             |  | 16.20                    |  | 2/20/2014                                                            |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  |                                                                          |  |                                                                             |        |                                                                                                          |  |                             |  |                         |  |                                                                     |  | 9,607                                                                        |  |                                                                                                                       | 3,555  |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  |                                                                          |  |                                                                             | 300,000 |                                                                                                          |  |                             |  | 1.45                     |  | 3/5/2015                                                             |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|Edward U. Gilpin  |  |                                                                          |  |                                                                             | 50,000  |                                                                                                          |  |                             |  | 1.75                     |  | 1/28/2015                                                            |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  |                                                                          |  |                                                                             |        |                                                                                                          |  |                             |  |                         |  |                                                                     |  | 15,000                                                                       |  |                                                                                                                       | 5,550  |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  |                                                                          |  |                                                                             |        |                                                                                                          |  |                             |  |                         |  |                                                                     |  | 38,621                                                                       |  |                                                                                                                       | 14,290 |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|David K. Steel    |  | 112,125                                                                   |  |                                                                             | 37,375  |                                                                                                          |  |                             |  | 12.03                    |  | 6/30/2015                                                            |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  | 18,960                                                                    |  |                                                                             | 18,961  |                                                                                                          |  |                             |  | 13.45                    |  | 5/2/2013                                                             |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  | 12,495                                                                    |  |                                                                             | 37,487  |                                                                                                          |  |                             |  | 16.20                    |  | 2/20/2014                                                            |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  |                                                                          |  |                                                                             |        |                                                                                                          |  |                             |  |                         |  |                                                                     |  | 5,753                                                                        |  |                                                                                                                       | 2,129  |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  |                                                                          |  |                                                                             | 198,500 |                                                                                                          |  |                             |  | 1.45                     |  | 3/5/2015                                                             |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|James P. Gerry    |  | 46,585                                                                    |  |                                                                             | 46,586  |                                                                                                          |  |                             |  | 13.45                    |  | 5/2/2013                                                             |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  | 9,617                                                                     |  |                                                                             | 28,853  |                                                                                                          |  |                             |  | 16.20                    |  | 2/20/2014                                                            |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  |                                                                          |  |                                                                             |        |                                                                                                          |  |                             |  |                         |  |                                                                     |  | 4,915                                                                        |  |                                                                                                                       | 1,819  |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  |                                                                          |  |                                                                             | 158,000 |                                                                                                          |  |                             |  | 1.45                     |  | 3/5/2015                                                             |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|Victoria W. Guest |  | 27,300                                                                    |  |                                                                             | 18,200  |                                                                                                          |  |                             |  | 13.71                    |  | 1/16/2016                                                            |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  | 3,620                                                                     |  |                                                                             | 3,621   |                                                                                                          |  |                             |  | 13.45                    |  | 5/2/2013                                                             |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  | 4,773                                                                     |  |                                                                             | 14,321  |                                                                                                          |  |                             |  | 16.20                    |  | 2/20/2014                                                            |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  |                                                                          |  |                                                                             |        |                                                                                                          |  |                             |  |                         |  |                                                                     |  | 1,359                                                                        |  |                                                                                                                       | 503    |                                                                                                                                        |  |  |  |  | 
|                  |  |                                                                           |  |                                                                             |         |                                                                                                          |  |                              |  |                          |  |                                                                      |  |                                                                              |  |                                                                                                                       |        |                                                                                                                                        |  |   |  |   | 
|                  |  |                                                                          |  |                                                                             | 96,000  |                                                                                                          |  |                             |  | 1.45                     |  | 3/5/2015                                                             |  |                                                                             |  |                                                                                                                       |       |                                                                                                                                        |  |  |  |  | 

|    |                                                                     
|--- | --------------------------------------------------------------------
|(1) | Based on the closing price
 of $0.37 per share on December 31, 2008.

Options
granted prior to May 2006 were awarded under our 2001 Stock Option Plan and
vest in 5% increments at the end of each quarter, beginning with the quarter in
which the grant occurred. Our 2001 Stock Option Plan was terminated in May
2006, except as to awards that were already outstanding at that date. No
further awards will be granted under our 2001 Stock Option Plan.

Options
granted beginning in May 2006 were awarded under our 2006 Equity Plan,
described above under Grants of Plan Based Awards, and vest in four equal
installments on the first four anniversaries of the date of grant.

145

---



OPTIONS EXERCISES AND STOCK VESTED

|                  |  |                                          |  |                                 |  |                                         |  |                                |       |  | 
|----------------- |  | ---------------------------------------- |  | ------------------------------- |  | --------------------------------------- |  | ------------------------------ | ----- |  | 
|                  |  | Option Awards                            |  | Stock Awards                    | 
|                  |  |                                          |  |                                 | 
|(a)               |  | (b)                                      |  | (c)                             |  | (d)                                     |  | (e)(1)                         |      
|Name              |  | Number of SharesAcquired on Exercise (#) |  | Value Realized
 on Exercise ($) |  | Number of SharesAcquired on Vesting (#) |  | Value Realized
 on Vesting ($) |      
|                  |  |                                          |  |                                 |  |                                         |  |                                |      
|Vernon M. Endo    |  |                                         |  |                                |  | 3,202                                   |  |                                | 4,867 |  | 
|Edward U. Gilpin  |  |                                         |  |                                |  |                                        |  |                                |      |  | 
|David K. Steel    |  |                                         |  |                                |  | 1,917                                   |  |                                | 2,914 |  | 
|James P. Gerry    |  |                                         |  |                                |  | 1,638                                   |  |                                | 2,490 |  | 
|Victoria W. Guest |  |                                         |  |                                |  | 452                                     |  |                                | 687   |  | 

|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|(1) | Value based
 on the closing price of RAM Holdings common shares of $1.52 on February 20,
 2008.

Nonqualified Deferred Compensation

The
table below sets forth certain information with respect to the Supplemental
Retirement Plan, which provides for non-qualified deferred compensation, for
each named executive officer.

NONQUALIFIED DEFERRED COMPENSATION TABLE

|                  |  |                                             |  |                                              |        |                                        |  |                                           |   |                                     |   |  |           |  | 
|----------------- |  | ------------------------------------------- |  | -------------------------------------------- | ------ | -------------------------------------- |  | ----------------------------------------- | - | ----------------------------------- | - |  | --------- |  | 
|(a)               |  | (b)                                         |  | (c)                                          |        | (d)                                    |  | (e)                                       |   | (f)                                 |  
|Name              |  | Executive
 Contributions in
 Last FY ($)(1) |  | Registrant
 Contributions in
 Last FY ($)(2) |        | Aggregate
 Earnings in Last
 FY ($)(3) |  | Aggregate
 Withdrawals/
 Distributions($) |   | Aggregate
 Balance at Last
 FYE ($) |  
|                  |  |                                             |  |                                              |        |                                        |  |                                           |   |                                     |  
|Vernon M. Endo    |  | 125,000                                     |  |                                              | 70,188 |                                        |  | (606,191                                  | ) |                                     |  |  | 1,291,962 |  | 
|Edward U. Gilpin  |  |                                            |  |                                              | 32,038 |                                        |  | (7,564                                    | ) |                                     |  |  | 24,474    |  | 
|David K. Steel    |  | 19,500                                      |  |                                              | 52,606 |                                        |  | (93,679                                   | ) |                                     |  |  | 156,055   |  | 
|James P. Gerry    |  |                                            |  |                                              | 41,914 |                                        |  | (174,658                                  | ) |                                     |  |  | 293,828   |  | 
|Victoria W. Guest |  |                                            |  |                                              | 31,055 |                                        |  | (16,964                                   | ) |                                     |  |  | 73,513    |  | 

|    |                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Represents the portion of
the 2007 cash incentive compensation paid in 2008 voluntarily deferred by the
named executives under the Supplemental Retirement Plan.
|    |                                                                                                                                                                 
|(2) | Included in All Other
Compensation in the Summary Compensation Table. See note 5 to the Summary
Compensation Table.                                           
|    |                                                                                                                                                                 
|(3) | Not included in amounts
reported in the Summary Compensation Table because the amounts are not
preferential or above market.                                    

Under
our Supplemental Retirement Plan in which the named executive officers
participate, through 2008 we contributed an amount equal to 10% of a
participants annual salary and bonus to an account maintained for the participant
in which the participant is vested after one year of service. In addition, a
participant may elect to defer all or a portion of annual salary and bonus and
have the amounts so deferred deposited in the participants account. A
participant may elect to have the funds in the account invested in one or more
mutual fund investment options offered through Vanguard. Employees are eligible
to receive the balance in their accounts according to their distribution
election. An employees account balance is paid out following termination of
employment according to each employees payment election, either in
installments or a lump sum.

We
amended the Supplemental Retirement Plan for the named executive officers in
November 2008 to (i) comply with Section 409A of the Internal Revenue Code and
(ii) provide that no further contributions will be made by us after December
31, 2008. Under recently enacted Section 457A of the Internal Revenue Code,
there is doubt as to whether the named executives would be able to continue to
defer income tax on contributions to the Supplemental Retirement Plan in
respect of services rendered after December 31, 2008. Beginning January 1,
2009, we pay the 10% of base salary and annual cash bonus with respect to
services rendered by the named executives in cash instead of contributing it to
the Supplemental Retirement Plan. In addition, the Board of Directors of RAM
Holdings Ltd. approved permitting the named executives to make a change in
their payment elections under the 409A transition rules on or before December
31, 2008. See Note 13 to the Financial Statements included in this annual
report on Form 10-K.

Potential Payments Upon Termination or Change
in Control

We
have entered into employment, option and restricted share unit agreements, as
described above, that will require us to provide compensation to the named
executive officers in the event of certain termination of employment
circumstances, including termination of employment in connection with a change
in control. The amount of compensation payable to each named executive officer
in the event of termination of employment, assuming termination as of December
31, 2008, and a share price for RAM Holdings common shares equal to the closing
market price on that date, is set forth in the tables below. We are not
obligated to provide any compensation to the named executives in the case of a
change in control that does not result in termination of employment.

