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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2007                                  
|           |                                                                              
|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                                      
|(Jurisdiction of incorporation)                              | (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 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 definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):

| |                              |                        |                           | 
| | ---------------------------- | ---------------------- | ------------------------- | 
| | Large
 Accelerated Filer   o | Accelerated
 filer   x | Non-accelerated
 filer  o | 

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 29, 2007 was $281,832,358
(based upon the closing price of the registrants shares on the NASDAQ Global
Market on that date, which was $15.75). 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 March 14, 2008, 27,248,700 Common Shares, par value $0.10 per share were
outstanding.

Documents Incorporated By Reference

Portions of
RAM Holdings Ltd.s Proxy Statement to be filed subsequent to the date hereof
for its 2008 Annual Meeting of Shareholders scheduled to be held on May 2, 2008
are incorporated by reference into the Annual Report on Form 10-K in response
to Part III, Items 10, 11, 12 and 14.

2

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TABLE OF CONTENTS

|         |                                                                                                               |     
|-------- | ------------------------------------------------------------------------------------------------------------- | ----
|         |                                                                                                               | Page
|         |                                                                                                               |     
|PART I   |                                                                                                               |     
|Item 1.  | Business                                                                                                      | 5   
|Item 1A. | Risk Factors                                                                                                  | 20  
|Item 1B. | Unresolved Staff Comments                                                                                     | 34  
|Item 2.  | Properties                                                                                                    | 34  
|Item 3.  | Legal Proceedings                                                                                             | 34  
|Item 4.  | Submission of Matters to a Vote of Security
 Holders                                                          | 34  
|PART II  |                                                                                                               |     
|Item 5.  | Market for Registrants Common Equity,
 Related Stockholder Matters and Issuer Purchases of Equity Securities | 35  
|Item 6.  | Selected Financial Data                                                                                       | 36  
|Item 7.  | Managements Discussion and Analysis of
 Financial Condition and Results of Operations                        | 38  
|Item 7A. | Quantitative and Qualitative Disclosures
 About Market Risk                                                   | 58  
|Item 8.  | Financial Statements and Supplementary
Data                                                                   | 59  
|Item 9.  | Changes in and Disagreements With
 Accountants on Accounting and Financial Disclosure                         | 82  
|Item 9A. | Controls and Procedures                                                                                       | 82  
|Item 9B. | Other Information                                                                                             | 83  
|PART III |                                                                                                               |     
|Item 10. | Directors, Executive Officers and Corporate
 Governance                                                       | 83  
|Item 11. | Executive Compensation                                                                                        | 83  
|Item 12. | Security Ownership of Certain Beneficial
 Owners and Management and Related Stockholder Matters               | 83  
|Item 13. | Certain Relationships and Related
 Transactions, and Director Independence                                    | 84  
|Item 14. | Principal Accountant Fees and Services                                                                        | 84  
|PART IV  |                                                                                                               |     
|Item 15. | Exhibits, Financial Statement Schedules                                                                       | 84  

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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:

| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | loss of
  significant customers with whom we have a concentration of our reinsurance in
  force;                                                                                                                                    
| |   |                                                                                                                                                                                                                                     
| |  | reduction in the amount of reinsurance ceded by one or more of
  our principal primary insurers;                                                                                                                                    
| |   |                                                                                                                                                                                                                                     
| |  | recent adverse developments in credit markets and credit risk;                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                     
| |  | inability to access capital on acceptable terms or at all;                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                     
| |  | projected
  market capacity (including with respect to existing and potential future
  market entrants);                                                                                                                            
| |   |                                                                                                                                                                                                                                     
| |  | 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, the demand for our products, our
  unrealized (losses) gains on derivative financial instruments or our
  investment returns;
| |   |                                                                                                                                                                                                                                     
| |  | downgrade of the financial strength ratings
  of RAM Re by Standard & Poors or Moodys;                                                                                                                                            
| |   |                                                                                                                                                                                                                                     
| |  | changes in ratings methodology by Standard & Poors or
  Moodys;                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                     
| |  | inability to execute our business strategy;                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                     
| |  | changes in regulation or tax laws applicable
  to us, our subsidiaries or customers;                                                                                                                                                
| |   |                                                                                                                                                                                                                                     
| |  | decreased
  demand for our reinsurance products or increased competition in our markets;                                                                                                                                            
| |   |                                                                                                                                                                                                                                     
| |  | our ability
  to identify, hire and 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
operations, results of operations, growth strategy 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. 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.

Our corporate objective is to build shareholder value by increasing
shareholders equity through stable and profitable earnings growth. Our
business model is predicated on specialization, in that our financial resources
are dedicated exclusively to the financial guaranty reinsurance business. We
do not use our capital to compete with our customers in the primary market. Key
factors supporting our business model include our participation as a reinsurer
in the well-established municipal bond and asset securitization markets, a
focus on assuming reinsurance that is expected to have a remote risk of
loss, and obtaining a significant percentage of revenues from investments in
investment grade, fixed income securities. The success of our business model
is substantially dependent upon providing our customers with reinsurance capacity
and capital credit from rating agencies and regulators
by means of our financial strength ratings from the rating agencies and, in the
case of our customers regulated in the United States (U.S), trust
accounts we have established for the benefit of such customers.

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 developments in the credit markets generally and the mortgage markets, in
    particular during the latter half of 2007, have had significant effects upon
    both the Company and the financial guaranty industry as a whole. Such effects
    are discussed further under
Customers, Pricing, Products, Rating
Agencies
and Competition in the Financial Guaranty Reinsurance Market.

Customers

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 XL Financial Assurance Ltd., or XLFA, the financial
guaranty reinsurance subsidiary of Security Capital Assurance, Ltd., or SCA. 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.

Prior
    to the fall of 2007, all of the primaries were rated AAA. 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, which are
    expected to continue through 2008. Since commencing their reviews, the rating
    agencies have downgraded the ratings of several of the primaries and placed
    others on negative watch or outlook. As of March 14, 2008, the status of
    the primaries ratings
    is as follows:

|                                                              |  |                            |  |                           |  |                             
|------------------------------------------------------------- |  | -------------------------- |  | ------------------------- |  | ----------------------------
|Company                                                       |  | S&P                        |  | Moodys                   |  | Fitch                       
|                                                              |  |                            |  |                           |  |                             
|Ambac                                                         |  | AAA (Negative Outlook)     |  | Aaa (Outlook negative)    |  | AA (Outlook negative)       
|Assured Guaranty                                              |  | A+ (Stable)                |  | Aaa (Stable)              |  | AAA (Stable)                
|CIFG                                                          |  | A+ (Negative Outlook)      |  | A1 (Stable)               |  | AA- (Rating Watch Negative) 
|FGIC                                                          |  | A (CreditWatch Developing) |  | A3 (Review for Downgrade) |  | A (Rating Watch Negative)   
|FSA                                                           |  | AAA (Stable)               |  | AAA (Stable)              |  | AAA (Stable)                
|MBIA                                                          |  | AAA (Negative Outlook)     |  | Aaa (Outlook Negative)    |  | AAA (Rating Watch Negative)*
|SCA**                                                         |  | A- (CreditWatch Negative)  |  | A3 (Review for Downgrade) |  | A (Rating Watch Negative)   
|                                                              |  |                            |  |                           |  |                             
|*MBIA has requested
      the withdrawal of its Fitch rating.
|**ratings for XLCA and XLFA.                                 
|                                                              |  |                            |  |                           |  |                             

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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
is 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 all three rating agencies. Ambac and
MBIA have had their triple-A ratings affirmed by S&P and Moodys, with
a negative outlook in the case of MBIA and on negative watch in the case of
Ambac as a result of continuing uncertainty regarding their ongoing capital
adequacy and franchise value after actions taken by them to strengthen their
respective capital positions. The plans of the remaining primaries, CIFG, FGIC
and SCA, all of which have had their ratings down-graded;
to maintain or restore their ratings are uncertain at this time. We intend to
continue to reinsure those primaries that are rated triple-A or that we believe
adhere to stringent underwriting standards consistent with a triple-A rating.
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. Ambac
and MBIA have recently announced their intention to suspend writing structured
finance obligations for six months to accumulate capital and there is currently
uncertainty regarding future actions regulators may take concerning participants
     within the financial guaranty industry. 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 if there is a default. Insured obligations attain the benefit of the
rating of the primary 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 actions 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 some of the benefits
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 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.

Customers choose financial guaranty reinsurers 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. RAM Re has insurance financial strength ratings of AAA, on CreditWatch
with negative implications, by Standard & Poors Ratings Services (Standard & Poors
or S&P) and Aa3 with a
negative outlook by Moodys Investor Services (Moodys).
Our ability to provide rating agency and regulatory capital credit to the primaries
for our reinsurance by means of our financial strength ratings from the rating
agencies and trust accounts we have established for the benefit of our U.S. regulated
customers is a critical part of our business. A reduction in or loss of a substantial
amount of rating agency capital credit could have a material adverse effect on
our ability to compete and, therefore, on our operations and financial results.
See Rating
Agencies section below for further information.

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 2007, we had reinsurance treaties in place with five primary insurers,
Ambac, FSA, MBIA, FGIC and Assured Guaranty, as well as with a reinsurer, XLFA,
under which we assumed a share of covered policies initially issued by XL
Capital Assurance Inc, or XLCA, the primary insurance affiliate of XLFA.
Business ceded pursuant to reinsurance treaties constituted 88% of our gross
    premiums written in 2007, compared to 85% in 2006 and 89% in 2005. We currently
    have reinsurance treaties in place with Ambac, FSA, MBIA and
XLFA.

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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. Although we do not
influence the initial pricing of business, we may negotiate and pay different
ceding commissions on facultative transactions such that our premiums net of
ceding commission may vary as a percentage of gross assumed premiums by primary
company or type of 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. Reports of 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.

Products

RAM operates in a single reportable segment, reinsurance, in which we generate
business in two primary product lines, public finance and structured finance.
The public finance, or municipal, obligations that we reinsure include 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 reinsure include 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 reinsure
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 United States and internationally.
During 2007, we reinsured public finance net par of $8.4 billion and structured
finance net par of $9.8 billion.

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

|                         |  |                                  |       |      |   |      |  |   |      | 
|------------------------ |  | -------------------------------- | ----- | ---- | - | ---- |  | - | ---- | 
|                         |  | Twelve months ended December 31, |      
|                         |  |                                  |      
|Gross
  Premiums Written |  | 2007                             |       | 2006 |   | 2005 | 
|                         |  |                                  |       |      |   |      | 
|                         |  | (Dollars in millions)            |      
|Public
  Finance         |  | $                                | 74.0  |      | $ | 48.6 |  | $ | 43.9 | 
|Structured
  Finance     |  |                                  | 34.7  |      |   | 29.0 |  |   | 24.2 | 
|                         |  |                                  |       |      |   |      |  |   |      | 
|Total                    |  | $                                | 108.7 |      | $ | 77.6 |  | $ | 68.1 | 
|                         |  |                                  |       |      |   |      |  |   |      | 

The
primaries have reported that insured volume as a percentage of total volume in
the public finance market has reduced significantly since December 2007 as a
result of uncertainty regarding the financial stability and ratings of the
primaries. This uncertainty has also reportedly caused a reduction in new issuance
    as certain municipalities either (i) delayed issuance or (ii) were unable
    to find purchasers for their uninsured obligations at acceptable prices.
    The primaries have also reported that structured finance volume has decreased
    since the fourth quarter of 2007 as a result of the credit crisis and that
    such volume is uncertain for the future. Ambac and MBIA have announced not
    to underwrite structured finance transactions for six months. In addition,
    Ambac and MBIA have reported that they have determined not to insure credit
    derivatives transactions in the future. Furthermore, we believe FGIC and
    SCA have essentially  ceased to write new business, at least temporarily.
    Finally there is currently uncertainty regarding future actions regulators
    may take regarding participants within the financial guaranty industry. Reinsurance
    ceded by the aforementioned primaries have been a significant part of RAMs
    business volume in recent years. The reduction in business origination by
    these primaries  is therefore anticipated to result in a lower volume of
    reinsurance business ceded.

RAM Assumed Portfolio (Portfolio of Reinsured
Exposure)

At December 31, 2007, the net par amount outstanding on RAMs assumed
obligations (obligations reinsured, or assumed, by RAM) was $45.4 billion. Net
reinsurance in force, which includes all debt service assumed, totaled $71.9
billion. We report our exposure data on a one quarter lag due to the timing of
receipt of exposure information from our primaries.

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. However, RAM also reinsures insured credit
derivative transactions which either require the timely payment of principal
and interest on the underlying obligation (similar to a

7

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financial
guaranty policy) or may require termination payments at the time of the default
of an underlying reference obligation. We believe the primaries write insurance
on credit derivative transactions only for obligations with high levels of
subordination and credit enhancement (for example, most of the credit
derivative transactions that have been reinsured by RAM have underlying ratings
of triple-A before they are 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.

RAMs portfolio of reinsured obligations is similar to the
aggregate profile of risks insured by the primaries and is diversified in terms
of revenue source, type of assets insured, industry concentrations, type of
bond and geographic area. At December 31, 2007, our reinsurance covered 11,556
policies outstanding. Approximately 84.5% of par outstanding under these
policies was ceded by one of the four major primaries, Ambac, FGIC, FSA and
MBIA. However, in recent years an increasing percentage of our new business is
ceded to us by three other monoline financial guarantors, Assured Guaranty,
CIFG, and XLCA (via its reinsurance affiliate XLFA). For example,
29.6% of RAMs $18.4 billion in total par written in 2007 was ceded by these
three primaries compared to 21.9% in 2006 and 4.3% in 2005.

Within
the public finance product line, we reinsure 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 reinsure 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.

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 United States and internationally.

|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|---------------------------------- |  | ----------------------------------------------------- | ------ | ---- | ---- | ------ |  | - | ------ | ------ | ----- | - |  | - | ------ |  | ----- | - | 
|(dollars in millions)              |  | Net Par Outstanding of RAM Re(1)
  As of December 31, |       
|                                   |  |                                                       |       
|                                   |  | 2007                                                  |        | 2006 |      | 2005   | 
|                                   |  |                                                       |        |      |      |        | 
|                                   |  | Volume                                                |        | %    |      | Volume |  | % |        | Volume |       | % | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   | 
|US Public Finance                  |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|General Obligation and Lease       |  | $                                                     | 7,964  |      | 17.5 | %      |  | $ | 5,692  |        | 18.3  | % |  | $ | 5,282  |  | 19.5  | % | 
|Tax Backed                         |  |                                                       | 2,571  |      | 5.7  | %      |  |   | 2,318  |        | 7.4   | % |  |   | 1,984  |  | 7.3   | % | 
|Transportation                     |  |                                                       | 3,078  |      | 6.8  | %      |  |   | 2,478  |        | 8.0   | % |  |   | 2,399  |  | 8.9   | % | 
|Healthcare                         |  |                                                       | 2,570  |      | 5.7  | %      |  |   | 2,203  |        | 7.1   | % |  |   | 1,824  |  | 6.7   | % | 
|Utility                            |  |                                                       | 3,723  |      | 8.2  | %      |  |   | 2,888  |        | 9.3   | % |  |   | 2,649  |  | 9.8   | % | 
|Investor Owned Utilities           |  |                                                       | 769    |      | 1.7  | %      |  |   | 570    |        | 1.8   | % |  |   | 525    |  | 1.9   | % | 
|Higher Education                   |  |                                                       | 813    |      | 1.8  | %      |  |   | 384    |        | 1.2   | % |  |   | 328    |  | 1.2   | % | 
|Housing                            |  |                                                       | 383    |      | 0.8  | %      |  |   | 359    |        | 1.2   | % |  |   | 337    |  | 1.2   | % | 
|Other                              |  |                                                       | 349    |      | 0.8  | %      |  |   | 145    |        | 0.5   | % |  |   | 83     |  | 0.3   | % | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|Total Public Finance               |  | $                                                     | 22,219 |      | 49.0 | %      |  | $ | 17,037 |        | 54.7  | % |  | $ | 15,412 |  | 57.0  | % | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|US Structured Finance              |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|Commercial ABS (2)                 |  | $                                                     | 9,221  |      | 20.3 | %      |  | $ | 4,700  |        | 15.1  | % |  | $ | 3,144  |  | 11.6  | % | 
|Home Equity                        |  |                                                       | 1,815  |      | 4.0  | %      |  |   | 1,373  |        | 4.4   | % |  |   | 1,590  |  | 5.9   | % | 
|Autos                              |  |                                                       | 608    |      | 1.3  | %      |  |   | 545    |        | 1.8   | % |  |   | 626    |  | 2.3   | % | 
|Mortgage Backed Securities         |  |                                                       | 673    |      | 1.5  | %      |  |   | 317    |        | 1.0   | % |  |   | 429    |  | 1.6   | % | 
|Banks and Other Corporate          |  |                                                       | 242    |      | 0.5  | %      |  |   | 127    |        | 0.4   | % |  |   | 103    |  | 0.4   | % | 
|Other Consumer ABS                 |  |                                                       | 572    |      | 1.3  | %      |  |   | 358    |        | 1.2   | % |  |   | 481    |  | 1.8   | % | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|Total Structured Finance           |  | $                                                     | 13,131 |      | 28.9 | %      |  | $ | 7,420  |        | 23.8  | % |  | $ | 6,374  |  | 23.6  | % | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|International                      |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|Asset Backed                       |  | $                                                     | 5,052  |      | 11.1 | %      |  | $ | 3,438  |        | 11.0  | % |  | $ | 3,268  |  | 12.1  | % | 
|Public Finance                     |  |                                                       | 3,119  |      | 6.9  | %      |  |   | 2,226  |        | 7.2   | % |  |   | 1,472  |  | 5.4   | % | 
|Investor Owned Utilities and Other |  |                                                       | 1,873  |      | 4.1  | %      |  |   | 998    |        | 3.2   | % |  |   | 529    |  | 2.0   | % | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|Total International                |  | $                                                     | 10,044 |      | 22.1 | %      |  | $ | 6,662  |        | 21.4  | % |  | $ | 5,269  |  | 19.5  | % | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|                                   |  |                                                       |        |      |      |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|Total                              |  | $                                                     | 45,394 |      | 100  | %      |  | $ | 31,119 |        | 100.0 | % |  | $ | 27,054 |  | 100.0 | % | 

|    |                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|(1) | All par
  outstanding in this table is reported with a one-quarter lag. Due to
  rounding, the numbers may not add up to the totals.
|    |                                                                                                                                     
|(2) | Asset backed
  securities (ABS).                                                                                                  

8

---



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 United States and internationally.

|                                   |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|---------------------------------- |  | ----------------------------------------------------------- | ------ | ---- | ----- | ------ |  | - | ----- | ------ | ----- | - |  | - | ----- |  | ----- | - | 
|(dollars in millions)              |  | Net Par Written of RAM Re
  For the Year Ended December 31, |       
|                                   |  |                                                             |       
|                                   |  | 2007                                                        |        | 2006 |       | 2005   | 
|                                   |  |                                                             |        |      |       |        | 
|                                   |  | Volume                                                      |        | %    |       | Volume |  | % |       | Volume |       | % | 
|                                   |  |                                                             |        |      |       |        |  |   |       |        |       |   | 
|US Public Finance                  |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|General Obligation and Lease       |  | $                                                           | 2,761  |      | 15.2  | %      |  | $ | 873   |        | 10.6  | % |  | $ | 1,231 |  | 14.7  | % | 
|Tax Backed                         |  |                                                             | 483    |      | 2.7   | %      |  |   | 462   |        | 5.6   | % |  |   | 669   |  | 8.0   | % | 
|Transportation                     |  |                                                             | 838    |      | 4.6   | %      |  |   | 208   |        | 2.5   | % |  |   | 409   |  | 4.9   | % | 
|Healthcare                         |  |                                                             | 459    |      | 2.5   | %      |  |   | 446   |        | 5.4   | % |  |   | 402   |  | 4.8   | % | 
|Utility                            |  |                                                             | 1,109  |      | 6.1   | %      |  |   | 387   |        | 4.7   | % |  |   | 309   |  | 3.7   | % | 
|Investor Owned Utilities           |  |                                                             | 249    |      | 1.4   | %      |  |   | 62    |        | 0.7   | % |  |   | 139   |  | 1.6   | % | 
|Higher Education                   |  |                                                             | 459    |      | 2.5   | %      |  |   | 80    |        | 1.0   | % |  |   | 116   |  | 1.4   | % | 
|Housing                            |  |                                                             | 41     |      | 0.2   | %      |  |   | 41    |        | 0.5   | % |  |   | 122   |  | 1.5   | % | 
|Other                              |  |                                                             | 210    |      | 1.2   | %      |  |   | 63    |        | 0.8   | % |  |   | 5     |  | 0.1   | % | 
|                                   |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|Total US Public Finance            |  | $                                                           | 6,608  |      | 36.4  | %      |  | $ | 2,621 |        | 31.8  | % |  | $ | 3,403 |  | 40.5  | % | 
|                                   |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|                                   |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|US Structured Finance              |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|Commercial ABS                     |  | $                                                           | 5,254  |      | 28.9  | %      |  | $ | 2,304 |        | 27.9  | % |  | $ | 1,573 |  | 18.7  | % | 
|Home Equity                        |  |                                                             | 1,063  |      | 5.8   | %      |  |   | 672   |        | 8.1   | % |  |   | 828   |  | 9.9   | % | 
|Autos                              |  |                                                             | 381    |      | 2.1   | %      |  |   | 299   |        | 3.6   | % |  |   | 508   |  | 6.0   | % | 
|Mortgage Backed Securities         |  |                                                             | 555    |      | 3.1   | %      |  |   | 126   |        | 1.5   | % |  |   | 212   |  | 2.5   | % | 
|Banks and Other Corporate          |  |                                                             | 127    |      | 0.7   | %      |  |   | 50    |        | 0.6   | % |  |   | 40    |  | 0.5   | % | 
|Other Consumer ABS                 |  |                                                             | 283    |      | 1.6   | %      |  |   | 55    |        | 0.7   | % |  |   | 11    |  | 0.1   | % | 
|                                   |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|Total US Structured Finance        |  | $                                                           | 7,663  |      | 42.2  | %      |  | $ | 3,506 |        | 42.5  | % |  | $ | 3,173 |  | 37.8  | % | 
|                                   |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|                                   |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|International                      |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|Asset Backed                       |  | $                                                           | 2,113  |      | 11.6  | %      |  | $ | 986   |        | 12.0  | % |  | $ | 1,323 |  | 15.7  | % | 
|Public Finance                     |  |                                                             | 1,026  |      | 5.6   | %      |  |   | 690   |        | 8.4   | % |  |   | 347   |  | 4.1   | % | 
|Investor Owned Utilities and Other |  |                                                             | 767    |      | 4.2   | %      |  |   | 443   |        | 5.4   | % |  |   | 156   |  | 1.9   | % | 
|Total International                |  | $                                                           | 3,905  |      | 21.4  | %      |  | $ | 2,119 |        | 25.7  | % |  | $ | 1,826 |  | 21.7  | % | 
|                                   |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 
|Total                              |  | $                                                           | 18,176 |      | 100.0 | %      |  | $ | 8,246 |        | 100.0 | % |  | $ | 8,401 |  | 100.0 | % | 
|                                   |  |                                                             |        |      |       |        |  |   |       |        |       |   |  |   |       |  |       |   | 

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                |  | 2007                                                       |   | 2006 |       | 2005 | 
|AAA                            |  | 25.3                                                       | % |      | 18.6  | %    |  | 17.4  | % | 
|AA                             |  | 25.6                                                       | % |      | 25.5  | %    |  | 26.0  | % | 
|A                              |  | 28.1                                                       | % |      | 33.4  | %    |  | 34.8  | % | 
|BBB                            |  | 18.3                                                       | % |      | 21.8  | %    |  | 20.6  | % | 
|Below Investment Grade (BIG) |  | 2.6                                                        | % |      | 0.8   | %    |  | 1.2   | % | 
|                               |  |                                                            |   |      |       |      |  |       |   | 
|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.

9

---



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, |       
|                      |  | 2007                                               |        | 2006 |       | 2005   | 
|                      |  | Volume                                             |        | %    |       | Volume |  | % |        | Volume |       | % | 
|                      |  |                                                    |        |      |       |        |  |   |        |        |       |   | 
|United States         |  |                                                    |        |      |       |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|California            |  | $                                                  | 3,618  |      | 8.0   | %      |  | $ | 2,300  |        | 7.4   | % |  | $ | 1,985  |  | 7.3   | % | 
|New York              |  |                                                    | 2,652  |      | 5.8   | %      |  |   | 1,841  |        | 5.9   | % |  |   | 1,565  |  | 5.8   | % | 
|Florida               |  |                                                    | 1,559  |      | 3.4   | %      |  |   | 1,345  |        | 4.3   | % |  |   | 1,102  |  | 4.1   | % | 
|Illinois              |  |                                                    | 1,358  |      | 3.0   | %      |  |   | 1,040  |        | 3.3   | % |  |   | 974    |  | 3.6   | % | 
|Texas                 |  |                                                    | 1,291  |      | 2.8   | %      |  |   | 1,068  |        | 3.4   | % |  |   | 988    |  | 3.7   | % | 
|Massachusetts         |  |                                                    | 957    |      | 2.1   | %      |  |   | 616    |        | 2.0   | % |  |   | 587    |  | 2.2   | % | 
|New Jersey            |  |                                                    | 794    |      | 1.7   | %      |  |   | 591    |        | 1.9   | % |  |   | 565    |  | 2.1   | % | 
|Washington            |  |                                                    | 785    |      | 1.7   | %      |  |   | 692    |        | 2.2   | % |  |   | 640    |  | 2.4   | % | 
|Pennsylvania          |  |                                                    | 730    |      | 1.6   | %      |  |   | 620    |        | 2.0   | % |  |   | 603    |  | 2.2   | % | 
|Puerto Rico           |  |                                                    | 717    |      | 1.6   | %      |  |   | 597    |        | 1.9   | % |  |   | 586    |  | 2.2   | % | 
|Other States          |  |                                                    | 8,031  |      | 17.7  | %      |  |   | 6,312  |        | 20.3  | % |  |   | 5,400  |  | 20.0  | % | 
|Multi-State           |  |                                                    | 12,859 |      | 28.3  | %      |  |   | 7,434  |        | 23.9  | % |  |   | 6,790  |  | 25.1  | % | 
|                      |  |                                                    |        |      |       |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|US Sub-total          |  | $                                                  | 35,350 |      | 77.9  | %      |  | $ | 24,456 |        | 78.6  | % |  | $ | 21,785 |  | 80.5  | % | 
|                      |  |                                                    |        |      |       |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|International         |  |                                                    |        |      |       |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|United Kingdom        |  | $                                                  | 3,872  |      | 8.5   | %      |  | $ | 2,098  |        | 6.7   | % |  | $ | 1,468  |  | 5.4   | % | 
|Australia             |  |                                                    | 1,084  |      | 2.4   | %      |  |   | 625    |        | 2.0   | % |  |   | 439    |  | 1.6   | % | 
|Italy                 |  |                                                    | 660    |      | 1.5   | %      |  |   | 416    |        | 1.3   | % |  |   | 180    |  | 0.7   | % | 
|Germany               |  |                                                    | 413    |      | 0.9   | %      |  |   | 432    |        | 1.4   | % |  |   | 457    |  | 1.7   | % | 
|Canada                |  |                                                    | 310    |      | 0.7   | %      |  |   | 181    |        | 0.6   | % |  |   | 158    |  | 0.6   | % | 
|Japan                 |  |                                                    | 181    |      | 0.4   | %      |  |   | 104    |        | 0.3   | % |  |   | 32     |  | 0.1   | % | 
|Turkey                |  |                                                    | 175    |      | 0.4   | %      |  |   | 110    |        | 0.4   | % |  |   | 119    |  | 0.4   | % | 
|France                |  |                                                    | 159    |      | 0.3   | %      |  |   | 117    |        | 0.4   | % |  |   | 87     |  | 0.3   | % | 
|Chile                 |  |                                                    | 122    |      | 0.3   | %      |  |   | 114    |        | 0.4   | % |  |   | 104    |  | 0.4   | % | 
|Mexico                |  |                                                    | 119    |      | 0.3   | %      |  |   | 102    |        | 0.3   | % |  |   | 117    |  | 0.4   | % | 
|Other Countries       |  |                                                    | 597    |      | 1.3   | %      |  |   | 416    |        | 1.3   | % |  |   | 381    |  | 1.4   | % | 
|Multinational         |  |                                                    | 2,351  |      | 5.2   | %      |  |   | 1,945  |        | 6.3   | % |  |   | 1,727  |  | 6.4   | % | 
|                      |  |                                                    |        |      |       |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|Int. Sub-total        |  | $                                                  | 10,044 |      | 22.1  | %      |  | $ | 6,663  |        | 21.4  | % |  | $ | 5,269  |  | 19.5  | % | 
|                      |  |                                                    |        |      |       |        |  |   |        |        |       |   |  |   |        |  |       |   | 
|Total Par             |  | $                                                  | 45,394 |      | 100.0 | %      |  | $ | 31,119 |        | 100.0 | % |  | $ | 27,054 |  | 100.0 | % | 
|                      |  |                                                    |        |      |       |        |  |   |        |        |       |   |  |   |        |  |       |   | 