146

---



Following
the tables is an explanation of the relevant employment agreement provisions
and assumptions related to the named executives.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN
CONTROL TABLES

Vernon M. Endo,
President and Chief Executive Officer

|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|--------------------------------------------------------------- |  | --------------------------------------------------------------------- | - | ---------------------------------------------------- | -------- | ------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---------- | -------- | --------- |  | ------------------------------------- | ------- |  | -------- | ------- |  | -------- | ------- | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |        
|                                                                |  | A                                                                     |   | B                                                    |          | C                                                                                    |  | D                                                                                                                                                                                                     |           | E          |          | F         |  | G                                     |        
|Executive Benefits and Payments
 upon Termination of Employment |  | Voluntary
 Termination
 without Good
 Reason; For
 Cause
 Termination |   | Retirement
 after age
 55 with ten years of
 service |          | Involuntary
 Termination
 without Cause;
 Termination by
 Executive for Good
 Reason |  | Involuntary
 Termination
 without Cause in
 anticipation of, or
 Involuntary
 Termination
 without Cause or
 Voluntary
 Termination for
 Good Reason within
 one year following, a
 Change in Control |           | Disability |          | Death     |  | Expiration
 of
 Employment
 Agreement |        
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|Compensation:                                                   |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|Base Salary                                                     |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 800,000   |            | $        | 800,000   |  | $                                     | 100,000 |  | $        | 100,000 |  |          | 0       | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|Incentive Bonus                                                 |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 500,000   |            | $        | 500,000   |  | $                                     | 500,000 |  | $        | 500,000 |  | $        | 500,000 | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|Cost of Living Allowance                                        |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 54,000    |            | $        | 54,000    |  | $                                     | 54,000  |  | $        | 54,000  |  |          | 0       | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|Acceleration of vesting of Share Options and RSUs               |  |                                                                       | 0 |                                                      | $        | 3,555                                                                                |  | $                                                                                                                                                                                                     | 3,555     |            | $        | 3,555     |  | $                                     | 3,555   |  | $        | 3,555   |  | $        | 3,555   | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|Benefits:                                                       |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|Relocation Allowance                                            |  |                                                                       | 0 |                                                      | up
 to $ | 50,000                                                                               |  | up
 to $                                                                                                                                                                                              | 50,000    |            | up
 to $ | 50,000    |  | up
 to $                              | 50,000  |  | up
 to $ | 50,000  |  | up
 to $ | 50,000  | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|Health insurance                                                |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 35,140    |            | $        | 35,140    |  | $                                     | 17,570  |  | $        | 17,570  |  |          | 0       | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|Tax Gross-Up on payments                                        |  |                                                                       | 0 |                                                      | up
 to $ | 26,920                                                                               |  | up
 to $                                                                                                                                                                                              | 26,920    |            | up
 to $ | 26,920    |  | up
 to $                              | 26,920  |  | up
 to $ | 26,920  |  | up
 to $ | 26,920  | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 
|Total                                                           |  |                                                                       | 0 |                                                      | up
 to $ | 80,475                                                                               |  | up
 to $                                                                                                                                                                                              | 1,469,615 |            | up
 to $ | 1,469,615 |  | up
 to $                              | 752,045 |  | up
 to $ | 752,045 |  | up
 to $ | 580,475 | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |           |            |          |           |  |                                       |         |  |          |         |  |          |         | 

Edward U. Gilpin,
Chief Financial Officer

|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|--------------------------------------------------------------- |  | --------------------------------------------------------------------- | - | ---------------------------------------------------- | -------- | ------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ---------- | -------- | ------- |  | ------------------------------------- | ------- |  | -------- | ------- |  | -------- | ------- | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|                                                                |  | A                                                                     |   | B                                                    |          | C                                                                                    |  | D                                                                                                                                                                                                     |         | E          |          | F       |  | G                                     |        
|Executive Benefits and Payments
 upon Termination of Employment |  | Voluntary
 Termination
 without Good
 Reason; For
 Cause
 Termination |   | Retirement
 after age
 55 with ten years of
 service |          | Involuntary
 Termination
 without Cause;
 Termination by
 Executive for Good
 Reason |  | Involuntary
 Termination
 without Cause in
 anticipation of, or
 Involuntary
 Termination
 without Cause or
 Voluntary
 Termination for
 Good Reason within
 one year following, a
 Change in Control |         | Disability |          | Death   |  | Expiration
 of
 Employment
 Agreement |        
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Compensation:                                                   |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Base Salary                                                     |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 350,000 |            | $        | 350,000 |  | $                                     | 87,500  |  | $        | 87,500  |  |          | 0       | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Incentive Bonus                                                 |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 385,000 |            | $        | 385,000 |  | $                                     | 385,000 |  | $        | 385,000 |  | $        | 385,000 | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Cost of Living Allowance                                        |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 42,000  |            | $        | 42,000  |  | $                                     | 42,000  |  | $        | 42,000  |  |          | 0       | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Acceleration of vesting of Share Options and RSUs               |  |                                                                       | 0 |                                                      | $        | 19,840                                                                               |  | $                                                                                                                                                                                                     | 19,840  |            | $        | 19,840  |  | $                                     | 19,840  |  | $        | 19,840  |  | $        | 19,840  | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Benefits:                                                       |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Relocation Allowance                                            |  |                                                                       | 0 |                                                      | up
 to $ | 50,000                                                                               |  | up
 to $                                                                                                                                                                                              | 50,000  |            | up
 to $ | 50,000  |  | up
 to $                              | 50,000  |  | up
 to $ | 50,000  |  | up
 to $ | 50,000  | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Health insurance                                                |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 17,570  |            | $        | 17,570  |  | $                                     | 17,570  |  | $        | 17,570  |  |          | 0       | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Tax Gross-Up on payments                                        |  |                                                                       | 0 |                                                      | up
 to $ | 26,920                                                                               |  | up
 to $                                                                                                                                                                                              | 26,920  |            | up
 to $ | 26,920  |  | up
 to $                              | 26,920  |  | up
 to $ | 26,920  |  | up
 to $ | 26,920  | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Total                                                           |  |                                                                       | 0 |                                                      | up
 to $ | 96,760                                                                               |  | up
 to $                                                                                                                                                                                              | 891,330 |            | up
 to $ | 891,330 |  | up
 to $                              | 628,830 |  | up
 to $ | 628,830 |  | up
 to $ | 481,760 | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 

147

---



David K. Steel, Chief
Risk Manager

|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|--------------------------------------------------------------- |  | --------------------------------------------------------------------- | - | ---------------------------------------------------- | -------- | ------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ---------- | -------- | ------- |  | ------------------------------------- | ------- |  | -------- | ------- |  | -------- | ------- | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |        
|                                                                |  | A                                                                     |   | B                                                    |          | C                                                                                    |  | D                                                                                                                                                                                                     |         | E          |          | F       |  | G                                     |        
|Executive Benefits and Payments
 upon Termination of Employment |  | Voluntary
 Termination
 without Good
 Reason; For
 Cause
 Termination |   | Retirement
 after age
 55 with ten years of
 service |          | Involuntary
 Termination
 without Cause;
 Termination by
 Executive for Good
 Reason |  | Involuntary
 Termination
 without Cause in
 anticipation of, or
 Involuntary
 Termination
 without Cause or
 Voluntary
 Termination for
 Good Reason within
 one year following, a
 Change in Control |         | Disability |          | Death   |  | Expiration
 of
 Employment
 Agreement |        
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Compensation:                                                   |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Base Salary                                                     |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 300,000 |            | $        | 300,000 |  | $                                     | 75,000  |  | $        | 75,000  |  |          | 0       | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Incentive Bonus                                                 |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 300,000 |            | $        | 300,000 |  | $                                     | 300,000 |  | $        | 300,000 |  | $        | 300,000 | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Cost of Living Allowance                                        |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 30,000  |            | $        | 30,000  |  | $                                     | 30,000  |  | $        | 30,000  |  |          | 0       | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Acceleration of vesting of Share Options and RSUs               |  |                                                                       | 0 |                                                      | $        | 2,129                                                                                |  | $                                                                                                                                                                                                     | 2,129   |            | $        | 2,129   |  | $                                     | 2,129   |  | $        | 2,129   |  | $        | 2,129   | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Benefits:                                                       |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Relocation Allowance                                            |  |                                                                       | 0 |                                                      | up
 to $ | 50,000                                                                               |  | up
 to $                                                                                                                                                                                              | 50,000  |            | up
 to $ | 50,000  |  | up
 to $                              | 50,000  |  | up
 to $ | 50,000  |  | up
 to $ | 50,000  | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Health insurance                                                |  |                                                                       | 0 |                                                      |          | 0                                                                                    |  | $                                                                                                                                                                                                     | 17,570  |            | $        | 17,570  |  | $                                     | 17,570  |  | $        | 17,570  |  |          | 0       | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Tax Gross-Up on payments                                        |  |                                                                       | 0 |                                                      | up
 to $ | 26,920                                                                               |  | up
 to $                                                                                                                                                                                              | 26,920  |            | up
 to $ | 26,920  |  | up
 to $                              | 26,920  |  | up
 to $ | 26,920  |  | up
 to $ | 26,920  | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 
|Total                                                           |  |                                                                       | 0 |                                                      | up
 to $ | 79,049                                                                               |  | up
 to $                                                                                                                                                                                              | 726,619 |            | up
 to $ | 726,619 |  | up
 to $                              | 501,619 |  | up
 to $ | 501,619 |  | up
 to $ | 379,049 | 
|                                                                |  |                                                                       |   |                                                      |          |                                                                                      |  |                                                                                                                                                                                                       |         |            |          |         |  |                                       |         |  |          |         |  |          |         | 