The following
table sets forth our ten largest obligor exposures for each of our product
lines as of December 31, 2007 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, 2007 |    
|   |  |                                                  |  |                                                      |    
|   |  | Top 10
  Largest Public Finance Exposures:       |  | Country                                              |     | NPO |   | RAM Re Rating 1 | 
|   |  |                                                  |  |                                                      |     |     |   |                 | 
|   |  |                                                  |  |                                                      |     |     |   |                 | 
|1  |  | Chicago, IL                                      |  |                                                      | US  |     | $ | 287             |  |  | A+  | 
|2  |  | Washington (State of) -
GO/Appropriation         |  |                                                      | US  |     |   | 281             |  |  | AA  | 
|3  |  | Massachusetts (State of) 
GO/Appropriation      |  |                                                      | US  |     |   | 267             |  |  | AA  | 
|4  |  | California (State of) -
GO/Appropriation         |  |                                                      | US  |     |   | 256             |  |  | A+  | 
|5  |  | Clark County SD, NV - GO                         |  |                                                      | US  |     |   | 250             |  |  | AA- | 
|6  |  | Puerto Rico Highway & Transportation
  Authority |  |                                                      | US  |     |   | 244             |  |  | BBB | 
|7  |  | Region of Campania                               |  |                                                      | ITA |     |   | 232             |  |  | A-  | 
|8  |  | Port Authority of New York and New
Jersey        |  |                                                      | US  |     |   | 226             |  |  | AA- | 
|9  |  | New Jersey (State of) GO/Appropriation           |  |                                                      | US  |     |   | 224             |  |  | AA- | 
|10 |  | New York City, NY                                |  |                                                      | US  |     |   | 222             |  |  | AA- | 
|   |  |                                                  |  |                                                      |     |     |   |                 |  |  |     | 
|   |  | Total                                            |  |                                                      |     |     | $ | 2,488           |  |  |     | 
|   |  |                                                  |  |                                                      |     |     |   |                 |  |  |     | 

|   |  |                                                                     |  |         |       |     |   |                 |  |  |     | 
|-- |  | ------------------------------------------------------------------- |  | ------- | ----- | --- | - | --------------- |  |  | --- | 
|   |  |                                                                     |  |         |       |     |   |                 |  |  |     | 
|   |  | Top 10
  Largest Structured Finance Exposures:                      |  | Country |       | NPO |   | RAM Re Rating 1 | 
|   |  |                                                                     |  |         |       |     |   |                 | 
|   |  |                                                                     |  |         |       |     |   |                 | 
|1  |  | Super Senior Synthetic Pooled IG CMBS                               |  |         | US    |     | $ | 175             |  |  | AAA | 
|2  |  | Private Residential Mortgage-Backed
  Securities                    |  |         | GBR   |     |   | 172             |  |  | AAA | 
|3  |  | Market Value CLO                                                    |  |         | US    |     |   | 163             |  |  | AAA | 
|4  |  | Synthetic CDO of CLOs, CDOs and RMBS                                |  |         | US    |     |   | 150             |  |  | BIG | 
|5  |  | Super Senior Synthetic Pooled IG CMBS                               |  |         | US    |     |   | 150             |  |  | AAA | 
|6  |  | Telereal Securitisation plc                                         |  |         | GBR   |     |   | 148             |  |  | AA- | 
|7  |  | Super Senior Synthetic Managed CDO of
  Corporates and ABS          |  |         | MULTI |     |   | 135             |  |  | AAA | 
|8  |  | Super Senior Synthetic Managed CDO of
  Corporates and ABS          |  |         | MULTI |     |   | 130             |  |  | AAA | 
|9  |  | Market Value CLO                                                    |  |         | US    |     |   | 128             |  |  | AAA | 
|10 |  | First Lien Adjustable-Rate Residential
  Mortgage-Backed Securities |  |         | US    |     |   | 128             |  |  | AAA | 
|   |  |                                                                     |  |         |       |     |   |                 |  |  |     | 
|   |  |                                                                     |  |         |       |     |   |                 |  |  |     | 
|   |  | Total                                                               |  |         |       |     | $ | 1,479           |  |  |     | 
|   |  |                                                                     |  |         |       |     |   |                 |  |  |     | 

|  |                                                                                                                                                                                                                                                                                                                                                                       
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 | RAM Re
  ratings are current as of RAM Res credit review on January 19, 2008. 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.

10

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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,
amongst other things, exposure limits and underwriting criteria for sectors,
countries, single risks and servicers.

The policies that we reinsure are underwritten to a remote-loss standard, which
means that at the time a policy on any particular transaction is issued (and
when we reinsure it), no losses are expected for the entire term of the policy.
Prior to assuming reinsurance exposures from any new primary insurer, we will
review 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 assume, such investment grade quality standard is
independently established by Moodys and Standard & Poors for substantially
all of the transactions reinsured. In limited instances, the investment grade
standard may only be available from one of these two rating agencies or, if the
primary insurer deems the credit to be of high investment grade, from neither
rating agency.

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 rated AAA and Aaa
by Standard & Poors and Moodys, respectively. See Customers above.

11

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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.

We
base our single-risk guidelines for public finance transactions on Standard
& Poors 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 are 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. We retroceded $0.8 million
and $2.1 million during 2007 and 2006, respectively, of premiums written under
this agreement.

For
structured finance transactions our single-risk guidelines are based upon the
Standard & Poors 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 Standard & Poors
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.

The
substantial majority of our business is ceded pursuant to reinsurance treaties
under which we commit to reinsure specified business from a ceding company for
a period of time, usually a one-year period. Although we have the ability to
exclude certain categories of risk from a treaty, and even certain issues or
issuers, we have limited ability to control the individual risk ceded pursuant
to the terms of a treaty. In recognition of this, before we enter into a treaty
and periodically thereafter we conduct due diligence on a primary. This
includes 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 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 exposures to assess ceded risk and
conduct periodic underwriting and surveillance reviews of ceding companies to
assure that these meet our expectations and we may seek adjustments to treaties
at the time of renewal in response to our assessment of ceded business.

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 and the purpose of our watch list 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.

12

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As of December
31, 2007, our watch list consisted of 160 credits, comprising aggregate par
amount outstanding of $2,217.8 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, |        
|                                                              |  |                                                    |        
|                                                              |  | 2007                                               |         | 2006 |  | 2005   |  
|                                                              |  |                                                    |         |      |  |        |  
|                                                              |  | Volume                                             |         | %    |  | Volume |   | % |       | Volume |  | %     |  
|                                                              |  |                                                    |         |      |  |        |   |   |       |        |  |       |  
|Public Finance & Investor Owned
  Utilities                   |  |                                                    |         |      |  |        |   |   |       |        |  |       |   |   |       |   |  |       |  
|Category 1                                                    |  | $                                                  | 73.2    |      |  | 3.3    | % | $ | 138.1 |        |  | 23.8  | % | $ | 27.2  |   |  | 7.8   | %
|Category 2                                                    |  |                                                    | 29.0    |      |  | 1.3    | % |   | 41.9  |        |  | 7.2   | % |   | 45.9  |   |  | 13.2  | %
|Category 3                                                    |  |                                                    | 7.8     |      |  | 0.4    | % |   | 20.9  |        |  | 3.6   | % |   | 8.3   |   |  | 2.4   | %
|Category 4                                                    |  |                                                    | 52.9    |      |  | 2.4    | % |   | 15.0  |        |  | 2.6   | % |   | 15.0  |   |  | 4.3   | %
|                                                              |  |                                                    |         |      |  |        |   |   |       |        |  |       |   |   |       |   |  |       |  
|Total Public Finance                                          |  | $                                                  | 162.9   |      |  | 7.3    | % | $ | 215.8 |        |  | 37.2  | % | $ | 96.4  |   |  | 27.6  | %
|                                                              |  |                                                    |         |      |  |        |   |   |       |        |  |       |   |   |       |   |  |       |  
|                                                              |  |                                                    |         |      |  |        |   |   |       |        |  |       |   |   |       |   |  |       |  
|Structured Finance & Non-Investor Owned
  Utilities Corporate |  |                                                    |         |      |  |        |   |   |       |        |  |       |   |   |       |   |  |       |  
|Category 1                                                    |  | $                                                  | 458.7   |      |  | 20.7   | % | $ | 295.3 |        |  | 50.9  | % | $ | 64.8  |   |  | 18.6  | %
|Category 2                                                    |  |                                                    | 417.0   |      |  | 18.8   | % |   | 15.9  |        |  | 2.7   | % |   | 81.1  |   |  | 23.3  | %
|Category 3                                                    |  |                                                    | 255.6   |      |  | 11.5   | % |   | 31.8  |        |  | 5.5   | % |   | 42.4  |   |  | 12.2  | %
|Category 4                                                    |  |                                                    | 923.5   |      |  | 41.6   | % |   | 21.2  |        |  | 3.6   | % |   | 64.1  |   |  | 18.4  | %
|                                                              |  |                                                    |         |      |  |        |   |   |       |        |  |       |   |   |       |   |  |       |  
|Total Structured Finance                                      |  | $                                                  | 2,054.9 |      |  | 92.7   | % | $ | 364.2 |        |  | 62.8  | % | $ | 252.4 |   |  | 72.4  | %
|                                                              |  |                                                    |         |      |  |        |   |   |       |        |  |       |   |   |       |   |  |       |  
|                                                              |  |                                                    |         |      |  |        |   |   |       |        |  |       |   |   |       |   |  |       |  
|Total                                                         |  | $                                                  | 2,217.8 |      |  | 100.0  | % | $ | 580.0 |        |  | 100.0 | % | $ | 348.8 |   |  | 100.0 | %
|                                                              |  |                                                    |         |      |  |        |   |   |       |        |  |       |   |   |       |   |  |       |  
|                                                              |  |                                                    |         |      |  |        |   |   |       |        |  |       |   |   |       |   |  |       |  
|Total as a % of Total Portfolio Net
Par                       |  |                                                    | 4.89    | %    |  |        |   |   | 1.86  | %      |  |       |   |   | 1.29  | % |  |       |  

In 2007, the par amount of credits on our Watch List increased
    by a net $1,637.8 million, or 282%, from $580.0 million to $2,217.8 million.
    As a percent of our total outstanding portfolio, the par amount on the Watch
    List increased from 1.86% to 4.89%. Additions to the Watch List consisted
    primarily of RMBS  and multi-sector CDOs closed since January 1, 2005. Additions
    of 2005 to 2007 vintage  RMBS totaled $955 million, while additions of multi-sector
    CDOs totaled $813  million.

As of December 31, 2007, the 2005 to 2007 vintage RMBS on our
    Watch List primarily  consists of securitizations backed by home equity lines
    of credit (HELOCs) amounting to $629 million,  closed-end second lien mortgages
    (CES) amounting to $190 million and subprime mortgages of $135 million. In Category 4 we currently
    have $314 million of HELOCs, $21 million of CES and no subprime mortgages from the 2005
    to 2007 vintages. Our case reserves for these exposures total $26.4 million.

All of the multi-sector CDOs added to the Watch list were 2006
    to 2007 vintage  transactions and were backed by a significant amount of
    residential mortgage loan collateral.  Of the total $813 million added, 13
    ABS CDO exposures of $569 million were added to our Watch List  in Category
    4, and we have recognized credit impairments for them totaling $44.4 million
    which is recorded in net losses on credit derivatives on the statement of
    operations. An  additional 6 ABS CDOs totaling $244 million were added to
    Categories 1-3 on the Watch List.

Most of our
Category 4 transactions as of December 31, 2007 and 2006 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.

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. 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. 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. As at December 31, 2007, some of the primaries
increased the unallocated reserves for residential mortgage-backed securities
relating to home equity lines of credit and closed-end second mortgages, 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 located 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, 2007, our losses and loss expense reserves were $63.7 million
compared to total reserves of $14.5 million at December 31, 2006 and $16.6
million as of December 31, 2005. 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:

13

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|                            |  |                        |        |      |   |        |  |   |        | 
|--------------------------- |  | ---------------------- | ------ | ---- | - | ------ |  | - | ------ | 
|                            |  | As of December 31,     |       
|                            |  |                        |       
|Loss
  Reserves             |  | 2007                   |        | 2006 |   | 2005   | 
|                            |  |                        |        |      |   |        | 
|                            |  | (Dollars in thousands) |       
|Case
  Reserves             |  | $                      | 30,447 |      | $ | 3,010  |  | $ | 6,257  | 
|Unallocated
  Loss Reserves |  |                        | 33,351 |      |   | 11,496 |  |   | 10,338 | 
|                            |  |                        |        |      |   |        |  |   |        | 
|Total                       |  | $                      | 63,798 |      | $ | 14,506 |  | $ | 16,595 | 
|                            |  |                        |        |      |   |        |  |   |        | 

Over
the past several months, 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, 2007, we have established $26.4 million
of case reserves relating to the 2005-2007 RMBS and an additional increase of
$15.6 million to our unallocated loss reserve relating to RMBS losses that are
probable to occur but cannot be specifically identified. Additionally,
the Company has been ceded credit impairments relating to CDOs amounting to $44.4
million at December 31, 2007 ($Nil at December 31, 2006) that is reported separately
in the valuation of credit derivatives.

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 and investment operations.

Through
December 31, 2007, RAM Re had been assigned a AAA (Extremely Strong)
rating with a negative outlook from Standard & Poors and a Aa3 (Excellent)
rating with a stable outlook from Moodys. (In July of 2006 S&P revised
its outlook for the rating from stable to negative, commenting
that the revision reflects the below-average earnings and ROE earned by
the company over the past several years, coupled with concern regarding the level
and pace of improvement in the near to intermediate future.) On February
1, 2008, Moodys announced that it had placed the Aa3 rating of RAM Re on
review for possible downgrade, reflecting Moodys revised expected loss
projections for residential mortgage-backed securities and related collateralized
debt obligations risk, and the corresponding implications for RAM Res capital
adequacy. On February 14, 2008, Standard & Poors placed the AAA rating
on RAM Re on CreditWatch with negative implications. Standard & Poors
stated that under its guidelines, CreditWatch with negative implications means
that there is a one-in-two chance of a ratings change within the short term,
typically within 90 days. Standard & Poors stated that the ratings
action reflects Standard & Poors view of the shortfall of approximately
$82 - $132 million in RAM Res capital cushion at December 31, 2007, relative
to projected subprime losses. Standard & Poors also stated that the
action incorporates and elevates the importance of RAM Re demonstrating improved
financial metrics, as first cited in July 2006 when Standard & Poors
assigned a negative outlook to RAM Re and RAM Holdings. On March 7, 2008,
Moodys confirmed the Aa3 insurance financial strength rating of RAM Re
and changed the outlook to negative. Moodys stated that RAM Re remains
adequately capitalized for its Aa3 rating, although it has a capital cushion
of only $10 million for this rating. Moodys
stated that the negative outlook assigned reflects continued uncertainty regarding
both the ultimate performance of mortgage and mortgage-related collateralized
debt obligation exposures, as well as RAM Res future underwriting prospects
given its reliance on the primaries for business.

In
the fall of 2007, both S&P and Moodys began a review of the capital
adequacy of the financial guaranty industry including both primary and
reinsurance companies. As a result of their reviews, the major rating agencies
have recently (i) changed their rating outlook for certain financial guarantors
and reinsurers to negative, (ii) placed certain financial guarantee insurers
and reinsurers on review for a possible downgrade, (iii) downgraded certain
financial guarantee insurers and reinsurers and (iv) affirmed current ratings
as stable for certain financial guarantors. See Customers, above. The
continued uncertainty in the primary financial guaranty market could have an
impact on the volume of business ceded to RAM.

We
do not believe that the CreditWatch with negative implications status of our
S&P rating or the change in outlook by Moodys has had or will have
a material adverse impact on our business, although an actual reduction in or
loss of rating could have a material adverse affect on our ability to compete,
on the terms of our reinsurance and on our financial results, particularly if
the downgrade results in a substantial reduction in rating agency capital credit.
While we believe that strong ratings are important to RAMs business, the
most important factor relating to business generation is the capital credit we
provide to our clients. At our current ratings, we provide a significant amount
of capital credit. Should our
ratings fall even several notches, we would still provide an amount
of capital credit we believe would be meaningful to our customers (see chart
below). RAM is pursuing alternatives to improve its capital position, including
but not limited to commutations and reassumptions of selected exposures with
our customers, seeking reinsurance and reducing its growth.

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 AAA on
CreditWatch with negative implications from Standard & Poors. Standard
& Poors 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        | %

14

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If
our rating from Standard & Poors is downgraded from AAA to AA, for
example, we believe the Standard & Poors capital credit provided to
the AAA-rated primaries for our reinsurance would be reduced from 100% to 70%.
Moodys does not publish a similar table that would indicate the exact amount
of capital credit received by rating. 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.

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 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 portfolio is an important factor in ensuring our financial strength
and stability while providing long-term predictable growth and income. 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, 2007, the duration
of our portfolio was 4.83 years and the weighted portfolio credit quality was
an AAA rating by S&P.

Our
invested assets are managed by the professional asset management firms, New
England Asset Management and MBIA Capital, a wholly-owned subsidiary of one of
our customers. 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, 2007 |    
|                                       |  |                         |    
|Fixed
  Income Securities              |  | Book Yield              |     | Amortized Cost |  | Fair Value |        
|                                       |  |                         |     |                |  |            |        
|                                       |  | (Dollars in thousands)  |    
|Agencies                               |  |                         | 4.9 | %              |  | $          | 169,874 |  | $ | 175,625 | 
|U.S.
  government obligations          |  |                         | 4.5 |                |  |            | 70,393  |  |   | 73,270  | 
|Corporate
  debt securities            |  |                         | 4.9 |                |  |            | 123,559 |  |   | 123,992 | 
|Municipal
  securities                 |  |                         | 6.6 |                |  |            | 16,704  |  |   | 17,727  | 
|Mortgage and
  asset-backed securities |  |                         | 5.2 |                |  |            | 305,115 |  |   | 305,919 | 
|                                       |  |                         |     |                |  |            |         |  |   |         | 
|                                       |  |                         |     |                |  |            |         |  |   |         | 
|Total                                  |  |                         | 5.0 | %              |  | $          | 685,645 |  | $ | 696,533 | 
|                                       |  |                         |     |                |  |            |         |  |   |         | 

The following
table summarizes our investment portfolio by ratings:

|                    |  |                             |       |   | 
|------------------- |  | --------------------------- | ----- | - | 
|Rating
  Profile(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 Standard & Poors classifications. If unavailable, Moodys
  ratings are used.                                         
|    |                                                                                                                                            
|(2) | Includes
  U.S. Treasury and agency obligations, which comprised approximately 35.7% of
  the investment portfolio as of December 31, 2007.

15

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The following
table summarizes our investment portfolio by maturity category:

|                                         |  |                         |         |            |   |         | 
|---------------------------------------- |  | ----------------------- | ------- | ---------- | - | ------- | 
|                                         |  | As of December 31, 2007 |        
|                                         |  |                         |        
|                                         |  | (Dollars in thousands)  |        
|Fixed
  Income Securities                |  | Amortized Cost          |         | Fair Value |  
|                                         |  |                         |         |            |  
|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 | 
|                                         |  |                         |         |            |   |         | 

Competition in the Financial Guaranty
Reinsurance Market

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. We are currently among the smallest of the financial guaranty
reinsurers as measured by equity capital.

Our
major competitors include Assured Guaranty Re, XLFA, Channel Reinsurance Ltd.,
BluePoint Re Limited, and Radian Asset Assurance Inc., while several multiline
insurance companies continue to offer financial guaranty reinsurance capacity
as well. The capital adequacy of the financial guaranty reinsurers that we compete
with has been reviewed by or is under review by the applicable rating agencies,
and our competitive position will be determined in part by the ultimate outcome
of the rating agencies reviews of RAM Re and its competitors. At least
one new Bermuda-based financial guaranty reinsurance company has been formed
recently, and it is possible that more will be formed in the near term, although
we believe the barriers to entry, particularly rating agency requirements, remain
significant. It is also possible that one or more of the primaries that has
been downgraded will choose to become a reinsurer on a temporary or permanent
basis. In this changing environment, it is not possible to predict with
accuracy our competitors or competitive position in 2008. We also compete
directly and indirectly with certain credit derivative transactions and other
alternative transaction structures that may be a more attractive alternative
to traditional financial guaranty reinsurance. In addition, issuers may choose
to divide large transactions among several primary insurers reducing or
eliminating the need for reinsurance. Primary insurers may also choose to
reinsure transactions with other primary insurers directly also reducing or
eliminating the need for reinsurance.

Regulation in Bermuda

As
a holding company, we are not subject to Bermuda insurance regulations. 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, or 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 it has, or has available to it, adequate knowledge
and expertise. The 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 at any 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,
and subcommittees thereof supervise and review the law and practice of
insurance in Bermuda, including reviews of accounting and administrative
procedures.

The
Bermuda Insurance Act imposes on Bermuda insurance companies solvency and
liquidity standards, as well as auditing and reporting requirements. The
day-to-day supervision of insurers is the responsibility of the BMA. The
Bermuda Insurance Act also 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:

Classification
of Insurers. The Bermuda Insurance Act distinguishes
between insurers carrying on long-term business and insurers carrying on
general business. There are four classifications of insurers carrying on
general business, with Class 4 insurers subject to the strictest regulation and
Class 3 insurers subject to the next strictest regulation. RAM Re is registered
as a Class 3 insurer and is regulated as such under the Bermuda Insurance Act.

Cancellation
of Insurers Registration. The BMA, on certain grounds
specified in the Bermuda Insurance Act, may cancel an insurers registration.
Failure of the insurer to comply with its obligations under the Bermuda
Insurance Act or, if the BMA believes that the insurer has not been carrying on
business in accordance with sound insurance principles, would be such grounds.

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 is the principal representative of RAM Re. 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

16

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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.

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 3
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. Our independent
auditor is PricewaterhouseCoopers (Bermuda).

Loss Reserve Specialist. As a Class 3
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 is
RAM Res loss reserve specialist and an employee of PricewaterhouseCoopers
(Bermuda).

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 United States 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, 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 Class 3
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.
The statutory financial return 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 themselves and the opinion of the loss reserve specialist. The
solvency certificate must be signed by the principal representative and at
least two directors of the insurer certifying that the minimum solvency margin
has been met and whether the insurer complied with the conditions attached to
its certificate of registration. The independent auditor is required to state
whether, in its opinion, it was reasonable for the directors to make these
certifications. 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.

Minimum Solvency Margin and Restrictions on Dividends
and Distributions. Under the Bermuda Insurance Act, the value of the
general business assets of a Class 3 insurer, such as RAM Re, must exceed the
amount of its general business liabilities by an amount greater than the
prescribed minimum solvency margin, or the general business solvency margin. As
a Class 3 insurer: (1) RAM Re is required to maintain the general business
solvency margin being a minimum solvency margin equal to the greatest of: (A)
$1,000,000; (B) 20% of net written premiums up to $6,000,000 plus 15% of net
written premiums over $6,000,000; or (C) 15% of loss and other insurance
reserves; (2) at any time RAM Re fails to meet its general business solvency
margin it must, within 30 days after becoming aware of that failure or having
reason to believe that such failure has occurred, file with the BMA a written
report containing particulars of the circumstances leading to the failure and
of the manner and time within which the insurer intends to rectify the failure;
(3) RAM Re is prohibited from declaring or paying any dividends at any time it
is in breach of its general business solvency margin or the required minimum
liquidity ratio, or if the declaration or payment of such dividends would cause
it to fail to meet such margin or ratio; (4) if RAM Re has failed to meet its
minimum solvency margin or minimum liquidity ratio on the last day of any
financial year, RAM Re will be prohibited, without the approval of the BMA,
from declaring or paying any dividends during the next financial year; and (5)
RAM Re is prohibited, without the prior approval of the BMA, from reducing by
15% or more its total statutory capital as set out in its previous years
statutory financial statements. Total statutory capital includes paid-up share
capital, and redemption or repurchase of shares will be a reduction in total statutory
capital. Additionally, under the Bermuda Companies Act, the Company and RAM Re
may only declare or pay a dividend if the Company or RAM Re, as the case may
be, 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 is
considering the impact on Bermuda statutory financial statements of unrealized
losses on credit derivatives and we believe the BMA will require that the
portion of such unrealized losses that represents an impairment be classified
as a case basis loss reserve, which would reduce statutory capital.

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 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

17

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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 3
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s of
Finance powers include requiring a person to furnish him with information, to
produce documents to him, 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.

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.

Certain Other Bermuda Law Considerations.
We must 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. Although we are
incorporated in Bermuda, we are classified as a non-resident of Bermuda for
exchange control purposes by the BMA. Pursuant to its non-resident status, we
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
United States residents who are holders of its ordinary shares.

We
have 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

18

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for 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 BD$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. Under Bermuda law, non-Bermudians
(other than spouses of Bermudians, or holders of a permanent residents
certificate, or holders of a working 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, or holder of a working 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 United
States, or in any other country.

The
insurance laws of each state of the United States 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 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 United States.

Employees

We
have 16 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 2007. Nothing on our website should be considered
incorporated by reference in this report.

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  1A. | Risk Factors

Risks Related to Our Company

An adverse rating action concerning
RAM Res ratings could have a material adverse effect on our ability to compete
in the financial guaranty reinsurance industry and could significantly decrease
the value of the reinsurance we provide.

RAM
Re currently has a financial strength rating of AAA by Standard & Poors,
on CreditWatch with negative implications, and a financial strength rating of
Aa3 by Moodys, with a negative outlook. A downgrade of either of these
ratings or a decrease in the credit given for our reinsurance would negatively
affect the value of our reinsurance. For example, under Standard & Poors
current guidelines for assigning credit to reinsurance, if RAM Res rating were
downgraded from AAA to AA, there would be a 30% decrease in the benefits
financial guarantors receive from ceding business to us based on Standard &
Poors model. In addition to potential negative effects on future business, a
downgrade of the ratings assigned to RAM Re by either rating agency may harm
our competitive position in the reinsurance industry. In some cases upon a
downgrade of our financial strength ratings by Standard & Poors, and in
all cases upon a downgrade of our rating by Moodys, the primaries would have
the right, after a cure period, to increase the ceding commission, as stipulated in
the treaties, or terminate the treaties and either leave their existing business with
RAM Re or recapture it. In the case of a downgrade by S&P from AAA to AA, the
primaries may generally increase the ceding commission but not all of the primaries
have the right to terminate their treaties with RAM Re. RAM Res treaty contracts allow
a cure period, generally between 30 to 90 days, in which RAM Re may restore its ratings
or restore the reinsurance credit received by the primaries to the level associated with
RAM Res rating prior to downgrade by providing additional collateral, which may be in
the form of additions to the trust accounts maintained by RAM Re for the benefit of its U.S.
based customers. To the extent policies are recaptured, RAM must forfeit to the primary an amount
determined by formula under each treaty contract which generally consists of RAMs allocated share
of the statutory unearned premium, net of the ceding commission paid by RAM to the primary (subject
to a penalty amount in some cases), and loss reserves established with respect to the policies ceded,
as applicable. 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 two years. A downgrade of RAM
Res ratings, the placing of RAM Res ratings on negative credit watch or under
review for a ratings downgrade, or a decrease in the credit given for our
reinsurance may also negatively affect our ability to negotiate favorable terms
with primary insurers in the future. Any downgrade in RAM Res financial
strength rating, or the placement of RAM Res financial strength rating on
negative credit watch, could have a material adverse effect on our business,
financial condition and results of operations. In addition, a decrease in the
credit given for our reinsurance by either rating agency would negatively
affect pricing under our existing and future contracts, which in turn could
have a material adverse effect on our business, financial condition and results
of operations. 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 downgraded by a rating
agency.

Changes
in the rating agencies capital models and rating methodology with respect to
financial guarantee insurers may adversely affect our business, results of
operations and financial condition

The
rating agencies have recently made changes to their capital models and rating
methodology in response to the deterioration in the performance of certain
securities. These changes require RAM to hold more capital against specified
credit risks in our insured portfolio and have placed stress on our ratings and
require us to strengthen our capital position. The rating agencies may continue
to make changes to their capital models and rating methodology in the future,
which could result in further increases to capital requirements and may
adversely affect our business, results of operations and financial condition.

Recent
adverse developments in the credit markets and any potential negative impact on
RAMs insured portfolio may materially and adversely affect our financial
condition, results of operations and future business

RAM
is exposed to credit risks in its portfolio that arise from deterioration
in the credit markets, wherein such deterioration in credit performance could
lead to potential erosion in the quality of assets and also the collection of
cash flows from such assets within structured finance securities that it has
reinsured. While we believe the primaries have sought to underwrite direct
residential mortgage-backed securities (RMBS), structured pools of
commercial mortgage-backed securities (CMBS) and collateralized debt
obligations (CDOs) of asset-backed securities (ABS) with
levels of subordination and other credit enhancements designed to protect them
from loss in the event of poor performance on the underlying assets collateralizing
the securities in the insured portfolio, the primaries are reporting substantial
unrealized losses and credit impairments on credit derivatives related to these
products and case basis loss reserves with respect to RMBS. No assurance can
be given that such credit enhancements will prove to be adequate to protect the
primaries and us from incurring additional material losses 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, particularly in the case of CDOs of ABS, 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. The extent and duration of any future continued
deterioration of the credit markets is unknown, as is the impact, if any, on
potential claim payments and ultimate 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.

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In
addition, 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 enforcing the subordination provisions, credit
enhancements or other contractual provisions of the RMBS, CMBS 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, CMBS 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.

Individual
credits in RAMs insured portfolio (including potential new credits) are
assessed a rating agency capital charge based on a variety of factors,
including the nature of the credits, their underlying ratings, their tenor and
their expected and actual performance. In the event of an actual or perceived
deterioration in creditworthiness, a reduction in the underlying rating or a
change in the rating agency capital methodology, RAM may be required to hold
more of its capital in reserve against credits in its insured portfolio,
regardless of whether losses actually occur, or against potential new business.
Moodys and S&P have recently announced the downgrade of, or other negative
ratings actions with respect to, a large number of structured finance transactions,
including certain transactions that RAM Re reinsures. There can be no assurance
that additional securities in RAMs insured portfolio will not be reviewed and
downgraded in the future. Moreover, we do not know what portion of the
securities in RAMs insured portfolio already have been reviewed by the rating
agencies and if, and when, the rating agencies might review additional
securities in RAMs insured portfolio or review again securities that have
already been reviewed and/or downgraded. Downgrades of credits that RAM Re
reinsures will result in higher capital charges to RAM Re under the relevant
rating agency model or models. Significant reductions in underlying ratings of
credits in RAMs insured portfolio can produce significant increases in assessed
capital charges. There can be no assurance that RAMs capital position will
be adequate to meet such increased reserve requirements or that RAM will be
able to secure additional capital, especially at a time of actual or perceived
deterioration in creditworthiness of new or existing credits. Unless RAM is
able to increase its amount of available capital, an increase in capital
charges could reduce the amount of capital available to pay claims and support
RAMs ratings from S&P and Moodys.

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; we
could be required by the rating agencies to hold additional capital against
insured exposures whether or not downgraded by the rating agencies; and we
could experience losses and decreases in the value of our investment portfolio
and, therefore, 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 guarantee products we reinsure may be riskier than traditional
financial guarantee 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
the financial guarantee exposures we reinsure have been written 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, but may also
include other events, such as certain types of restructurings, or events of
default related to the primary insurer itself, that would not typically trigger
a payment obligation under traditional products. Credit derivative products may
also provide for settlement of an entire exposure, rather than a missed payment
obligation as in traditional financial guarantee insurance, upon the occurrence
of a credit event, which could require us to sell assets or otherwise generate
liquidity in advance of any potential recoveries.