James P. Gerry,
Managing Director

|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|---------------------------------------------------------------- |  | --------------------------------------------------------------------- | ------ | --------------------------------------------------- | -------- | ------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ---------- | -------- | ------- |  | ------------------------------------ | ------- |  | -------- | ------- |  | -------- | ------- | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |        
|                                                                 |  | A                                                                     |        | B                                                   |          | C                                                                                    |  | D                                                                                                                                                                                                   |         | E          |          | F       |  | G                                    |        
|Executive
 Benefits and Payments
 upon Termination of Employment |  | Voluntary
 Termination
 without Good
 Reason; For
 Cause
 Termination |        | Retirement after
 age 55 with ten
 years of service |          | Involuntary
 Termination
 without Cause;
 Termination by
 Executive for
 Good Reason |  | Involuntary
 Termination without
 Cause in anticipation
 of, or Involuntary
 Termination without
 cause or voluntary
 Termination for
 Good Reason within
 one year following, a
 Change in Control |         | Disability |          | Death   |  | Expiration of
 Employment
 Agreement |        
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Compensation:                                                    |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Base Salary                                                      |  |                                                                       | 0      |                                                     |          | 0                                                                                    |  | $                                                                                                                                                                                                   | 260,000 |            | $        | 260,000 |  | $                                    | 65,000  |  | $        | 65,000  |  |          | 0       | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Incentive Bonus                                                  |  |                                                                       | 0      |                                                     |          | 0                                                                                    |  | $                                                                                                                                                                                                   | 260,000 |            | $        | 260,000 |  | $                                    | 260,000 |  | $        | 260,000 |  | $        | 260,000 | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Cost of Living Allowance                                         |  |                                                                       | 0      |                                                     |          | 0                                                                                    |  | $                                                                                                                                                                                                   | 30,000  |            | $        | 30,000  |  | $                                    | 30,000  |  | $        | 30,000  |  |          | 0       | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Acceleration of
 vesting of Share Options and RSUs               |  |                                                                       | 0      |                                                     | $        | 1,819                                                                                |  | $                                                                                                                                                                                                   | 1,819   |            | $        | 1,819   |  | $                                    | 1,819   |  | $        | 1,819   |  | $        | 1,819   | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Benefits:                                                        |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Relocation Allowance                                             |  |                                                                       | 0      |                                                     | up to $  | 50,000                                                                               |  | up to $                                                                                                                                                                                             | 50,000  |            | up to $  | 50,000  |  | up to $                              | 50,000  |  | up to $  | 50,000  |  | up to $  | 50,000  | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Health Insurance                                                 |  |                                                                       | 0      |                                                     |          | 0                                                                                    |  | $                                                                                                                                                                                                   | 11,702  |            | $        | 11,702  |  | $                                    | 11,702  |  | $        | 11,702  |  |          | 0       | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Tax Gross-Up on Payments                                         |  |                                                                       | 0      |                                                     | up
 to $ | 26,920                                                                               |  | up
 to $                                                                                                                                                                                            | 26,920  |            | up
 to $ | 26,920  |  | up
 to $                             | 26,920  |  | up
 to $ | 26,920  |  | up
 to $ | 26,920  | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Share Repurchase                                                 |  | $                                                                     | 46,904 |                                                     | $        | 46,904                                                                               |  | $                                                                                                                                                                                                   | 46,904  |            | $        | 46,904  |  | $                                    | 46,904  |  | $        | 46,904  |  | $        | 46,904  | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 
|Total                                                            |  | $                                                                     | 46,904 |                                                     | up to $  | 125,643                                                                              |  | up to $                                                                                                                                                                                             | 687,345 |            | up to $  | 687,345 |  | up to $                              | 492,345 |  | up to $  | 492,345 |  | up to $  | 385,643 | 
|                                                                 |  |                                                                       |        |                                                     |          |                                                                                      |  |                                                                                                                                                                                                     |         |            |          |         |  |                                      |         |  |          |         |  |          |         | 

Victoria W. Guest,
General Counsel

|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|---------------------------------------------------------------- |  | --------------------------------------------------------------------- | - | --------------------------------------------------- | ------- | ------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ---------- | ------- | ------- |  | -------------------------------------- | ------- |  | ------- | ------- |  | ------- | ------- | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|                                                                 |  | A                                                                     |   | B                                                   |         | C                                                                                    |  | D                                                                                                                                                                                                   |         | E          |         | F       |  | G                                      |        
|Executive
 Benefits and Payments
 upon Termination of Employment |  | Voluntary
 Termination
 without Good
 Reason; For
 Cause
 Termination |   | Retirement after
 age 55 with ten
 years of service |         | Involuntary
 Termination
 without Cause;
 Termination by
 Executive for
 Good Reason |  | Involuntary
 Termination without
 Cause in anticipation
 of, or Involuntary
 Termination without
 Cause or Voluntary
 Termination for
 Good Reason within
 one year following, a
 Change in Control |         | Disability |         | Death   |  | Expiration of 
 Employment 
 Agreement |        
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|Compensation:                                                    |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|Base Salary                                                      |  |                                                                       | 0 |                                                     |         | 0                                                                                    |  | $                                                                                                                                                                                                   | 240,000 |            | $       | 240,000 |  | $                                      | 60,000  |  | $       | 60,000  |  |         | 0       | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|Incentive Bonus                                                  |  |                                                                       | 0 |                                                     |         | 0                                                                                    |  | $                                                                                                                                                                                                   | 96,000  |            | $       | 96,000  |  | $                                      | 96,000  |  | $       | 96,000  |  | $       | 96,000  | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|Cost of Living Allowance                                         |  |                                                                       | 0 |                                                     |         | 0                                                                                    |  | $                                                                                                                                                                                                   | 30,000  |            | $       | 30,000  |  | $                                      | 30,000  |  | $       | 30,000  |  |         | 0       | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|Acceleration of
 vesting of Share Options and RSUs               |  |                                                                       | 0 |                                                     | $       | 503                                                                                  |  | $                                                                                                                                                                                                   | 503     |            | $       | 503     |  | $                                      | 503     |  | $       | 503     |  | $       | 503     | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|Benefits:                                                        |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|Relocation Allowance                                             |  |                                                                       | 0 |                                                     | up to $ | 50,000                                                                               |  | up to $                                                                                                                                                                                             | 50,000  |            | up to $ | 50,000  |  | up to $                                | 50,000  |  | up to $ | 50,000  |  | up to $ | 50,000  | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|Health insurance                                                 |  |                                                                       | 0 |                                                     |         | 0                                                                                    |  | $                                                                                                                                                                                                   | 17,570  |            | $       | 17,570  |  | $                                      | 17,570  |  | $       | 17,570  |  |         | 0       | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|Tax Gross-Up on payments                                         |  |                                                                       | 0 |                                                     | up to $ | 26,920                                                                               |  | up to $                                                                                                                                                                                             | 26,920  |            | up to $ | 26,920  |  | up to $                                | 26,920  |  | up to $ | 26,920  |  | up to $ | 26,920  | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 
|Total                                                            |  |                                                                       | 0 |                                                     | up to $ | 77,423                                                                               |  | up to $                                                                                                                                                                                             | 460,993 |            | up to $ | 460,993 |  | up to $                                | 280,993 |  | up to $ | 280,993 |  | up to $ | 173,423 | 
|                                                                 |  |                                                                       |   |                                                     |         |                                                                                      |  |                                                                                                                                                                                                     |         |            |         |         |  |                                        |         |  |         |         |  |         |         | 

148

---



Termination
Date and Share Price

The
assumed date of termination of employment (whether resulting from a Change in
Control or otherwise) is December 31, 2008. The assumed price of our common
shares is $0.37, the closing price on the Nasdaq Global Market on December 31,
2008, the last trading day of 2008.

Salary

All
of the named executives, other than Mr. Endo, are entitled to one year of base
salary upon termination of employment under the involuntary termination without
Cause and termination for Good Reason circumstances set forth in columns C and
D of each table, above. The base salary would be paid by us over the one year
period in accordance with regular payroll practices. Although the named
executives have no duty to seek other employment, if they become employed
during the one year period, the amount of the severance payment will be
correspondingly reduced. Mr. Endo is entitled to two years of base salary under
the circumstances set forth in columns C and D, above, and on the same terms as
the other named executives, except that he has a duty to seek other employment
during the second year. The base salary payments are in consideration of a
non-compete agreement for a period of one year.

In
the case of permanent Disability (column E of each table), the named executives
are entitled to continue to receive base salary in accordance with regular
payroll practices until payments begin under our long term disability policy.
Based on the terms of our long term disability policy, we have assumed that
payments under the policy begin three months after the date of termination of
employment.

In
the case of death (column F of each table), the estate or beneficiaries of the
named executive officers are entitled to three months of base salary upon
termination of employment, paid in accordance with regular payroll practices.

Incentive
Bonus

In
the case of the circumstances set forth columns C  G of each table, above, the
named executives are entitled to receive (i) the bonus for the prior year (2007
in this case), if not yet paid and (ii) a bonus for the current year (2008 in
this case) based on the target bonus (pro-rated for the amount of time actually
worked in the current year in the case of the circumstances listed in columns
E, F and G, above). If termination of employment had occurred at December 31,
2008, the named executives would have already been paid their 2007 bonuses and
would be fully entitled to their 2008 bonuses, which would ordinarily be paid
in early 2009.

Cost
of Living Allowance

In
the case of the circumstances set forth in columns C  F of each table, above,
the named executives are entitled to receive three months of Cost of Living
Allowance, payable in accordance with normal payroll practices.