We depend on a small number of
primary insurers to provide us with a substantial portion of our business.

A
significant reduction in the amount of reinsurance ceded by one or more of the
primary insurers who are our principal customers could have a material adverse
effect on our results of operations. We derive substantially all of our
financial guaranty revenues from premiums ceded by four primary
financial guaranty insurers. In 2007, 2006 and 2005, these four primary
insurers accounted for approximately 85%, 89% and 96% of our gross written
premiums, respectively. A number of factors could cause a reduction in our
business with any of our primary insurers, including a reduction in the amount
of business written by the primary insurers, or one or more primary insurers
ceasing to write new business, including as a result of downgrades of the
primary insurers and recent market dislocation, an adverse rating action with
respect to the financial strength rating of RAM Re, increased participation by
one or more of the primary insurers in financial guaranty reinsurance through
strategic alliances or otherwise, the greater use of other forms of credit
enhancements or transaction structures as an alternative to traditional
financial guaranty reinsurance or higher retention levels by a primary insurer.
If any of the four main primaries were to cease or substantially decrease
ceding business to us, our dependence on the remaining primaries would increase
and we might not be able to replace the lost business. In particular, as of
March 2008, we believe that FGIC, one of the four primaries referred to above,
    and SCA have ceased to write

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new business,
at least temporarily, and Ambac and MBIA, two of the primaries referred to above,
    have announced reductions in new business written, resulting in our greater
dependence in 2008 on FSA, the fourth primary, and Assured Guaranty. During 2007,
    the four main primary issuers, Ambac, FGIC, FSA and MBIA accounted for 20%,
    26%, 22% and 17%, respectively, of gross premiums written. We also depend
    on the primary insurers in that our ability to receive profitable pricing
    for our reinsurance depends largely on prices charged by the primary insurers
    for their insurance coverage and the amount of ceding commissions paid by
    us to these primary insurers.

Our concentration on a single line
of reinsurance business could make us more susceptible to unfavorable market or
regulatory conditions affecting that line of business.

We
are currently dedicated to providing financial guaranty reinsurance and do not
offer any other products. Given our reliance on the reinsurance industry, unfavorable
    market or regulatory conditions affecting the financial guaranty reinsurance
    industry, such as those currently in effect as a result of the financial
    guaranty industrys exposure to U.S. residential mortgages, would likely
    have a disproportionate impact on us in comparison with our competitors who
    offer more diversified product lines within the financial guaranty market.
    For example, a decrease in demand for financial guaranty insurance as a result
    of downgrades or uncertainties with respect to the primaries, restrictions
    on the ability of the primaries to write certain types of business, or a
    decrease in the amount of credit given for financial guaranty reinsurance
    by state regulators or rating agencies would negatively impact our results
    of operations.

If
we are unable to renew our existing treaties with our customers, our business
and financial condition could be adversely affected.

Each
of our quota share reinsurance treaties with our primary insurer customers is
for a term of one year and provides that it may be terminated, on a run-off
basis, by either party upon notice to the other on or after the term ends. Each
quota share reinsurance treaty may also be terminated upon the happening of
certain events, such as a downgrade of our financial strength rating, prior to
the expiration of its term. In the ordinary course of business and consistent
with the practice within the financial guaranty reinsurance industry, our
customers typically will send us a notice of termination of their quota share
reinsurance treaty prior to the expiration of its annual term. In most cases,
we then negotiate renewal terms for the treaty with the customer. While we
generally have been able to renew our existing quota share reinsurance treaties
annually, we cannot assure you that any of our customers will renew their quota
share reinsurance treaties with us or that the terms on which any treaty is
renewed will be as favorable to us. Any such failure to maintain our
relationship with existing treaty customers or failure to negotiate favorable
treaty terms could have a material adverse effect on our business and financial
condition.

The size of our capital base may not
allow us to compete effectively in our industry and may adversely affect our
ability to grow our business and execute our business strategy.

We
currently have a smaller capital base than a number of the financial guaranty
reinsurers with which we compete. This effectively may reduce our ability to
compete with these reinsurers. Larger competitors have several advantages over
us because of their larger capital base, including being able to assume
portfolio transactions in the current, capital-constrained environment, being
    able to take larger shares of facultative transactions and treaty business,
    being able to offer larger single risk limits, having greater economies of
    scale, benefiting from implicit or explicit parental support and having more
    diverse product lines. To the extent our limited capital base prevents us
    from competing effectively for new business in comparison to larger companies
    in the market, our ability to grow our business and execute our business
    strategy would be adversely affected.

Competition
in our industry may adversely affect our revenues.

There
are a relatively limited number of companies offering financial guaranty
reinsurance. As a result, the industry is particularly vulnerable to swings in
capacity based on the new entrants or other additional capacity being added to
the market. Additional capacity would likely have an adverse effect on our
business by furthering price competition or reducing the aggregate demand for
our reinsurance capacity. In the last several years, there have been three new
entrants into the financial guaranty reinsurance market, Channel Reinsurance
Ltd., or Channel Re, BluePoint Re Limited, or BluePoint Re and PMI Guaranty
Co., or PMI Guaranty, a subsidiary of our shareholder The PMI Group, Inc., or
PMI. Many of the reinsurers that compete with RAM Re for third party business
are currently rated in the double A category by S&P and Moodys. If RAM
Res ratings are downgraded to below AA by S&P or below Aa3 by Moodys and
the other reinsurers that do business with third parties are not downgraded,
the other reinsurers could have a competitive advantage over RAM Re in
providing greater rating agency credit to the primaries for their reinsurance.
In addition, due to the capital constraints on the primary insurers in the
current market, RAM Re is aware that there is interest in forming new
reinsurers which would potentially compete with RAM Re and that one such
reinsurer has recently been formed. Furthermore, one or more of the primary
insurers that has been downgraded may choose to become a reinsurer on a
temporary or permanent basis and thereby compete directly with RAM Re. To the
extent that any of the existing companies or potential new market entrants
engage in practices that result in decreased prices or demand for our
reinsurance, our revenues and profitability could be adversely affected.

An
inability to access capital could result in a downgrade of RAM Res ratings,
adversely affect liquidity and impact RAM Res ability to write new business

Our
capital requirements depend on many factors, including our ability to write new
business successfully, our ability to establish reserves at levels sufficient
to cover losses, requirements to pay claims, and changes in capital charges
imposed by the rating agencies due to downgrades of underlying obligations or
changes in methodology. We are currently in a capital-constrained position for
our current ratings, with a negative outlook from Moodys and under review for
downgrade by S&P. Although we may, to the extent that capacity is
available,

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negotiate with
our customers to re-assume policies, or establish retrocessional facilities and
other soft capital facilities (which could include lines of credit, credit swap
facilities and similar capital support mechanisms) with providers with ratings
comparable to our own, no assurance can be given that any primary would
re-assume policies or that such retrocessional or soft capital facilities can
be established, or if established, that one or more of the rating agencies will
not downgrade or withdraw the financial strength ratings of such providers in
the future. In addition, no assurance can be given that a replacement provider
on any facility we establish would be available. Further, any capital raising
in the form of reinsurance, or other risk transfer transactions of the existing
portfolio, will have a dilutive effect on our future earnings. To the extent
that our existing capital is insufficient to fund future operating
requirements, cover losses and/or maintain our current ratings, we may need to
raise additional funds through financings, curtail our growth and reduce our
risk exposure portfolio or subject ourselves to downgrades and potential
recapture of our insured portfolio. In the current market, we believe we will
not be able to access additional debt financing on acceptable terms or at all.
In the case of equity financing in the current market, substantial dilution to
our shareholders would result, and the securities issued may have rights,
preferences and privileges that are senior to those of our outstanding common
shares. If our need for capital arises because of significant losses or
expected losses, the occurrence or expectation of these losses may make it more
difficult for us to raise the necessary capital. Our failure to obtain the
necessary capital on favorable terms or at all would adversely affect our
business, ratings, operating results and financial condition.

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

Our
business model is predicated upon the assumption that a small group of highly
experienced individuals will be able to successfully implement our business
plan. We currently have 16 employees and our success depends upon our ability
to retain and attract qualified employees and upon the ability of our senior
management and other key employees to implement our business strategy. We
believe there are only a limited number of available qualified executives in
the financial guaranty reinsurance industry. Further, we require our employees
to work in Bermuda, which limits our ability to attract qualified personnel. 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 fully
implementing our business strategy and could negatively affect our ability to
capitalize on market opportunities, grow our business or operate efficiently
and profitably.

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

Our
location in Bermuda may serve as an impediment to attracting and retaining
experienced personnel. Under Bermuda law, non-Bermudians (other than spouses of
Bermudians, holders of a permanent residents certificate or holders of a
working 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. Our Chief Financial Officer has a temporary work permit that will expire
on May 11, 2008 if it is not extended or if a standard two-year work permit is
not approved. 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.

We rely to a significant degree on
the underwriting decisions of the primary insurers and the risks associated
with reinsurance underwriting could adversely affect us.

We
conduct a substantial amount of our reinsurance business through reinsurance
treaties entered into with certain primary insurers. As of December 31, 2007,
we had quota share reinsurance treaties in place with five of the seven primary
insurers and one reinsurance affiliate of a primary insurer. All financial
guaranty transactions entered into by a primary insurer that meet a treatys
inclusion parameters are automatically ceded to us, according to the
participation percentage set forth in the treaty. The inclusion parameters
would typically consist of any financial guaranty of an issue generally with an
underlying investment grade rating by both Standard & Poors and Moodys
and exceeding a specified par value, subject to limits and exclusions, which we
have the right to change periodically, related to, for example, sector,
geographic location or identity of an issuer or seller/servicer. Individual
transactions entered into with a primary insurer that are treaty eligible may
not be rejected by us during the term of the reinsurance treaty. We do not
separately evaluate each of the individual risks assumed under our reinsurance
treaties. Therefore, we depend to a significant degree on the original
underwriting decisions made by primary insurers. We cannot assure you that
these primary insurers will adequately evaluate the risks underwritten by them
and subsequently reinsured by us. Any unfavorable decisions made by these
primary insurers could adversely affect our financial condition or results of
operations and the premiums ceded may not adequately compensate us for the
risks we assume.

Adverse selection by ceding primary
insurers may adversely affect our financial condition and results of
operations.

Most of our reinsurance business is written under treaties which
generally give a primary insurer some ability to select the obligations ceded
to us and discretion within a range as to the amount of an obligation to cede
as long as the obligations are covered by the terms of the

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treaty. Under
our treaties, we generally do not have the right to refuse such obligations,
although we do have some ability to add to exclusion lists certain categories
of obligations or single risks that we will not be required to reinsure. As a
result, primary insurers may adversely select the insured obligations ceded to
us (that is, cede those policies, or a greater amount of those policies, that
have greater risk relative to premium), thereby increasing the chances that we
will pay a claim or be required to maintain additional capital by the rating
agencies. Adverse selection by the primary insurers could have a material
adverse effect on our financial condition and results of operations.

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
reinsure 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 reinsure, 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 two professional asset management firms in accordance with
specific investment policies approved by our board of directors. One of
the asset management firms we retained is MBIA Capital Management Corp., or
MBIA Capital, a wholly-owned subsidiary of one of our customers. Management
fees paid to MBIA amounted to $0.2 million and $0.6 million for the years ended
December 31, 2007 and 2006, respectively. 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 can 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.

Prevailing
interest rate levels can affect demand for financial guarantee insurance. Lower
interest rates are typically accompanied by narrower spreads between insured
and uninsured obligations. The purchase of insurance during periods of
relatively narrower interest rate spreads will generally provide lower cost
savings to the issuer than during periods of relatively wider spreads. These
lower cost savings could be accompanied by a corresponding decrease in demand
for financial guarantee insurance.

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 to make
payments under our reinsurance agreements and/or to collateralize our
obligations under reinsurance agreements, such investment assets may be sold at
discounted prices which could be less than the December 31, 2007 fair values.

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Our net
income 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.

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 tighten 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, 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.

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 had 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 the present market conditions and the large changes in
credit spreads currently being experienced. Management therefore determined
that a more appropriate basis for our estimate of fair value was to use, from
September 30, 2007 onward, the valuation information provided to us by our
ceding companies as they have access to each underlying risk and their internal
models are able to reflect more detailed market data for each of those
underlying risks. The ceding companies use their own internal valuation models
where market prices are not available. 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,
    future amendments or interpretations of FAS 133 may cause us to modify our
    accounting methodology in a manner which may have an adverse impact on our
    financial results.

Potential
impact of general economic and geopolitical conditions may adversely affect
RAMs business prospects and insured portfolio.

Changes
in general economic conditions can adversely impact RAMs business. Recessions,
increases in corporate, municipal or consumer default rates, changes in
interest rates, changes in law or regulation and other general economic and
geopolitical conditions could adversely impact RAMs prospects for future
business, as well as the performance of RAM Res insured portfolio and RAMs
investment portfolio. For example, the recent deterioration of certain sectors
of the credit markets has caused a significant decline in the number of
structured finance securities that have been issued in recent months. There can
be no assurance that the market for structured finance securities will recover,
and if the market fails to recover there would be a decrease in the demand for
financial guarantee insurance for these securities, which may adversely affect
RAMs business prospects.

General
global unrest could disrupt the economy in the United States and around the
world and could have a direct material adverse impact on certain industries and
on general economic activity. RAM Re has exposure in certain sectors that could
suffer increased delinquencies and defaults as a direct result of these types of
events. RAM Res exposures to domestic and international airports and to
domestic enhanced equipment trust certificate aircraft securitizations have
experienced increased stress as a result of global events since 2001, including
a downgrading of the ratings and the bankruptcy of some of the underlying
issuers, and could experience further stress in the event of general global
unrest in the future. Other exposures that depend on revenues from business and
personal travel, such as bonds backed by hotel taxes and car rental fleet
securitizations, have experienced or may experience increased levels of
delinquencies and default. In addition, certain other sectors in which RAM Re
has insured exposure, such as consumer loan securitizations (for example, home
equity, auto loan and credit card transactions), have experienced increased
delinquencies and defaults in the underlying pools of loans and could
experience further defaults in the event of future global unrest. To the extent
that certain corporate sectors may be vulnerable to credit deterioration and
increased defaults

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in the event
of future global unrest, CDOs backed by pools of corporate debt issuances in
those stressed sectors could also be adversely impacted.

RAM
believes the primary insurers underwrite exposures to their reasonable
expectation of future performance as well as at various stress levels
estimating defaults and other conditions at levels higher than are reasonably
expected to occur. There can be no assurance, however, that RAM will not incur
material losses if the economic stress and increased defaults in certain
sectors caused by change in economic conditions, default rates, global unrest,
terrorism, catastrophic events, natural disasters or similar events in the
future is or will be more severe than our customers currently foresee and had
assumed in underwriting their exposures.

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, 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 holder of our $40.0 million aggregate
principal amount of 6.875% Senior Notes due 2024 and payments of dividends on
our $75.0 million of Series A Preference Shares 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 uncertain 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.

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The
securities RAM Re reinsures include highly complex structured finance
transactions, and in such transactions we rely on the assessments of the
primaries, using their internal financial models, to estimate future credit
performance of the underlying assets, and to evaluate structures, rights and
our potential obligations over time. For example, the modeling of multi-sector
CDOs requires analysis of both direct ABS as well as CDO collateral within the
multi-sector CDOs, known as inner securitizations. The primaries may not have
access to all the detailed information necessary to project every component of
each inner securitization. Moreover, the performance of the securities RAM Re
reinsures depends on a wide variety of factors which are outside our control,
including the liquidity and performance of the collateral underlying such
securities, the correlation of assets within collateral pools, the performance
or non-performance of other transaction participants (including third-party
servicers) and the exercise of control or other rights held by other
transaction participants.

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 incorporated under the caption Certain
Relationships and Related Transactions and Director Independence by
reference to our Proxy Statement. 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 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.

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 90% from its high of $17.13
on June 19, 2007. 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.

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Risks Related to Our Industry

Demand for
financial guarantee insurance could decline if investors confidence in
financial guarantor financial strength declines or as a result of downgrades of
the financial guarantors.

The
perceived financial strength of financial guarantee insurers affects demand for
financial guarantee insurance. Recently, several major financial guarantee
insurers, including several of our customers, have had their insurer financial
strength ratings downgraded or placed on review for a possible downgrade and
have had their outlooks changed to negative, which may be contributing
to the recent decline in the demand for financial guarantee insurance generally.
See BusinessCustomers, above. If a major financial guarantee insurer has its insurer financial strength
rating downgraded, if the industry participants generally have their insurer
financial strength ratings downgraded, if the reliability of one or more of the
rating agency capital models is questioned or if the financial guaranty industry
suffers for some other reason deterioration in investors confidence, demand
for financial guarantee insurance, and correspondingly demand for financial
guaranty reinsurance, would be reduced significantly. We generally do not have
the right to terminate our treaties if a primary insurer is downgraded,
although we always have the right to terminate the treaties at the end of the
then current one year term.

Increased capacity in the financial guaranty
reinsurance industry may have a material adverse effect on the industry.

The
current number of financial guaranty reinsurance companies is relatively
limited. Consequently, the industry is particularly vulnerable to swings in
capacity based on the entry or exit of one or a small number of financial
guaranty reinsurers. The most significant barriers to entry for new financial
guaranty reinsurance competitors are rating agency requirements and regulatory
capital requirements, both of which are lower for entrants into the financial
guaranty reinsurance market than for the primary financial guaranty market. New
entrants into the market could have an adverse effect on all financial guaranty
reinsurers by offering reinsurance on more favorable terms than currently being
offered by existing reinsurers.

Premium rates for financial guaranty reinsurance
products may decline due to factors beyond the control of financial guaranty
reinsurers.

Premium
rates on financial guaranty reinsurance are equal to premium rates charged by
the primary insurer less the ceding commission paid by the reinsurer. Premium
rates charged by primary insurers are affected by factors beyond the control of
financial guaranty reinsurers, such as investor appraisals of the insured
credits, the spread between interest rates prevailing on insured and uninsured
obligations and capital charges (which is a measure of portfolio risk by a
rating agency based on an expected loss, considering the expected default
frequency and loss severity) associated with these exposures as determined by the
rating agencies, competition among primary insurers as well as competition with
other forms of credit enhancement. Accordingly, any decline in premium rates on
business written by the primary insurers would have a negative effect on the
premium rates and the profitability of reinsurers, including us.

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 April
18, 2007, the Financial Accounting Standards Board (FASB) issued the Exposure
Draft Accounting for Financial Guarantee Insurance Contracts  an
interpretation of FASB Statement No. 60 (Exposure Draft). The Exposure
Draft, among other things, would change current industry practices with respect
to the recognition of premium revenue and claim liabilities. In addition, the
Exposure Draft would require that the measurement of the initial deferred
premium revenue (liability) be the present value of the contractual premium due
pursuant to the terms of the financial guarantee insurance contract, thereby
changing current industry accounting practice with respect to insurance
policies with installments by requiring that the present value of contractual
premiums due under such contracts, currently or in the future, be recorded on
the Companys balance sheet as premiums receivable and unearned premiums.
Under current industry practice such premiums are not reflected on the balance
sheet. When the FASB issues authoritative guidance the Company and the rest of
the financial guaranty industry may be required to change some aspects of their
accounting for loss reserves, premium recognition and acquisition cost
recognition, and these changes could have a material effect on our financial
statements. The comment period for the Exposure Draft closed on June 15, 2007.
A FASB Round Table discussion was held in early September 2007 with another
FASB meeting held in January 2008. The FASB has indicated that the final FASB
Statement is expected to be issued in the first or second quarter of 2008. The
Company is assessing the potential impact and at this time is unable to quantify
the effect of the adoption of the proposed interpretation. Until the authoritative
guidance is issued, the Company intends to continue to apply its existing
policies with respect to its accounting for the establishment of both case and
unallocated reserves as well as for premium recognition and deferred
acquisition costs.

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Regulatory
change could adversely affect the primaries ability to enter into future
business

The
financial guarantee insurance industry has historically been and will continue
to be subject to the direct and indirect effects of governmental regulation,
including insurance laws, securities laws, tax laws and legal precedents
affecting asset-backed and municipal obligations, as well as changes in those
laws. Failure to comply with applicable laws and regulations could expose us
and the primary insurers to fines, the loss of insurance licenses, and the
inability to engage in certain business activity. In addition, future
legislative, regulatory or judicial changes could adversely affect the primaries
ability to pursue their business, thereby materially impacting our financial
results. For example, the New York State insurance regulators have stated that
they may seek to restrict the types of business the financial guaranty
companies conduct in the future.

If the
    primary financial guaranty insurance industry returns to an excess capital position, it could
result in lower amounts of insurance ceded.

Increases
in capital of the large primary insurers could result in many of the primary
insurers having sufficient capital to support their business pursuant to
regulatory and rating agency capital requirements. This could result in the
primary insurers ceding less reinsurance. If such an excess capital position
    were to continue for a prolonged period, the primary insurers would likely
    cut back or cancel treaties, increase ceding commissions, increase adverse
    selection of obligations ceded to reinsurers and generally diminish the business
    terms on which they cede business. Any of these activities would have an
    adverse effect on our financial condition and results of operation.

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.

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

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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

Risks of operating as a
foreign corporation could adversely affect our ability to conduct business in
the United States

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 United States 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 United States 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 United States, applying 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, which we refer to as the Bermuda Insurance Act, and related regulations,
RAM Re will be 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. Further, RAM Re may not reduce its total
statutory capital by 15% or more, as set out in its previous years financial
statements, without the prior approval of the BMA. The BMA is considering the
impact on Bermuda statutory financial statements of unrealized losses on credit
derivatives and we believe the BMA will require that the portion of such
unrealized losses that represents an impairment be classified as a case basis
loss reserve, which would 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 the
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

30

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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 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 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 United States. As such, it may be difficult or
    impossible to effect service of  process within the United States 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.

31

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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.

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 United States, 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 United States income tax treaty with Bermuda and
if RAM Re were considered engaged in a trade or business in the United States
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 United States, 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 United States, 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 United States, (ii) a partnership or
corporation created or organized in or under the laws of the United States, 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 United
States 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.

32

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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.

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

33

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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 United States but have certain U.S.
connections. While there are no currently pending 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 United States,
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

None.

|        |           
|------- | ----------
|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 currently involved in any legal proceedings.

|        |                                                    
|------- | ---------------------------------------------------
|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, 2007.

34

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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 on the NASDAQ Global Market under the
symbol
RAMR. As of March 14, 2008, the closing price for our common shares
on NASDAQ was $1.42, and there
were 16 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 |  
|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 | 
|2006:          |  |      |       |     |   |       | 
|Fourth Quarter |  | $    | 14.55 |     | $ | 12.50 | 
|Third Quarter  |  | $    | 13.49 |     | $ | 11.96 | 
|Second Quarter |  | $    | 13.85 |     | $ | 12.25 | 

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. 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 (US)) through December 31,
2007 against the NASDAQ Composite Index and the NASDAQ Insurance Index. The
performance graph and table assumes $100 invested on April 27, 2006 in the
stock of RAM Holdings, the NASDAQ Composite Index and the NASDAQ Insurance
Index, and depicts the value on a quarterly basis thereafter to December 31,
2007. 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.

35

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

The following
financial information for the five years ended December 31, 2007, has been
derived from RAMs Financial Statements. This information should be read in
conjunction with the Financial Statements and related notes located in Part II,
Item 8.

|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|--------------------------------------------------- |  | --------------------------------------------------- | -------- | ------------------ | - | -------------- | - | -------------- | ------- | -------------- | - | ------- |  | - | ------- | 
|                                                    |  | As of and for the Year Ended December 31,(1)        |         
|                                                    |  |                                                     |         
|                                                    |  | Consolidated
 2007                                  |          | Consolidated
 2006 |   | Combined
 2005 |   | Combined
 2004 |         | Combined
 2003 |  
|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |  
|                                                    |  | (Dollars in thousands, unless indicated
 otherwise) |         
|Statement of Operations Data:                       |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|Gross written premiums                              |  | $                                                   | 108,750  |                    | $ | 77,632         |   | $              | 68,147  |                | $ | 66,057  |  | $ | 67,880  | 
|Net written premiums                                |  |                                                     | 107,998  |                    |   | 75,486         |   |                | 68,147  |                |   | 66,057  |  |   | 67,880  | 
|Net earned premiums                                 |  |                                                     | 60,063   |                    |   | 48,835         |   |                | 42,609  |                |   | 34,721  |  |   | 25,543  | 
|Net investment income                               |  |                                                     | 33,148   |                    |   | 24,236         |   |                | 18,201  |                |   | 16,824  |  |   | 13,373  | 
|Net realized investment gains (losses)              |  |                                                     | (3,604   | )                  |   | (1,002         | ) |                | (1,583  | )              |   | 536     |  |   | 1,097   | 
|Net (losses) gains on credit derivatives            |  |                                                     | (177,777 | )                  |   | (14            | ) |                | (2,526  | )              |   | 2,757   |  |   | 456     | 
|Net unrealized gain on other financial
 instruments |  |                                                     | 35,330   |                    |   |               |   |                |        |                |   |        |  |   |        | 
|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|Total revenues                                      |  |                                                     | (52,840  | )                  |   | 72,055         |   |                | 56,701  |                |   | 54,838  |  |   | 40,469  | 
|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|Loss and loss adjustment expenses                   |  |                                                     | 48,026   |                    |   | (2,781         | ) |                | 7,204   |                |   | 3,579   |  |   | 3,994   | 
|Acquisition expenses                                |  |                                                     | 21,505   |                    |   | 17,654         |   |                | 15,628  |                |   | 13,387  |  |   | 10,223  | 
|Operating expenses                                  |  |                                                     | 13,373   |                    |   | 13,379         |   |                | 11,531  |                |   | 11,032  |  |   | 5,042   | 
|Interest expense                                    |  |                                                     | 8,375    |                    |   | 2,750          |   |                | 2,750   |                |   | 2,106   |  |   |        | 
|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|Total expenses                                      |  |                                                     | 91,279   |                    |   | 31,002         |   |                | 37,113  |                |   | 30,104  |  |   | 19,259  | 
|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|Net (loss) income                                   |  | $                                                   | (144,119 | )                  | $ | 41,053         |   | $              | 19,588  |                | $ | 24,734  |  | $ | 21,210  | 
|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|Earnings per share                                  |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|Basic                                               |  |                                                     | (5.29    | )                  |   | 1.53           |   |                | 0.76    |                |   | 0.95    |  |   | 0.90    | 
|Diluted                                             |  |                                                     | (5.29    | )                  |   | 1.53           |   |                | 0.75    |                |   | 0.95    |  |   | 0.90    | 
|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|Balance Sheet Data:                                 |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|                                                    |  |                                                     |          |                    |   |                |   |                |         |                |   |         |  |   |         | 
|Investments and cash                                |  | $                                                   | 717,037  |                    | $ | 620,578        |   | $              | 475,978 |                | $ | 440,992 |  | $ | 356,933 | 
|Deferred acquisition costs                          |  |                                                     | 87,304   |                    |   | 73,838         |   |                | 66,220  |                |   | 58,653  |  |   | 53,016  | 
|Total assets                                        |  |                                                     | 860,265  |                    |   | 711,903        |   |                | 553,572 |                |   | 510,798 |  |   | 426,260 | 
|Reserve for losses and loss adjustment expense      |  |                                                     | 63,798   |                    |   | 14,506         |   |                | 16,595  |                |   | 15,493  |  |   | 13,821  | 
|Unearned premiums                                   |  |                                                     | 242,829  |                    |   | 194,322        |   |                | 165,580 |                |   | 140,043 |  |   | 120,182 | 
|Unsecured senior notes                              |  |                                                     | 40,000   |                    |   | 40,000         |   |                | 40,000  |                |   | 40,000  |  |   |        | 
|Redeemable preferred shares                         |  |                                                     | 75,000   |                    |   | 75,000         |   |                |        |                |   |        |  |   |        | 
|Total liabilities                                   |  |                                                     | 607,953  |                    |   | 332,636        |   |                | 230,916 |                |   | 199,293 |  |   | 137,005 | 
|Accumulated other comprehensive (loss)
 income      |  |                                                     | 10,888   |                    |   | (5,497         | ) |                | (4,540  | )              |   | 2,787   |  |   | 4,659   | 
|Shareholders equity                                |  |                                                     | 252,312  |                    |   | 379,267        |   |                | 322,656 |                |   | 311,505 |  |   | 289,255 | 
|Book value per share                                |  | $                                                   | 9.26     |                    | $ | 13.93          |   | $              | 12.47   |                | $ | 12.02   |  | $ | 11.16   | 

|    |                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Financial
 statement information included is on a consolidated basis for December 31,
 2007 and 2006. Prior to that financial information is presented on a combined
 basis. See Note 1 in the audited financial statements.

36

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|                                                              |  |                                                     |        |      |  |        |    |      |        |      |  |        |   |  |        |  
|------------------------------------------------------------- |  | --------------------------------------------------- | ------ | ---- |  | ------ | -- | ---- | ------ | ---- |  | ------ | - |  | ------ | -
|                                                              |  | As of and for the Year Ended December 31,           |       
|                                                              |  |                                                     |       
|                                                              |  | 2007                                                |        | 2006 |  | 2005   |    | 2004 |        | 2003 | 
|                                                              |  |                                                     |        |      |  |        |    |      |        |      | 
|                                                              |  | (Dollars in thousands, unless indicated
 otherwise) |       
|                                                              |  |                                                     |       
|Financial Ratios (Based on U.S. GAAP Income
 Statement Data): |  |                                                     |        |      |  |        |    |      |        |      |  |        |   |  |        |  
|Loss and loss adjustment expense ratio 1                      |  |                                                     | 153.9  | %    |  | (5.7   | )% |      | 16.9   | %    |  | 10.3   | % |  | 15.6   | %
|Acquisition expense ratio 2                                   |  |                                                     | 35.8   | %    |  | 36.2   | %  |      | 36.7   | %    |  | 38.6   | % |  | 40.0   | %
|Operating expense ratio 3                                     |  |                                                     | 22.3   | %    |  | 27.4   | %  |      | 27.1   | %    |  | 31.8   | % |  | 19.7   | %
|Combined ratio 4                                              |  |                                                     | 212.0  | %    |  | 57.9   | %  |      | 80.6   | %    |  | 80.6   | % |  | 75.4   | %
|                                                              |  |                                                     |        |      |  |        |    |      |        |      |  |        |   |  |        |  
|Non-GAAP Supplemental
      Data:                             |  |                                                     |        |      |  |        |    |      |        |      |  |        |   |  |        |  
|Net par outstanding (in millions)                             |  |                                                     | 45,394 |      |  | 31,119 |    |      | 27,054 |      |  | 22,154 |   |  | 19,773 |  
|Net debt service outstanding (in millions)                    |  |                                                     | 71,911 |      |  | 50,944 |    |      | 41,535 |      |  | 34,957 |   |  | 31,259 |  
|U.S. Basis statutory capital (in millions) 5                  |  |                                                     | 356.8  |      |  | 403.4  |    |      | 248.8  |      |  | 274.6  |   |  | 230.3  |  

|  |                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------
| 
|1 | Calculated by dividing loss
 and loss adjustment expenses plus credit impairments 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.