Accelerated
Vesting of Share Options and Restricted Share Units

In
the case of the circumstances set forth in columns B, D, E and F of each table,
above, all of the unvested options and restricted share units granted as part of
the annual incentive award would vest upon termination of employment. In
addition, in the case of the circumstances stated in column C and G, all
restricted share units granted as part of the annual incentive award for 2006
would vest. No amount is recorded in the tables as a result of the accelerated
vesting of the options because all of the options had an exercise price above
$0.37 at December 31, 2008. The RSUs are valued using the closing price per
share of $0.37 at December 31, 2008.

Relocation
Allowance

In
all circumstances other than termination for Cause or voluntary termination
without Good Reason (column A), the named executives are entitled to
reimbursement of up to $50,000 for the costs and expenses of relocating back to
the U.S..

Health
Insurance

In
the case of the circumstances set forth in columns C  F of each table, above,
the named executives and their dependants are entitled to three months of
post-termination continued coverage under our health insurance and monthly
payments for nine months thereafter (or 21 months thereafter in the case of Mr.
Endo) of an amount equal to the premium paid by the company for the named
executives health insurance.

Tax
Gross-Up

In
any of the circumstances where relocation expenses are reimbursed, the Company
pays a tax gross up payment so that the net amount retained or benefit received
by the named executive after payment of U.S. Federal, state and local income
and employment taxes and Bermuda payroll taxes (assuming for purposes of
calculating such taxes that the named executive is in the respective highest
tax brackets) is equal to the agreed amount to be reimbursed. The tax gross up
has been estimated assuming that the full relocation allowance of up to $50,000
is paid to the named executives.

149

---



Share
Repurchase

If
Mr. Gerrys employment agreement is terminated for any reason, Mr. Gerry may
require us to purchase from him 13,000 shares, which he purchased from us in
1998, for an aggregate purchase price equal to 110% of the book value per
common share as of the last day of the calendar quarter ending coincident with
or immediately preceding the effective date of termination of employment. At
December 31, 2008, the book value per common share was $3.28 and therefore Mr.
Gerry could have required us to purchase his 13,000 shares for $46,904.

Amounts not Included

The
amounts shown in the tables above do not include payments to the extent they
are provided on a non-discriminatory basis to salaried employees generally upon
termination of employment. These include:

| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | Accrued
  salary and vacation pay                                                                                                 
| |   |                                                                                                                                   
| |  | Distributions
  of plan balances under the Supplemental Retirement Plan, as described above
  under Supplemental Retirement Plan
| |   |                                                                                                                                   
| |  | Disability
  insurance payments in the case of Disability                                                                         
| |   |                                                                                                                                   
| |  | Life
  insurance payments in the case of death                                                                                    

Definitions

For purposes
of the above tables, the termination of employment terms have the following
meanings:

Cause
means: (i) the executives commission of any felony; (ii) the executives gross
negligence, willful malfeasance or gross misconduct in connection with his or
her employment; (iii) a substantial and continual refusal by the executive to
perform the duties, responsibilities or obligations assigned to the executive
under his or her employment agreement; (iv) the executives failure to fully
cooperate with a regulatory investigation involving us; or (v) any one or more
acts by the executive of dishonesty, theft, larceny, embezzlement or fraud from
or with respect to us. By way of example, termination from employment
necessitated by the executives inability to maintain a valid work permit from
the applicable Bermuda governmental authorities after the executive has used
his or her best efforts to maintain such permit or in connection with a Change
in Control does not constitute termination for Cause.

Change
in Control means: (i) the acquisition by any person, entity or group,
other than by The PMI Group, Inc., of fifty percent (50%) or more of the
combined voting power of our outstanding voting securities; (ii) the merger,
amalgamation, reorganization, or consolidation of, or share exchange involving
us, as a result of which our shareholders immediately before such transaction
do not, immediately thereafter, own, directly or indirectly, more than fifty
percent (50%) of the combined voting power entitled to vote generally in the
election of directors of the merged or consolidated company; (iii) a sale of
all or substantially all of our assets; and (iv) approval by us of the
liquidation or dissolution of the company.

Disability
means disability as defined in our disability plan or policy covering long-term
disability benefits.

Good
Reason means: (i) a reduction in the executives base salary, cost of
living allowance or target bonus opportunity, (ii) our removal of the executive
from his or her position, (iii) a material breach of the employment agreement
by us, (iv) a material diminution in the executives duties or the assignment
to the executive of duties that are not materially consistent with those
customarily assigned to the position held by the executive of a company of our
size and nature which do, or would be reasonably expected to, materially impair
his or her ability to function in his or her position, (v) a relocation of the
corporate headquarters away from Bermuda, (vi) the refusal of a purchaser of
all or substantially all of our assets to continue the executives employment
with substantially the same position, title and responsibilities and at least
the same compensation, or (vii) the executives inability to maintain a valid
work permit from the applicable Bermuda governmental authorities after the
executive has used his or her best efforts to maintain the permit.

150

---



|         |                                                                          
|-------- | -------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
  Owners, Officers and Directors

The
following table sets forth information as of December 31, 2008 with respect to
the beneficial ownership, as defined in Rule 13(d) under the Exchange Act, of
our common shares and the applicable voting rights attached to such share
ownership in accordance with our bye-laws by (i) each person known by us to
beneficially own, as defined in Rule 13d-3 under the Exchange Act, 5% or more
of our issued and outstanding common shares; (ii) each director and nominee for
director; (iii) each named executive officer; and (iv) all named executive
officers, directors and nominee directors as a group. As of December 31, 2008,
there were 27,251,595 common shares issued and outstanding. For purposes of the
following table and the footnotes thereto, the term currently exercisable
means exercisable as of December 31, 2008 or within 60 days following such
date.

|                                                                                |  |                                              |  |                        | 
|------------------------------------------------------------------------------- |  | -------------------------------------------- |  | ---------------------- | 
|                                                                                |  | Beneficial Ownership as of
December 31, 2008
|                                                                                |  |                                             
|Name and Address of Beneficial Owner (1)                                        |  | Number of 
Common
Shares                     |  | Percent ofClass (%)(2)
|                                                                                |  |                                              |  |                       
|5% Shareholders                                                                 |  |                                              |  |                        | 
|PMI Mortgage
  Insurance Co.(3)                                                 |  | 6,453,395                                    |  | 23.0                   | 
|Wellington
  Management Company, LLP(4)                                         |  | 2,336,728                                    |  | 8.3                    | 
|High Ridge
  Capital Partners Limited Partnership(5)                            |  | 2,453,048                                    |  | 8.7                    | 
|Bank of
  America(6)                                                            |  | 1,881,951                                    |  | 6.7                    | 
|Non-Employee Directors                                                          |  |                                              |  |                        | 
|Edward F.
  Bader(7)                                                            |  | 20,200                                       |  | *                      | 
|David L.
  Boyle(8)                                                             |  | 27,100                                       |  | *                      | 
|Allan S.
  Bufferd(9)                                                           |  | 12,800                                       |  | *                      | 
|Joseph M.
  Donovan(10)                                                         |  | 18,250                                       |  | *                      | 
|Michael J.
  Normile                                                            |  | 0                                            |  | *                      | 
|Lloyd A.
  Porter                                                               |  | 0                                            |  | *                      | 
|Steven J.
  Tynan(11)                                                           |  | 2,903,048                                    |  | 10.3                   | 
|Conrad P.
  Voldstad(12)                                                        |  | 648,288                                      |  | 2.3                    | 
|Named Executive Officers                                                        |  |                                              |  |                        | 
|Vernon M.
  Endo(13)                                                            |  | 552,516                                      |  | 2.0                    | 
|James P.
  Gerry(14)                                                            |  | 106,983                                      |  | *                      | 
|Edward U.
  Gilpin(15)                                                          |  | 16,250                                       |  | *                      | 
|Victoria W.
  Guest(16)                                                         |  | 49,559                                       |  | *                      | 
|David K.
  Steel(17)                                                            |  | 174,947                                      |  | *                      | 
|Paul C.
  Wollmann(18)                                                          |  | 19,613                                       |  | *                      | 
|All directors, nominees and named executive
  officers, as a group (16 persons) |  | 4,557,804                                    |  | 16.2                   | 
|                                                                                |  |                                              |  |                        | 
|                                                                                |  |                                              |  |                        | 
|*          Less than 1%                                                         |  |                                              |  |                        | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Unless
  otherwise stated, the address for each beneficial owner is c/o RAM Holdings
  Ltd., RAM Re House, 46 Reid Street, Hamilton HM 12, Bermuda.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(2) | Computed on
  the basis of 27,251,595 shares outstanding as of December 31, 2008, plus
  822,191 shares subject to options exercisable within 60 days thereafter and
  restricted share units vested within 60 days thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(3) | The address
  of the beneficial owner is PMI Plaza, 3003 Oak Road, Walnut Creek, California
  94597.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(4) | The address
  of the beneficial owner is 75 State Street, Boston, Massachusetts, 02109.
  Based solely on the Schedule 13G filed with the Securities and Exchange
  Commission by Wellington Management Company, LLP on February 17, 2009, which
  reported that Wellington Management, in its capacity as investment advisor,
  has shared voting power with respect to 1,516,828 common shares of RAM
  Holdings and shared dispositive power with respect to 2,336,728 common shares
  of RAM Holdings and therefore may be deemed to beneficially own 2,336,728 common
  shares of RAM Holdings, which are held of record by clients of Wellington
  Management. Those clients of Wellington Management have the right to receive,
  or the power to direct the receipt of, dividends from, or the proceeds from
  the sale of, such securities. No such client is known by Wellington
  Management to have such right or power with respect to more than five percent
  of the common shares of RAM Holdings.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(5) | The address
  of the beneficial owner is 672 Oenoke Ridge, New Canaan, Connecticut 06840
  for Mr. James L. Zech and 152 Harbor Road, Rye, New Hampshire 03870 for Mr.
  Steven J. Tynan. Based solely on the Schedule 13G filed with the Securities
  and Exchange Commission by High Ridge Capital Partners Limited Partnership
  and its affiliates on January 28, 2009, which reported voting and dispositive
  power as follows: 2,453,048 common shares of RAM Holdings Ltd. are
  beneficially owned directly by High Ridge                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

151

---



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | Capital
  Partners Limited Partnership. The general partner of High Ridge Capital
  Partners Limited Partnership is HRC General Partner Limited Partnership, the
  general partner of which is High Ridge Capital LLC. Steven J. Tynan and James
  L. Zech are the managers of High Ridge Capital LLC. Accordingly, HRC General
  Partner Limited Partnership, High Ridge Capital LLC, Steven J. Tynan and
  James L. Zech can be deemed to share voting and dispositive power over the
  common shares of RAM Holdings Ltd. beneficially owned directly by High Ridge
  Capital Partners Limited Partnership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(6)  | The address
  of the beneficial owner is 100 North Tryon Street, Floor 25, Bank of America
  Corporate Center, Charlotte, North Carolina 28255. Based solely on the
  Schedule 13G filed with the Securities and Exchange Commission by Bank of
  America and its affiliates on February 12, 2009, which reported voting and
  dispositive power as follows: Bank of America Corporation and NB Holdings
  Corporation have shared voting power as to 1,797,979 common shares of RAM
  Holdings and shared dispositive power with respect to 1,881,951 common shares
  of RAM Holdings; BAC North America Holding Company and BANA Holding
  Corporation have shared voting power as to 1,797,173 common shares of RAM
  Holdings and shared dispositive power with respect to 1,881,145 common shares
  of RAM Holdings; Bank of America, NA has sole voting power as to 90 common
  shares of RAM Holdings, shared voting power as to 1,797,083 common shares of
  RAM Holdings, sole dispositive power as to 90 common shares of RAM Holdings,
  and shared dispositive power with respect to 1,881,055 common shares of RAM
  Holdings; Columbia Management Group, LLC has shared voting power as to
  1,797,083 common shares of RAM Holdings and shared dispositive power with
  respect to 1,881,055 common shares of RAM Holdings; Columbia Management
  Advisors, LLC has sole voting power with respect to 1,797,083 common shares
  of RAM Holdings, sole dispositive power with respect to 1,865,938 common
  shares of RAM Holdings and shared dispositive power with respect to 15,117
  common shares of RAM Holdings; and Bank of America Securities Holding
  Corporation and Banc of America Securities LLC have shared voting power as to
  806 common shares of RAM Holdings and shared dispositive power with respect
  to 806 common shares of RAM Holdings.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(7)  | Consists of
  2,000 common shares and options exercisable for 18,200 common shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(8)  | Consists of
  11,500 common shares and options exercisable for 15,600 common shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(9)  | Consists of
  5,000 common shares and options exercisable for 7,800 common shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(10) | Consists of
  15,000 common shares and options exercisable for 3,250 common shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(11) | Consists of
  2,453,048 beneficially owned by High Ridge Capital Partners Limited
  Partnership (see note 5, above), 100,000 shares beneficially owned by Liberty
  Street Partners L.P. and 350,000 common shares beneficially owned directly by
  Steven J. Tynan. The general partner of Liberty Street Partners L.P. is
  Liberty Street Corp. Steven J. Tynan owns an equity interest in Liberty
  Street Corp. Accordingly, Liberty Street Corp. and Steven J. Tynan can be
  deemed to share voting and dispositive power over the common shares of RAM
  Holdings Ltd. beneficially owned by Liberty Street Partners L.P. Mr. Tynan
  disclaims beneficial ownership of any of the common shares owned by Liberty
  Street Partners L.P. other than to the extent of his pecuniary interest
  therein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(12) | Consists of
  640,488 common shares and options exercisable for 7,800 common shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(13) | Consists of
  109,909 common shares, options exercisable for 442,647 common shares and
  3,202 restricted share units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(14) | Consists of
  39,525 common shares, options exercisable for 65,820 common shares and 1,638
  restricted share units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(15) | Consists of
  options exercisable for 12,500 common shares and 3,750 restricted share
  units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(16) | Consists of
  8,640 common shares, options exercisable for 40,467 common shares and 452
  restricted share units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(17) | Consists of
  16,953 common shares, options exercisable for 156,077 common shares and 1,917
  restricted share units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(18) | Consists of
  4,000 common shares and options exercisable for 15,613 common shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

152

---



Equity Compensation Plan Information

The
following table provides information about securities authorized for issuance
under our equity compensation plans as of December 31, 2008:

|                                                            |  |                                                                                                     |     |                                                                                     |  |                                                                                                                                                     |      |     |  |         |     | 
|----------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- | --- | ----------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --- |  | ------- | --- | 
|Plan
 category                                              |  | Number of securities to be
 issued upon exercise of
 outstanding options, warrants
 and rights
 (a) |     | Weighted average
 exercise price of
 outstanding options,
 warrants and rights
 (b) |  | Number of securities remaining
 available for future issuance under
 equity compensation plans (excluding
 securities reflected in column (a))
 (c) |     
|                                                            |  |                                                                                                     |     |                                                                                     |  |                                                                                                                                                     |     
|Equity compensation plans approved by
 security holders (1) |  | 2,256,123                                                                                           | (2) |                                                                                     |  | $                                                                                                                                                   | 7.59 | (3) |  | 761,236 | (4) | 
|Equity compensation plans not approved by
 security holders |  | N/A                                                                                                 |     |                                                                                     |  |                                                                                                                                                     | N/A  |     |  | N/A     |     | 
|Total                                                       |  | 2,256,123                                                                                           |     |                                                                                     |  |                                                                                                                                                     |      |     |  | 761,236 |     | 
|                                                            |  |                                                                                                     |     |                                                                                     |  |                                                                                                                                                     |      |     |  |         |     | 

|    |                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of
 the following equity compensation plans: the 2001 Stock Option Plan and the
 2006 Equity Plan.                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                        
|(2) | Consists of
 (i) 1,552,297 shares subject to outstanding share options and 139,626 shares
 subject to unvested restricted share units under the 2006 Equity Plan and
 (ii) 564,200 share subject to outstanding share options under the 2001 Stock
 Option Plan.                       
|    |                                                                                                                                                                                                                                                                                        
|(3) | Excludes
 139,626 shares issuable under unvested restricted share units.                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                        
|(4) | Consists of
 2,470,000 shares available for issuance under the 2006 Equity Plan to our
 officers, directors, and employees, excluding those restricted stock units
 already vested. The 2001 Stock Option Plan has been terminated and no further
 grants will be made under that plan.

|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions.

We
describe below transactions we have entered into with parties that are related
to us.

Relationships
with Related Parties

In
December 2003, our shareholder, PMI and our former shareholder, CIVC Partners,
became investors in FGIC Corporation, an insurance holding company whose
subsidiary FGIC was one of the four largest U.S. based primary financial
guaranty insurance companies. In the ordinary course of business prior to 2008,
we have entered into facultative reinsurance agreements with FGIC. Effective
March 1, 2007, we entered into a quota share reinsurance treaty agreement with
FGIC which terminated effective February 28, 2008. In 2008 and 2007, gross
written premiums ceded from FGIC accounted for 7% and 26% of total assumed
premiums written by us (including premiums on credit derivative polices and
before return of premiums on commutations). There were no amounts due from FGIC
as of December 31, 2008 or 2007. Effective December 1, 2008, RAM settled
disputes with FGIC under certain reinsurance agreements for a payment of $3.1
million. Please see Security Ownership of Certain Beneficial Owners, Officers
and Directors for details respecting PMIs ownership of our company.

Banc
of America Securities LLC may be deemed a related party of RAM Holdings because
Banc of America may be deemed a beneficial owner of more than 5% of the common
shares of RAM Holdings, as disclosed in a 13G filing by Bank of America on
February 12, 2009. Please see Security Ownership of Certain Beneficial Owners,
Officers and Directors, above. In June of 2007, Banc of America Securities
acted as the underwriter for a secondary offering of our common shares.
Although RAM Holdings was responsible for the expenses of the offering, other
than underwriting discounts and commissions, Banc of America Securities agreed
to bear $50,000 of its expenses and as a result the net amount RAM Holdings
paid to Banc of America Securities was $2,669 of road show expenses. In
December 2007, at which time RAM Holdings believed that Bank of America was not
a related party based on the most recent public filings, RAM Holdings engaged
Banc of America Securities to provide advisory services in connection with a
review of capital structure alternatives. In that engagement agreement, which
was subsequently ratified by the Audit Committee, RAM Holdings agreed to
reimburse Banc of America Securities for certain expenses and to engage Banc of
America Securities on customary terms in connection with any financing as the
placement agent, sole-book running, lead underwriter or equivalent. No amounts
were paid to Banc of America Securities in 2007 under the engagement agreement.
RAM Holdings paid $100,000 to Banc of America Securities in 2008 for advisory
services under the engagement agreement and terminated the engagement agreement
effective July 31, 2008.

153

---



Review,
Approval or Ratification of Transactions with Related Persons

Our
Board of Directors has adopted a written policy with respect to the review and
approval of related party transactions. Under this policy, any Related Party
Transaction will be consummated or will continue only if a committee of
independent directors approves or ratifies the subject transaction in
accordance with the guidelines set forth in this policy.

For
these purposes, a Related Party is:

| |    |                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | an officer
 or director of RAM Holdings;                                                                                                                           
| |    |                                                                                                                                                                    
| | 2. | a
 shareholder owning in excess of five percent of RAM Holdings;                                                                                                   
| |    |                                                                                                                                                                    
| | 3. | a person who
 is an immediate family member of an officer or director of RAM Holdings; or                                                                          
| |    |                                                                                                                                                                    
| | 4. | an entity
 which is controlled by someone listed in 1, 2 or 3 above, or an entity in
 which someone listed in 1, 2 or 3 above has a substantial ownership interest.