37

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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. On February 1, 2008, Moodys
announced that it had placed the Aa3 rating of RAM Re on review for possible
downgrade, reflecting Moodys
revised expected loss projections for residential mortgage backed securities
and related collateralized debt obligations risk, and the corresponding implications
for RAM Res capital adequacy. On February 14, 2008, Standard & Poors
placed the AAA rating on RAM Re on CreditWatch with negative implications. Standard
& Poors stated that under its guidelines, CreditWatch with negative
implications means that there is a one-in-two chance of a ratings change within
the short term, typically within 90 days.  On March 7, 2008,
Moodys confirmed the Aa3 insurance financial strength rating of RAM Re
and changed the outlook to negative. Moodys stated that RAM Re remains
adequately capitalized for its Aa3 rating, although it has a capital cushion
of only $10 million for this rating. Moodys stated that the negative
outlook assigned reflects continued uncertainty regarding both the ultimate performance
of mortgage and mortgage-related collateralized debt obligation exposures, as
well as RAM Res future underwriting prospects given its reliance on the
primaries for business. We do not believe that the
CreditWatch with negative implications status of our S&P rating or the change
in outlook by Moodys has had or will have an adverse impact on our business,
although an actual reduction in or loss of rating could have a material adverse
affect on our ability to compete, on the terms of our reinsurance and on our
financial results, particularly if the downgrade results in a substantial loss
of rating agency capital credit for our customers. RAM is pursuing a number of
alternatives to improve its capital position, including but not limited to commutations
and reassumption of selected exposures with our customers, seeking reinsurance
and reducing our growth. Accessing the capital markets may not be a cost-effective
option unless RAMs quoted
stock price improves in the future.

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, 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 seven primary insurers, with approximately 85% of our 2007
    gross written premiums ceded from four companies.

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. Facultative reinsurance, the reinsurance of individual
policies, is subject to separate negotiation for each reinsurance cession. 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.

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 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

38

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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 and
 preferred share 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 preferred 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 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. During the past several
years, interest rates have been relatively stable at low historical levels and
credit spreads have generally remained historically tight or narrow
and new aggregate business production of primary insurers has been about flat
through mid-2007, although varying considerably by primary insurer. In particular
during the last six months of 2007,a global credit crisis occurred, precipitated
by heightened delinquencies and defaults in subprime mortgages. 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
Business  Pricing)
and the demand for reinsurance has increased as a result of the capital constrained
positions of the primaries. However, the difficult market conditions and recent
rating agency actions have resulted in some of our customers reporting limited
new business production. (See
Business- Customers) In addition, we are in a capital constrained
position and may not be able to take advantage of the current reinsurance opportunities,
such as opportunities to reinsure large portfolios of business from the
primaries. If these market conditions continue or worsen during the remainder
of 2008, we will continue to face a very challenging business environment.

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 effect of the
credit and mortgage markets as a consequence of the subprime crisis 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. 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. There were no changes to our accounting
policies compared to those in our December 31, 2006 audited financial
statements, with the exception of the reclassification of expenses on our
preferred share soft capital facility. 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.

39

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On
    April 18, 2007, the Financial Accounting Standards Board (FASB)
    issued the Exposure Draft Accounting for Financial Guarantee Insurance
    Contracts  an
interpretation of FASB Statement No. 60 (Exposure Draft). The
Exposure Draft among other things, would change current industry practices with
respect to the recognition of premium revenue and claim liabilities. In addition,
the Exposure Draft would require that the measurement of the initial deferred
premium revenue (liability) be the present value of the contractual premium due
pursuant to the terms of the financial guarantee insurance contract, thereby
changing current industry accounting practice with respect to insurance
policies with installments by requiring that the present value of contractual
premiums due under such contracts, currently or in the future, be recorded on
the companys balance sheet as premiums receivable and unearned premiums.
Under current industry practice such premiums are not reflected on the balance
sheet. When the FASB issues authoritative guidance the Company and the rest of
the financial guaranty industry may be required to change some aspects of their
accounting for loss reserves, premium recognition and acquisition cost
recognition, and these changes could have a material effect on our financial
statements. The comment period for the Exposure Draft closed on June 15, 2007.
A FASB Round Table discussion was held in early September 2007 with another
FASB meeting held on January 30, 2008. The FASB has indicated that the final FASB
Statement is expected to be issued in the first or second quarter of 2008 with
an anticipated effective date of January 1, 2009. The Company is assessing the
potential impact and at this time is unable to quantify the effect of the adoption
of the proposed interpretation. Until the authoritative guidance is issued, the
Company intends to continue to apply its existing policies with respect to its
accounting for the establishment of both case and unallocated reserves as well
as for premium recognition and deferred acquisition costs.

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. 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. 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. At December 31, 2007, and December 31,
2006, our balance sheet included reserves as follows:

|                       |  |                                 |      |      |   |      | 
|---------------------- |  | ------------------------------- | ---- | ---- | - | ---- | 
|                       |  | For the year ended December 31, |     
|                       |  | 2007                            |      | 2006 |  
|                       |  |                                 |      |      |  
|                       |  | (Dollars in millions)           |     
|Case
  reserves        |  | $                               | 30.4 |      | $ | 3.0  | 
|Unallocated
  reserves |  | $                               | 33.4 |      | $ | 11.5 | 
|                       |  |                                 |      |      |   |      | 
|Total Reserves         |  | $                               | 63.8 |      | $ | 14.5 | 
|                       |  |                                 |      |      |   |      | 

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 Standard & Poors) 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 their
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 Standard & Poors 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, 2007 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 2005, 2006 or 2007 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 2005, 2006 and 2007, the calculation of unallocated reserves would
have resulted in a value that was $8.4 million, or 20%, greater than that
recorded at December 31, 2007. We

40

---



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.

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 both the primary insurer and our senior risk and finance personnel
and, therefore, the final liability may materially differ from amounts
estimated and reserved.

Over
the past several months, 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, 2007, we have established $26.4 million
of case reserves relating to the 2005-2007 RMBS and an additional increase of
$15.6 million to our unallocated loss reserve relating to RMBS losses that are
probable to occur but cannot be specifically identified. This addition to
unallocated loss reserves is an extension of our reserving methodology based
on increases of unallocated reserves for RMBS by our primary insurers. Additionally,
the Company has been ceded credit impairments relating to CDOs amounting to $44.4
million that is reported separately in the valuation of credit derivatives below.

Valuation
      of Derivative Financial Instruments. Certain
transactions reinsured by the Company have been deemed to 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 derivative instruments is through reinsurance of credit default swap CDS contracts
issued by ceding companies. These CDS contracts are held to maturity by the ceding
companies, are generally highly rated tranches of structured credit default swap
obligations, and because the primary insurer generally structures its credit
default swap contracts with first loss protection from various financial
institutions our risk of loss is mitigated. Management considers these
agreements to be a normal extension of RAMs 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 as unrealized gains and losses on derivative
financial instruments in our income statement. Credit impairments on credit
default swaps relate to losses that are probable and estimable and will remain
in place until the loss is paid or the policy matures.

As
part of our financial guaranty reinsurance business, we reinsure guarantees of
credit derivative transactions issued by primary insurers. These contracts are
held to maturity and have been reinsured by RAM with initial underlying ratings
    of triple-A before they are insured. Such transactions may experience defaults
that exceed expectations based on historical data, particularly in the case of
residential mortgage collateral. We do not reinsure guarantees of single name
corporate credit derivative transactions. We report revenues arising from such
reinsurance as earned premiums; we record paid losses in losses and loss
adjustment expenses as incurred, and we record changes in fair value including
    credit impairments in net losses on credit derivatives in our statement of
    operations. Credit derivative transactions require primary insurers to make
    payments upon the occurrence of certain defined credit events relating to
    underlying obligations (generally a fixed-income obligation). If credit spreads
    or collateral performance of the underlying obligations change, the market
    value of the related credit derivative transaction generally changes accordingly.
    Changes in credit spreads are typically caused by changes in the markets
    perception of the credit quality of the underlying obligations.

FAS
133 requires us to mark-to-market gains or losses on those credit derivative
transactions we reinsure. Changes in fair
value due to market conditions are reported as unrealized gains and losses on
derivative financial instruments in our income statement. These unrealized
gains and losses cumulatively will net to zero if no credit defaults occur on
these contracts. Should actual claim losses be incurred as a result of credit
defaults, the primary insurer may be required to either purchase the security
in default at par, or pay to the counterparty to a credit derivative
transaction the difference between par and market value and as a reinsurer we
would be obligated to reimburse the primary insurer for our proportional share
of the loss. In this respect, credit derivative transactions may differ from
traditional financial guarantee contracts since financial guarantee contracts
require the insurer to make payments of principal and interest only on
scheduled debt service dates, whereas defaults in our credit derivatives
portfolio may cause immediate payments of outstanding par, net of market value.

Through
June 30, 2007 the Company 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 at September 30,
2007 and December 31, 2007 would not have fully reflected the effect of the
present market conditions and the large changes in credit spreads and collateral
    deterioration currently being experienced. Management therefore determined
    that a more appropriate basis for our estimate of fair value was to use the
    valuation information provided to us by our ceding companies as they have
    access to each underlying risk and their internal models are able to reflect
    more detailed market data for each of those underlying risks. Accordingly,
    commencing September 30, 2007, our change in fair value estimate is based
    upon the information provided to us by our ceding companies, and our evaluation
    thereof.

41

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The
ceding companies use their own internal valuation models where market prices
are not available. 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.

The
models used to fair value these instruments include a number of factors, where
available, including credit spreads, changes in interest rates, changes in
correlation assumptions, current delinquencies, recovery rates and the credit
ratings of referenced entities. Some of the primaries use market prices when
available to determine the fair value of credit derivatives. If the market
prices are not available, the fair value is estimated using a combination of
observable market data and valuation models incorporating the above factors.
Fair values from the primaries models may differ from values calculated
by companies outside of the financial guaranty industry because terms of the
credit default swap contract generally differ. Financial guaranty credit derivative
terms generally include the absence of collateral support agreements or immediate
settlement provisions, and are generally structured as pay as you go obligations
requiring payment only as losses come due. Most importantly the primaries have
the intent and the ability to hold the contracts to maturity. Because of these
terms and conditions, the fair value of the primaries 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 primaries and enhanced, as appropriate, based
upon improvements in modeling techniques and availability of more timely market
information.

Valuation
models include the use of estimates and current market information, including
assumptions on how the fair value of derivative instruments is affected by
current market conditions. The primaries consider factors such as current
prices charged for similar agreements, performance of underlying assets, life
of the instrument, and the nature and extent of activity in the financial
guaranty credit derivative marketplace. The assumptions used to determine fair
value may change in the future due to market conditions. Due to the inherent
uncertainties of the assumptions used in the valuation models to determine the
fair value of these derivative products, actual experience may differ from the
estimates and the differences may be material.

Management assess the reasonableness of the ceding companies valuations
  by i) discussions with primary insurers on 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) assessing the reasonableness of the valuations,
  including changes in the reported valuations against current observable market
data including credit spread movements and collateral delinquency information.

The
fair value unrealized loss recognized in our statement of operations for the
year ended December 31, 2007, was $177.8 million, compared with an
immaterial loss for the year ended December 31, 2006, and a
$2.5 million loss for the year ended December 31, 2005. The 2007 loss
of $177.8 million primarily related to spreads widening and included $44.4
million of credit losses, compared to no credit impairments in prior years. It
is expected that with the continued widening of credit spreads, the fair value
amount will fluctuate significantly in the future periods.

In
September 2006, the FASB issued FAS No. 157 (FAS 157), Fair Value Measurement. 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. FAS
157 is effective for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Company adopted FAS 157
effective January 1, 2008. FAS 157 is not expected to have a material impact on
our results of operations or financial position.

Valuation
of Other Financial Instruments. The put
option relating to the Companys preferred share soft capital facility of
$50.0 million, which is described in more detail under Liquidity and Capital
Resources  Capital Resources, 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 obtained from banks that value the put option using assumptions
over the Company and the facility as well as other similar instruments in the
market. While the gain reported is a measurement against similar instruments
in the market, the Company would most likely not have the ability to realize
the gain as it would be subject to negotiation.

Valuation
of Investment Portfolio. Our investment securities are
designated as available for sale in accordance with FAS 115, Accounting for
Certain Investments in Debt and Equity Securities. Changes in the fair value
of our securities are reported in Accumulated other comprehensive income in
shareholders equity. Fair values of all our investments are calculated from
independent valuations. We have a formal review process for all securities in
our investment portfolio, including a review for other than temporary
impairment losses. Factors considered when assessing other than temporary
impairment include: (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

42

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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.

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.

The
Company will recognize a premium deficiency if the sum of expected losses and
loss adjustment expenses, maintenance costs and unamortized policy acquisition
costs exceed the related unearned premiums, the anticipated present value of
future premiums for installment contracts written, and anticipated investment
income. If a premium deficiency is calculated that is greater than unamortized
acquisition costs, the unamortized acquisition costs would be reduced by a
charge to expense, and a liability would be established for any remaining
deficiency. There have been no premium deficiencies recorded by the Company
since its inception. 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 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.

Results of Operations

Year Ended December 31, 2007 Compared to December 31, 2006 and Year Ended December
31, 2006 Compared to December 31, 2005

Net
Income. Net (loss) income was $(144.1) million in
2007, $41.1 million in 2006, and $19.6 million in 2005. The decrease
in net income of $185.2 million, in 2007 relative to 2006 is primarily the result
of a year-over-year increase of $50.8 million in losses and loss adjustment
expenses, $177.8 million in losses on credit derivatives in 2007 due to widening
credit spreads and the deterioration of underlying collateral, including $44.4
million of credit impairments, compared to immaterial unrealized losses during
2006, offset by a $35.3 million unrealized gain in 2007 on the fair value of
the put option on the Companys preferred share soft capital facility in
2007 compared to $Nil in 2006, and an $8.9 million increase in investment income.
Net income of $41.1 million in 2006, an increase of $21.5 million, or 109.7%,
in 2006 relative to 2005 is primarily the result of a year over year decrease
of $10.0 million in losses and loss adjustment expenses, realized investment
losses of $1.0 million in 2006 compared to realized investment losses of $1.6
million in 2005, and immaterial unrealized losses on credit derivatives in 2006
versus unrealized losses of $2.5 million during 2005, along with an increase
in net earned premium of $6.2 million and in investment income of $6.0 million.

Gross
Written Premiums. Gross written premiums were $108.7
million in 2007, a 40.1% increase compared to 2006. Gross written premiums were
$77.6 million in 2006, an increase of 14.0% from $68.1 million of gross written
premiums in 2005. 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 $28.4 million for the year ended December 31, 2007, along
with an overall increase in market volume in 2007 over prior year. The increase
in gross

43

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written
premiums in 2006 compared to 2005 is primarily due to the new treaty with one
of our primaries, and an increase in facultative reinsurance premiums assumed,
despite a decrease in premium rates for 2006 over prior year.