For
these purposes, a Related Party Transaction is a transaction between RAM
Holdings and any Related Party (including any transactions requiring disclosure
under Item 404 of Regulation S-K under the U.S. Securities Exchange Act of
1934, which we refer to as the Exchange Act), other than:

| |    |                                                                                          
| | -- | -----------------------------------------------------------------------------------------
| | 1. | transactions
 available to all employees generally; or                                   
| |    |                                                                                          
| | 2. | transactions
 involving less than $120,000 when aggregated with all similar transactions.

Related
Party Transactions are reviewed by a committee of independent directors of the
Company, which we refer to as the Reviewing Committee. The Reviewing
Committee is determined by the Chairmen of the standing committees in
consultation with the General Counsel based on whether the subject matter of
the transaction is one which would ordinarily be reviewed by that committee in
accordance with its Charter. For example, the Risk Management Committee will
review Related Party Transactions related to the Companys customers or
investment portfolio. In case of any Related Party Transaction that is not of
the type ordinarily reviewed by the Risk Management Committee, the Nominating
and Corporate Governance Committee, or the Compensation Committee, the Related
Party Transaction is reviewed by the Audit Committee. No member of a Reviewing
Committee participates in any review, consideration or approval of any Related
Party Transaction with respect to which such member or any of his immediate
family members is the related party.

At any regularly scheduled meeting of the
applicable Reviewing Committee, management submits for approval or ratification
the proposed Related Party Transaction, including any information that the
Reviewing Committee requests in connection with its review. The Reviewing
Committee will consider such information as it deems relevant to determine
whether the Related Party Transaction is, or is not, inconsistent with the best
interests of the Company, which may include the benefits of the Related Party
Transaction to the Company and how the terms of the transaction compare to the
market terms for the same or similar transactions. After review, the
applicable committee approves or disapproves such Related Party Transaction.

There were no Related Party Transactions entered into in 2008 where the above
policy was not followed.

|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services

In
connection with the audit of the 2008 financial statements, our Audit Committee
entered into an engagement agreement with PricewaterhouseCoopers that sets forth
the terms of PricewaterhouseCooperss audit engagement.

The
following table shows the fees for audit and other services provided by
PricewaterhouseCoopers for the years ended December 31, 2008 and 2007:

|                   |  |          |         |          |  |         | 
|------------------ |  | -------- | ------- | -------- |  | ------- | 
|                   |  | 2008 ($) |         | 2007 ($) | 
|                   |  |          |         |          | 
|Audit Fees         |  |          | 834,750 |          |  | 741,285 | 
|Audit-Related Fees |  |          | 82,124  |          |  | 74,475  | 
|All Other Fees     |  |          | 35,250  |          |  | 41,440  | 
|                   |  |          |         |          |  |         | 
|Total              |  |          | 952,124 |          |  | 857,200 | 
|                   |  |          |         |          |  |         | 

Audit
Fees

Audit
fees consist of professional services rendered for the audit of our financial
statements for the fiscal years ended December 31, 2008 and 2007 and for the
review of the financial statements included in our Quarterly Reports on Form
10-Q in 2008 and 2007

154

---



Audit-Related
Fees

Audit
related fees consist of fees for assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements (and are not included in the Audit Fees reported above). Included in
these fees amounts paid for reimbursement of expenses and $29,000 for SEC
Comment Letter review. Fees in 2007 include $39,450 in connection with RAM
Holdings secondary offering of common shares in June 2007, $30,000 in
connection with RAM Holdings Registration Statement on Form S-3 filing in December
2007, and reimbursable expenses.

All
Other Fees

All
other fees consist of fees billed by PricewaterhouseCoopers related to Loss
Reserve Specialist fees in 2008 and 2007 and financial due diligence on a
potential transaction in 2007

Pre-Approval
of Audit and Non-Audit Services

Under
the charter of the Audit Committee, the Audit Committee must approve any
services and fees which are payable to the independent auditors in respect of
non-audit activities, and, unless properly delegated beforehand to a
sub-committee or the Committee Chair, pre-approve all permitted non-audit work
to be performed by the independent auditors, subject to the de minimus
exceptions for certain non-audit services described in Section 10A(i) of the
Exchange Act that are approved by the Committee prior to the completion of the
audit. In August 2006, the Audit Committee authorized RAM Holdings to engage
PricewaterhouseCoopers from time to time to provide up to $25,000 of non-audit
services per annum without further approval of the Audit Committee.

Part
IV

|                                                                                               |                                           
|---------------------------------------------------------------------------------------------- | ------------------------------------------
|Item 15.                                                                                       | Exhibits and Financial Statement Schedules
|                                                                                               |                                           
|(a)(1)Index to Financial Statements                                                           
|                                                                                              
|The
 following financial statements of RAM Holdings Ltd. have been included in
 Item 8 hereof:

|                                                                                                                             |  |    | 
|---------------------------------------------------------------------------------------------------------------------------- |  | -- | 
|Report of Independent Registered Public
 Accounting Firm                                                                     |  | 84 | 
|Consolidated Balance Sheets as of December
 31, 2008 and 2007                                                                |  | 85 | 
|Consolidated Statements of Operations and
 Comprehensive Income (Loss) for the years ended December 31, 2008, 2007 and
 2006 |  | 86 | 
|Consolidated Statements of Shareholders
 Equity for the years ended December 31, 2008, 2007 and 2006                        |  | 88 | 
|Consolidated Statements of Cash Flows for
 the years ended December 31, 2008, 2007 and 2006                                  |  | 89 | 
|Notes to Consolidated Financial Statements                                                                                   |  | 90 | 

|                                                                              
|------------------------------------------------------------------------------
|(a)(2) Financial Statement Schedules                                          
|                                                                              
|The
 following financial statement schedules are filed as part of this report:

|         |  |                                                                      
|-------- |  | ---------------------------------------------------------------------
|Schedule |  | Title                                                                
|         |  |                                                                      
|II       |  | Condensed
 Financial Information of Registrant (Parent
 Company Only)
|IV       |  | Reinsurance                                                          

All
other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.

155

---



(a)(3) Exhibits

|      |                                                                                                                                                                                                                                                               
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   | Amended
 Memorandum of Association of RAM Holdings Ltd. (incorporated by reference to
 the Registrants Current Report on Form 8-K dated May 8, 2008)                                                                                                         
|      |                                                                                                                                                                                                                                                               
|3.2   | Amended and
 Restated Bye-laws of RAM Holdings Ltd. (incorporated by reference to the
 Registrants Current Report on Form 8-K dated May 8, 2008)                                                                                                             
|      |                                                                                                                                                                                                                                                               
|4.1   | Specimen
 Common Share Certificate (incorporated by reference, to Exhibit 4.1 of the
 Registrants Amended Registration Statement on Form S-1/A (File No.
 333-131763)).                                                                                      
|      |                                                                                                                                                                                                                                                               
|4.2   | Fiscal
 Agency Agreement dated as of March 26, 2004 between RAM Holdings Ltd. and The
 Bank of New York, as fiscal agent (incorporated by reference, to Exhibit 4.2
 of the Registrants Amended Registration Statement on Form S-1/A (File No.
 333-131763)).
|      |                                                                                                                                                                                                                                                               
|4.3   | 6.875%
 Senior Note, dated March 26, 2004, from RAM Holdings Ltd. to Cede & Co.,
 for $40.0 million (incorporated by reference, to Exhibit 4.3 of the
 Registrants Amended Registration Statement on Form S-1/A (File No.
 333-131763)).                     
|      |                                                                                                                                                                                                                                                               
|4.4   | Certificate
 of Designations of Non-Cumulative Preference Shares, Series A of RAM Holdings
 Ltd. (incorporated by reference, to Exhibit 10.1 of the Registrants
 Quarterly Report on Form 10-Q, dated November 13, 2007)                                     
|      |                                                                                                                                                                                                                                                               
|4.5   | Form of
 Series A Preference Share Certificate (incorporated by reference, to Exhibit
 4.2 of the Registrants Report on Form 8-K, dated December 14, 2006)                                                                                                   
|      |                                                                                                                                                                                                                                                               
|4.6   | Replacement
 Capital Covenant (incorporated by reference, to Exhibit 4.3 of the
 Registrants Report on Form 8-K, dated December 14, 2006)                                                                                                                    
|      |                                                                                                                                                                                                                                                               
|4.7   | Registration
 Rights Agreement with respect to the Non-Cumulative Preference Shares, Series
 A (incorporated by reference, to Exhibit 4.4 of the Registrants Report on
 Form 8-K, dated December 14, 2006)                                                   
|      |                                                                                                                                                                                                                                                               
|4.8   | Certificate
 of Designation, Preferences and Rights of Class B Preference Shares of RAM
 Reinsurance Company Ltd. (incorporated by reference, to Exhibit 10.19 of the
 Registrants Amended Registration Statement on Form S-1/A (File No.
 333-131763)).     
|      |                                                                                                                                                                                                                                                               
|10.1  | Amended and
 Restated Shareholders Agreement among the Registrant and each of the persons
 listed on Schedule A thereto (incorporated by reference, to Exhibit 10.1 of
 the Registrants Amended Registration Statement on Form S-1/A (File No.
 333-131763)).
|      |                                                                                                                                                                                                                                                               
|10.2  | Amalgamation
 Agreement between the Registrant and RAM Holdings II Ltd. (incorporated by
 reference, to Exhibit 10.2 of the Registrants Amended Registration Statement
 on Form S-1/A (File No. 333-131763)).                                                
|      |                                                                                                                                                                                                                                                               
|10.3  | Amended and
 Restated Employment Agreement, between the Registrant and Vernon M. Endo
 (incorporated by reference to the Registrants Current Report on Form 8-K
 dated November 17, 2008)                                                                   
|      |                                                                                                                                                                                                                                                               
|10.4  | Amended and
 Restated Employment Agreement, between the Registrant and Edward U. Gilpin
 (incorporated by reference to the Registrants Current Report on Form 8-K
 dated November 17, 2008)                                                                 
|      |                                                                                                                                                                                                                                                               
|10.5  | Amended and
 Restated Employment Agreement, between the Registrant and David K. Steel
 (incorporated by reference to the Registrants Current Report on Form 8-K
 dated November 17, 2008)                                                                   
|      |                                                                                                                                                                                                                                                               
|10.6  | Amended and
 Restated Employment Agreement, between the Registrant and James P. Gerry
 (incorporated by reference to the Registrants Current Report on Form 8-K
 dated November 17, 2008)                                                                   
|      |                                                                                                                                                                                                                                                               
|10.7  | Amended and
 Restated Employment Agreement, between the Registrant and Victoria W. Guest
 (incorporated by reference to the Registrants Current Report on Form 8-K
 dated November 17, 2008)                                                                
|      |                                                                                                                                                                                                                                                               
|10.8  | Amended and
 Restated 2000 Supplemental Retirement Plan (incorporated by reference to the
 Registrants Current Report on Form 8-K dated November 17, 2008)                                                                                                  
|      |                                                                                                                                                                                                                                                               
|10.9  | 2001 Stock
 Option Plan (incorporated by reference, to Exhibit 10.9 of the Registrants
 Amended Registration Statement on Form S-1/A (File No. 333-131763)).                                                                                                
|      |                                                                                                                                                                                                                                                               
|10.10 | Amended and
 Restated 2006 Equity Plan (incorporated by reference to the Registrants
 Current Report on Form 8-K dated November 17, 2008)                                                                                                                   
|      |                                                                                                                                                                                                                                                               
|10.11 | Form of
 Indemnification Agreement entered into by the Registrant and its officers and
 directors (incorporated by reference, to                                                                                                                              

156

---



|      |                                                                                                                                                                                                                                                                                                                                                                           
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | Exhibit
 10.14 of the Registrants Amended Registration Statement on Form S-1/A (File
 No. 333-131763)).                                                                                                                                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.12 | Amended and
 Restated Credit Agreement, dated as of June 22, 2005, among RAM Reinsurance
 Company Ltd., various banks and Norddeutsche Landesbank Girozentrale, New
 York Branch, as agent (incorporated by reference, to Exhibit 10.16 of the
 Registrants Amended Registration Statement on Form S-1/A (File No.
 333-131763)).                                        
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.13 | Credit
 Agreement among RAM Reinsurance Company Ltd., various banks and Bayerische
 Landesbank, New York Branch, as agent (incorporated by reference, to Exhibit
 10.17 of the Registrants Amended Registration Statement on Form S-1/A (File
 No. 333-131763)).                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.14 | Put Option
 Agreement dated as of December 23, 2003 between RAM Reinsurance Company Ltd.
 and Blue Water Trust I (incorporated by reference, to Exhibit 10.18 of the
 Registrants Amended Registration Statement on Form S-1/A (File No.
 333-131763)).                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.15 | Form of RAM
 Holdings Ltd. Share Option Award Agreement for Employees (incorporated by
 reference to the Registrants Current Report on Form 8-K dated November 17,
 2008)                                                                                                                                                                                               
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.16 | Form of RAM
 Holdings Ltd. Share Option Award Agreement for Non-Employee Directors
 (incorporated by reference to the Registrants Current Report on Form 8-K
 dated November 17, 2008)                                                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.17 | Form of RAM
 Holdings Ltd. Restricted Share Unit Award Agreement (incorporated by
 reference to the Registrants Current Report on Form 8-K dated November 17,
 2008)                                                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.18 | Form of RAM
 Holdings Ltd. Restricted Share Unit Award Agreement [Annual Bonus Award]
 (incorporated by reference to the Registrants Current Report on Form 8-K
 dated November 17, 2008)                                                                                                                                                                               
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.19 | Master
 Lease, dated August 20, 2007, between Field Real Estate (Holdings) Limited
 and RAM Reinsurance Company Ltd. (incorporated by reference to the
 Registrants Report on Form 10-Q for the quarter ended September 30, 2007)                                                                                                                                        
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.20 | Compensation
 program for Non-Employee Directors (incorporated by reference to the
 Registrants Current Report on Form 8-K dated August 7, 2007).                                                                                                                                                                                                                        
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.21 | Underwriting
 Agreement, dated as of June 13, 2007, by and among RAM Holdings Ltd., Banc of
 America Securities LLC, Keefe, Bruyette & Woods, Inc., Fox-Pitt, Kelton
 Incorporated and Piper Jafffray & Co. and selling shareholders listed on
 Schedule B thereto (incorporated by reference to the Registrants Current
 Report on Form 8-K dated June 14, 2007)        
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.22 | Commutation
 Agreement, dated as of July 25, 2008, by and between XL Financial Assurance
 Ltd. and RAM Reinsurance Company Ltd. (incorporated by reference to the
 Registrants Current Report on Form 8-K dated July 29, 2008)                                                                                                                                           
|      |                                                                                                                                                                                                                                                                                                                                                                           
|10.23 | Amended and
 Restated Commutation Agreement, effective as of November 30, 2008, by and
 between MBIA Insurance Corporation, MBIA Assurance S.A. (now known as MBIA
 U.K. Insurance Limited), Capital Markets Assurance Corporation and any other
 insurance and reinsurance subsidiaries of MBIA Inc. on the one hand and RAM
 Reinsurance Company Ltd. on the other hand.
|      |                                                                                                                                                                                                                                                                                                                                                                           
|14.1  | Code of
 Conduct                                                                                                                                                                                                                                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                                                                           
|21.1  | Subsidiaries
 of the registrant.                                                                                                                                                                                                                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                                                                           
|31.1  | Certification
 of the Chief Executive Officer of RAM Holdings Ltd. filed herewith pursuant
 to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                           
|31.2  | Certification
 of the Chief Financial Officer of RAM Holdings Ltd. filed herewith pursuant
 to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                           
|32.1  | Certification
 of the Chief Executive Officer of RAM Holdings Ltd. furnished herewith
 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                           
|32.2  | Certification
 of the Chief Financial Officer of RAM Holdings Ltd. furnished herewith
 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                         

 Indicates
management contract or compensatory plan.

157

---



SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

| |                                       
| | --------------------------------------
| | RAM Holdings
 Ltd.                    
| |                                       
| | /s/ Vernon
 M. Endo                   
| |                                       
| | Vernon M.
 Endo                       
| | President
 and Chief Executive Officer
| | April 15, 2009                        

Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on the dates indicated.

|                          |  |                                                     |               
|------------------------- |  | --------------------------------------------------- | --------------
|Signature                 |  | Title                                               | Date          
|                          |  |                                                     |               
|                         
|/s/ Steven
 J. Tynan      |  | Chairman of
 the Board;                             | April 15, 2009
|                          |  | Director                                            |               
|Name: Steven
 J. Tynan    |  |                                                     |               
|                          |  |                                                     |               
|/s/ Vernon
 M. Endo       |  | President
 and Chief                                | April 15, 2009
|                          |  | Executive                                           |               
|Name: Vernon
 M. Endo     |  | Officer and
 Director (principal executive officer) |               
|                          |  |                                                     |               
|/s/ Edward
 U. Gilpin     |  | Chief
 Financial Officer                            | April 15, 2009
|                          |  | (principal financial officer and                    |               
|Name: Edward
 U. Gilpin   |  | principal accounting officer)                       |               
|                          |  |                                                     |               
|/s/ Edward
 F. Bader      |  | Director                                            | April 15, 2009
|                          |  |                                                     |               
|Name: Edward
 F. Bader    |  |                                                     |               
|                          |  |                                                     |               
|/s/ David L.
 Boyle       |  | Director                                            | April 15, 2009
|                          |  |                                                     |               
|Name: David
 L. Boyle     |  |                                                     |               
|                          |  |                                                     |               
|/s/ Allan S.
 Bufferd     |  | Director                                            | April 15, 2009
|                          |  |                                                     |               
|Name: Allan
 S. Bufferd   |  |                                                     |               
|                          |  |                                                     |               
|/s/ Joseph
 M. Donovan    |  | Director                                            | April 15, 2009
|                          |  |                                                     |               
|Name: Joseph
 M. Donovan  |  |                                                     |               
|                          |  |                                                     |               
|/s/ Michael
 J. Normile   |  | Director                                            | April 15, 2009
|                          |  |                                                     |               
|Name:
 Michael J. Normile |  |                                                     |               
|                          |  |                                                     |               
|/s/ Lloyd A.
 Porter      |  | Director                                            | April 15, 2009
|                          |  |                                                     |               
|Name: Lloyd
 A. Porter    |  |                                                     |               
|                          |  |                                                     |               
|/s/ Conrad
 P. Voldstad   |  | Director                                            | April 15, 2009
|                          |  |                                                     |               
|Name: Conrad
 P. Voldstad |  |                                                     |               

158

---



Schedule II
RAM Holdings Ltd. (Parent Company)
Condensed Balance Sheets
(in millions of U.S. dollars)

|                                           |  |                    |       |      |   |       | 
|------------------------------------------ |  | ------------------ | ----- | ---- | - | ----- | 
|                                           |  | As of December 31, |      
|                                           |  |                    |      
|                                           |  | 2008               |       | 2007 |  
|                                           |  |                    |       |      |   |       | 
|Assets                                     |  |                    |       |      |   |       | 
|Investments
 in subsidiaries               |  | $                  | 201.6 |      | $ | 364.4 | 
|Cash and
 cash equivalents                 |  |                    |      |      |   |      | 
|Intercompany
 receivable                   |  |                    | 2.1   |      |   | 2.1   | 
|Other assets                               |  |                    | 1.4   |      |   | 1.5   | 
|                                           |  |                    |       |      |   |       | 
|Total assets                               |  | $                  | 205.1 |      | $ | 368.0 | 
|                                           |  |                    |       |      |   |       | 
|Liabilities and shareholders equity       |  |                    |       |      |   |       | 
|Liabilities                                |  |                    |       |      |   |       | 
|Long term
 debt                            |  | $                  | 40.0  |      | $ | 40.0  | 
|Redeemable
 preference shares              |  |                    | 75.0  |      |   | 75.0  | 
|Other
 liabilities                         |  |                    | 0.7   |      |   | 0.7   | 
|                                           |  |                    |       |      |   |       | 
|Total liabilities                          |  |                    | 115.7 |      |   | 115.7 | 
|                                           |  |                    |       |      |   |       | 
|Total shareholders equity                 |  |                    | 89.4  |      |   | 252.3 | 
|                                           |  |                    |       |      |   |       | 
|Total liabilities and shareholders
equity |  | $                  | 205.1 |      | $ | 368.0 | 
|                                           |  |                    |       |      |   |       | 

Schedule II
RAM Holdings Ltd. (Parent Company)
Condensed Statements of Operations
For the years ended December 31, 2008, 2007 and 2006

(in millions of U.S. dollars)

|                                                |  |      |        |      |   |        |   |   |      | 
|----------------------------------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ---- | 
|                                                |  | 2008 |        | 2007 |   | 2006   |  
|                                                |  |      |        |      |   |        |  
|Revenues                                        |  |      |        |      |   |        |   |   |      | 
|Dividends
 from subsidiary                      |  | $    | 8.4    |      | $ | 8.4    |   | $ | 2.8  | 
|Equity in
 undistributed earnings of subsidiary |  |      | (159.3 | )    |   | (144.0 | ) |   | 41.1 | 
|                                                |  |      |        |      |   |        |   |   |      | 
|Total revenues                                  |  |      | (150.9 | )    |   | (135.6 | ) |   | 43.9 | 
|                                                |  |      |        |      |   |        |   |   |      | 
|Expenses                                        |  |      |        |      |   |        |   |   |      | 
|General and
 administrative expenses            |  |      | 0.1    |      |   | 0.1    |   |   |     | 
|Interest
 expense                               |  |      | 8.4    |      |   | 8.4    |   |   | 2.8  | 
|                                                |  |      |        |      |   |        |   |   |      | 
|Total expenses                                  |  |      | 8.5    |      |   | 8.5    |   |   | 2.8  | 
|                                                |  |      |        |      |   |        |   |   |      | 
|Net income                                      |  | $    | (159.4 | )    | $ | (144.1 | ) | $ | 41.1 | 
|                                                |  |      |        |      |   |        |   |   |      | 

159

---



Schedule II
RAM Holdings Ltd. (Parent Company) 
Condensed Statements of Cash Flows 
For the years ended December 31, 2008, 2007 and 2006 
(in millions of U.S. dollars)

|                                                                                          |  |      |        |      |   |        |   |   |       |  
|----------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ----- | -
|                                                                                          |  | 2008 |        | 2007 |   | 2006   |  
|                                                                                          |  |      |        |      |   |        |   |   |       |  
|Cash flows from operating activities                                                      |  |      |        |      |   |        |   |   |       |  
|Net (loss) income                                                                         |  | $    | (159.4 | )    | $ | (144.1 | ) | $ | 41.1  |  
|Adjustments
 to reconcile net (loss) income to net cash provided by operating activities: |  |      |        |      |   |        |   |   |       |  
|Equity
    in undistributed net income of subsidiary                                      |  |      | 159.3  |      |   | 144.0  |   |   | (41.1 | )
|Amortization of debt discount                                                             |  |      |       |      |   |       |   |   |      |  
|Amortization of deferred expenses                                                         |  |      | 0.1    |      |   | 0.1    |   |   |      |  
|Deferred expenses                                                                         |  |      |       |      |   |       |   |   |      |  
|Discount on long term debt                                                                |  |      |       |      |   |       |   |   |      |  
|Accrued interest payable                                                                  |  |      |       |      |   |       |   |   |      |  
|Due from shareholders                                                                     |  |      |       |      |   |       |   |   |      |  
|Related party (receivables)/payables                                                      |  |      |       |      |   |       |   |   | 0.3   |  
|                                                                                          |  |      |        |      |   |        |   |   |       |  
|Net cash flows provided by operating activities                                           |  |      |       |      |   |       |   |   | 0.3   |  
|                                                                                          |  |      |        |      |   |        |   |   |       |  
|Investing activities                                                                      |  |      |        |      |   |        |   |   |       |  
|Net Contributions (to)/from subsidiaries                                                  |  |      |       |      |   |       |   |   | (90.8 | )
|Purchase of preference shares in
subsidiary                                               |  |      |       |      |   |       |   |   |      |  
|                                                                                          |  |      |        |      |   |        |   |   |       |  
|Net cash flows used by investing activities                                               |  |      |       |      |   |       |   |   | (90.8 | )
|                                                                                          |  |      |        |      |   |        |   |   |       |  
|Financing activities                                                                      |  |      |        |      |   |        |   |   |       |  
|Proceeds from issuance of preference
shares                                               |  |      |       |      |   |       |   |   | 73.9  |  
|Loan repayment from shareholder                                                           |  |      |       |      |   |       |   |   |      |  
|Shares issued (redeemed)                                                                  |  |      |       |      |   |       |   |   | 16.6  |  
|                                                                                          |  |      |        |      |   |        |   |   |       |  
|Net cash flows used in financing activities                                               |  |      |       |      |   |       |   |   | 90.5  |  
|                                                                                          |  |      |        |      |   |        |   |   |       |  
|                                                                                          |  |      |        |      |   |        |   |   |       |  
|Increase
 (decrease) in cash and cash equivalents                                         |  |      |       |      |   |       |   |   |      |  
|Cash and
 cash equivalents at beginning of period                                         |  |      |       |      |   |       |   |   |      |  
|                                                                                          |  |      |        |      |   |        |   |   |       |  
|Cash and cash equivalents at end of period                                                |  | $    |       |      | $ |       |   | $ |      |  
|                                                                                          |  |      |        |      |   |        |   |   |       |  
|Supplemental
cash flow disclosures:                                                       |  |      |        |      |   |        |   |   |       |  
|Preference shares dividend paid                                                           |  |      | 5.6    |      |   | 5.6    |   |   |      |  
|Long-term
    debt interest paid                                                          |  | $    | 2.8    |      | $ | 2.8    |   | $ | 2.8   |  

160

---



-Schedule II
RAM Holdings Ltd. (Parent Company) 
Notes to the Condensed Financial Information 
For the years ended December 31, 2008, 2007 and 2006

The condensed
financial information of RAM Holdings Ltd. for the years ended December 31, 2008,
2007 and 2006, should be read in conjunction with the consolidated financial
statements of RAM Holdings Ltd. and the notes thereto.

161

---



Schedule
IVReinsurance
Net
Earned Premiums (in millions of U.S. dollars):

|                    |  |                                      |   |       |   |         |  |     |      |                                |   |      |  |       |   | 
|------------------- |  | ------------------------------------ | - | ----- | - | ------- |  | --- | ---- | ------------------------------ | - | ---- |  | ----- | - | 
|                    |  | For the Year Ended December 31, 2008 |  
|                    |  |                                      |  
|Type of
 Business:  |  | Direct                               |   | Ceded |   | Assumed |  | Net |      | Percentage of
 assumed to
 net |  
|                    |  |                                      |   |       |   |         |  |     |      |                                |  
|Financial
 guaranty |  | $                                    |  |       | $ | 1.6     |  | $   | 70.2 |                                | $ | 68.6 |  | 102.3 | % | 
|                    |  | $                                    |  |       | $ | 1.6     |  | $   | 70.2 |                                | $ | 68.6 |  | 102.3 | % | 

|                    |  |                                      |   |       |   |         |  |     |      |                                |   |      |  |       |   | 
|------------------- |  | ------------------------------------ | - | ----- | - | ------- |  | --- | ---- | ------------------------------ | - | ---- |  | ----- | - | 
|                    |  | For the Year Ended December 31, 2007 |  
|                    |  |                                      |  
|Type of
 Business:  |  | Direct                               |   | Ceded |   | Assumed |  | Net |      | Percentage of
 assumed to
 net |  
|                    |  |                                      |   |       |   |         |  |     |      |                                |  
|Financial
 guaranty |  | $                                    |  |       | $ | 0.2     |  | $   | 51.2 |                                | $ | 51.0 |  | 100.4 | % | 
|                    |  | $                                    |  |       | $ | 0.2     |  | $   | 51.2 |                                | $ | 51.0 |  | 100.4 | % | 

|                    |  |                                      |   |       |   |         |  |     |      |                                |   |      |  |       |   | 
|------------------- |  | ------------------------------------ | - | ----- | - | ------- |  | --- | ---- | ------------------------------ | - | ---- |  | ----- | - | 
|                    |  | For the Year Ended December 31, 2006 |  
|                    |  |                                      |  
|Type of
 Business:  |  | Direct                               |   | Ceded |   | Assumed |  | Net |      | Percentage of
 assumed to
 net |  
|                    |  |                                      |   |       |   |         |  |     |      |                                |  
|Financial
 guaranty |  | $                                    |  |       | $ | 0.1     |  | $   | 44.4 |                                | $ | 44.3 |  | 100.2 | % | 
|                    |  | $                                    |  |       | $ | 0.1     |  | $   | 44.4 |                                | $ | 44.3 |  | 100.2 | % | 

162

---