Public
finance gross written premiums were $74.0 million in 2007, 52.3% more than in
2006 when public finance written premiums were $48.6 million. Public finance
gross written premiums increased by 10.7% in 2006, from $43.9 million in 2005.
The increase in public finance gross premiums written in 2007 is largely due to
the one new treaty in 2007, along with increases within our existing treaties.
The increase in public finance gross premiums written in 2006 is due to a large
amount of facultative business written during the year as well as an increase
in the portion of upfront premiums relative to installment premiums written.
Installment premiums are written and earned over the various installment
periods and generally a higher portion of business assumed having installment
premiums results in less written premiums in the period in which the business
is assumed compared to business having upfront premiums.

Structured
finance gross written premiums were $34.7 million in 2007, an increase of 19.7%
from $29.0 million in 2006. Structured finance gross written premiums in 2006
increased by 19.8% from $24.2 million in 2005. 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
increase in structured finance written premiums in 2006 versus 2005 results
primarily from increased facultative business and a new treaty offset by lower
premium rates compared to 2005.

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

|                             |  |                                 |       |      |   |      |  |   |      | 
|---------------------------- |  | ------------------------------- | ----- | ---- | - | ---- |  | - | ---- | 
|                             |  | For the Year Ended December 31, |      
|                             |  |                                 |      
|                             |  | 2007                            |       | 2006 |   | 2005 | 
|                             |  |                                 |       |      |   |      | 
|                             |  | (Dollars in millions)           |      
|Public Finance               |  | $                               | 74.0  |      | $ | 48.6 |  | $ | 43.9 | 
|Structured Finance           |  |                                 | 34.7  |      |   | 29.0 |  |   | 24.2 | 
|                             |  |                                 |       |      |   |      |  |   |      | 
|Total gross premiums written |  | $                               | 108.7 |      | $ | 77.6 |  | $ | 68.1 | 
|                             |  |                                 |       |      |   |      |  |   |      | 

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 2007,
the aggregate gross premiums written by our three largest customers was
slightly below the level of premiums written in 2006, and this same result
occurred in 2006 as compared to 2005. 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. Overall, the
three largest insurers ceded a lesser overall portion of the gross written
premiums but the overall amount ceded to reinsurers increased during 2007
compared to 2006 and 2005. The average premium rates for public finance
business assumed by RAM Re in 2007 were comparable to those of 2006, and the
2006 public finance average premium rates were lower than those of 2005.
Structured finance business assumed by RAM Re in 2007 had average premium rates
that were lower than those of 2006, while 2006 average premium rates for
structured finance business assumed by RAM Re were above the 2005 level.
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 $108.0 million in 2007, a 43.0% increase over the 2006
level. Net written premiums in 2007 reflect ceded premiums of $0.8 million. Net
premiums written were $75.5 million in 2006, an 10.9% increase over the 2005
level of $68.1 million. Net written premiums in 2006 reflect ceded premiums of
$2.1 million, the first such activity for RAM Re and, thus, net and gross
written premiums are identical for 2005. During 2007 we ceded premiums of $0.8
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. 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. We retrocede only to highly rated
companies and we monitor the financial condition of our reinsurer. Under our
retrocession agreement, we also have cancellation rights that can be exercised
in the event of a rating downgrade of a reinsurer.

Net
Earned Premiums. Net
earned premiums were $60.1 million in 2007, 23.2% above 2006 earned premiums of
$48.8 million. In 2006, earned premiums increased by 14.6% from $42.6 million
of earned premiums in 2005. The significant increases in upfront written
premiums from the public finance business in past years, as indicated by growth
in unearned premiums on the balance sheet, and growth in installment premiums
from the structured finance business assumed in both the current and prior
years contributed to this increase, as did an increase in accelerated earnings
from refundings during 2007 and 2006 compared to prior years. Earned premiums
resulting from refundings totaled $5.7 million in 2007 compared to $6.3 million
in 2006 and $3.3 million in 2005.

44

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

|                          |  |                                 |      |      |   |      |  |   |      | 
|------------------------- |  | ------------------------------- | ---- | ---- | - | ---- |  | - | ---- | 
|                          |  | For the Year Ended December 31, |     
|                          |  |                                 |     
|                          |  | 2007                            |      | 2006 |   | 2005 | 
|                          |  |                                 |      |      |   |      | 
|                          |  | (Dollars in millions)           |     
|Public
 Finance           |  | $                               | 27.9 |      | $ | 25.9 |  | $ | 20.8 | 
|Structured
 Finance       |  |                                 | 32.2 |      |   | 22.9 |  |   | 21.8 | 
|                          |  |                                 |      |      |   |      |  |   |      | 
|                         
|Total net earned premiums |  | $                               | 60.1 |      | $ | 48.8 |  | $ | 42.6 | 
|                          |  |                                 |      |      |   |      |  |   |      | 

Net
Investment Income. Net investment income of $33.1
million in 2007 was 36.8% above the $24.2 million recorded in 2006, while the
2006 level represented a 33.0% increase from the $18.2 million recorded in
2005. 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
preferred shares on December 14, 2006 and net cash flows from operations. A
secondary element of investment income growth was our ability to invest at
higher yields than were available in 2006. The increase in investment income in
2006 was primarily attributable to the growth in the portfolio due to net cash
flow from operations and investment proceeds from the IPO of $16.4 million and
secondarily due to our ability to invest at higher yields that were available
in 2005. Our portfolio is comprised predominantly of taxable securities, and
had an average yield of 5.0% at December 31, 2007, compared with 4.9% and 4.6%
at December 31, 2006 and 2005, respectively.

Net
Realized Investment Gains (Losses). Net realized
investment losses were $3.6 million in 2007, $1.0 million in 2006 and $1.6
million in 2005. During 2007, we realized a loss of $3.6 million from an other
than temporary impairment on one security. We have two other investments with
subprime exposure with a fair value of $2.3, million, and unrealized losses
were immaterial. We do not believe these two subprime investments to be
impaired.Net losses realized in 2006 and 2005 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
Losses on Credit Derivatives. Net losses on credit
derivative contracts were $177.8 million in 2007, compared to immaterial
unrealized losses in 2006 and unrealized losses of $2.5 million in 2005. The
net loss on derivative financial instruments reported during the year primarily
related to AAA-rated credit default swaps on approximately $11.9 billion of par
exposure. The significant unrealized loss for the year was primarily due to the
continuing deterioration in subprime mortgage assets and the corresponding widening
credit spreads in the market. Of the $177.8 million unrealized loss for 2007,
$44.4 million related to credit impairments which are expected to be paid out
over the term of the contracts. At September 30, 2007, the credit derivative
valuations were changed to reporting our share of the primaries valuations
from using our own fair value model which would not have reflected the
volatility in the market. The unrealized losses in 2005 were largely due to a
change in fair value estimates associated with refinements to our fair value
model. Changes in the fair value of our derivative contracts do not reflect
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. As of December 31, 2007, no claims had been
paid by us on credit derivatives contracts.

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. Fair value is defined as the amount at which an
asset or liability could be bought or sold in a current transaction between
willing parties. 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, are generally held to maturity, and the unrealized
gains and losses on derivative financial instruments will amortize to zero as
the exposure approaches its maturity date, unless there is a credit impairment.

Net
Unrealized Gains(Losses) on Other Financial Instruments.
Net unrealized gains on other financial instruments were $35.3 million in 2007
compared to $nil in 2006 and 2005. The unrealized gain on other financial
instruments relates to a $50.0 million put option the Company has in place with
respect to its preferred share soft capital facility. The put option allows the
Company to issues preferred shares to a trust that holds the $50.0 million in
exchange for the investments held in the trust. The unrealized gain of $35.3
million in 2007 relates to the increased value of the soft capital facility to
the Company compared to the cost of similar capital that can be obtained in the
current market.

Losses
and Loss Adjustment Expenses. Losses and loss
adjustment expenses in 2007 were $48.0 million compared to $(2.8) million in
2006. Losses and loss adjustment expenses were $(2.8) million in 2006 compared
to $7.2 million incurred in 2005. The loss ratio (incurred losses and loss
adjustment expenses plus credit impairments (see net losses on credit
derivatives analysis above), divided by earned premium) was 153.9% in 2007,
(5.7)% in 2006, and 16.9% in 2005. The increase in loss and loss adjustment
expense for 2007 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 Home Equity Lines of Credit (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
current year. The reduction in loss and loss adjustment expense for 2006 was
mainly driven by a net $3.2 million reduction of previously established
reserves, the majority of which was associated with an airline industry related
obligation for which recoveries were reported to us and a manufactured housing
credit which was successfully restructured, as well as loss recoveries received
of $1.1 million for the year ended December 31, 2006. 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. At December

45

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31, 2007, we
carried total reserves for losses and loss adjustment expenses of $63.8
million, of which $30.4 million were case reserves and the remaining $33.4
million related to unallocated loss reserves.

The following
table sets forth the components of incurred losses:

|                                |  |                                 |      |      |   |      |   |   |      |  
|------------------------------- |  | ------------------------------- | ---- | ---- | - | ---- | - | - | ---- | -
|                                |  | For the Year Ended December 31, |     
|                                |  |                                 |     
|                                |  | 2007                            |      | 2006 |   | 2005 |  
|                                |  |                                 |      |      |   |      |  
|                                |  | (Dollars in millions)           |     
|Paid losses                     |  | $                               | (0.4 | )    | $ | (1.1 | ) | $ | 6.5  |  
|Change in
 case reserves        |  |                                 | 27.4 |      |   | (3.2 | ) |   | 1.1  |  
|Change in
 unallocated reserves |  |                                 | 21.9 |      |   | 1.2  |   |   |     |  
|Change in
 recoverables         |  |                                 | (0.9 | )    |   | 0.4  |   |   | (0.4 | )
|                                |  |                                 |      |      |   |      |   |   |      |  
|Total incurred losses           |  | $                               | 48.0 |      | $ | (2.8 | ) | $ | 7.2  |  
|                                |  |                                 |      |      |   |      |   |   |      |  

Residential
Mortgage Market Environment

The
residential mortgage markets in the United States are experiencing significant
financial stress. The decline in home sales that began in the second half of
2006 and continued into 2007 led to the first year-over-year decline in
nationwide house prices since 1991. The subprime mortgage industry began to
deteriorate in early 2007 as borrowers became unable or unwilling to make
mortgage payments. The significant increase in foreclosure activity and rising
interest rates in mid-2007 depressed housing prices further as problems in the
subprime markets spread to the prime mortgage markets. The widespread
dispersion of credit risk related to mortgage delinquencies through the
securitization of mortgage-backed securities, sales of CDOs and other
structured products and the adverse impact on the banking industry caused banks
to reduce lending activity. In addition, many lenders stopped offering home
equity loans and stated income loans. As prices declined and delinquencies
increased, rating agencies moved to downgrade CDOs and other mortgage-related
investment products.

In
addition, the market experienced significant price declines across all
mortgage-related products in 2007. These price declines were further driven by
forced sales of assets in order to meet demands by investors for the return of
their investments and collateral calls by lenders. During the second half of
2007, the economic impact of these problems spread on a global basis and
disrupted the broader financial markets. The combination of these events caused
a large number of major financial institutions and investors, including RAM Re,
to recognize substantial losses as they revalued their mortgage-related
exposure downward.

Mortgage
Securities Exposure

Over the
past several months, there has been considerable stress in the U.S. residential
mortgage market, particularly related to mortgage loans originated during 2005,
2006 and 2007. RAM Re 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
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. As of December 31, 2007, we have established $26.4 million
of case reserves relating to specific 2005-2007 RMBS exposures and an
additional increase of $15.6 million to our unallocated loss reserve relating
to RMBS losses that are probable but can not be specifically identified.
Additionally, the Company has been ceded credit impairments relating to CDOs
amounting to $44.4 million that is reported separately in the valuation of
credit derivatives.

The
following discussion summarizes the Companys exposure to RMBS and CDOs as of
December 31, 2007.The Company generally follows the classifications
for RMBS and CDO securities used by the primary insurers and reported to the
Company.

The following table summarizes RAM Res RMBS outstanding par exposure
as of December 31, 2007 by loan type and vintage.

|                |  |           |  |      |  |       |  |       |  |       |  |       |  |         |  |                  | 
|--------------- |  | --------- |  | ---- |  | ----- |  | ----- |  | ----- |  | ----- |  | ------- |  | ---------------- | 
|($ in millions) |  | Pre-
2002 |  | 2002 |  | 2003  |  | 2004  |  | 2005  |  | 2006  |  | 2007    |  | TotalOutstanding | 
|                |  |           |  |      |  |       |  |       |  |       |  |       |  |         |  |                  | 
|               
|Subprime        |  | 37.6      |  | 10.3 |  | 53.4  |  | 38.0  |  | 20.7  |  | 46.0  |  | 252.2   |  | 458.1            | 
|               
|Other
 Mortgage |  | 41.3      |  | 11.4 |  | 16.2  |  | 245.7 |  | 171.0 |  | 600.6 |  | 943.9   |  | 2,030.1          | 
|               
|International   |  | 3.4       |  | 12.4 |  | 197.0 |  | 165.8 |  | 119.7 |  | 245.0 |  | 89.6    |  | 832.8            | 
|                |  |           |  |      |  |       |  |       |  |       |  |       |  |         |  |                  | 
|               
|Total           |  | 82.2      |  | 34.1 |  | 266.5 |  | 449.4 |  | 311.4 |  | 891.5 |  | 1,285.7 |  | 3,321.0          | 
|                |  |           |  |      |  |       |  |       |  |       |  |       |  |         |  |                  | 

(Note: may not add due to rounding)

The
risk of loss inherent in the 2005, 2006 and 2007 vintage subprime and second
lien mortgage loans has been elevated due to a number of factors. These factors
increase current and potential future losses and include but are not limited to
the following:

46

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There has been a notable
 increase in mortgage loan delinquencies and foreclosures and this situation
 resulted in significant losses for mortgage lenders and investors in mortgage
 related products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | As a result of higher
 losses and declining home prices, traditional mortgage lenders have
 significantly curtailed lending to subprime borrowers for both new mortgages
 and refinancing existing mortgages. Additionally, investors in traditional
 mortgage products have curtailed their purchases of such investments. This
 environment significantly reduces the borrowers ability to refinance their
 mortgages and will increase their financial stress in the event they have an
 adjustable rate mortgage which resets to a higher interest rate. The reduced
 liquidity also contributes to the lack of availability of credit to purchase
 new homes, thus contributing to home price depreciation.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The very unfavorable
 residential mortgage market in the United States has been marked by
 nationally declining home prices. As home prices fall, the value of
 collateral available to pay loan balances is diminished, which will cause
 significantly higher loss severities in the event a borrower defaults.                                                                                                                                                                                                                                                                                                                                                                                                

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

Prime 1sts  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, but may include loans to subprime borrowers. A second lien mortgage loan is a type of loan
in which the borrower uses the equity in their home as collateral and the
second lien loan is subordinate to the first lien on the home. The borrower is
obligated to make monthly payments on both their first and second lien loans.
If the borrower defaults on their payments due on these loans and the property
is subsequently liquidated, the liquidation proceeds are first allocated to pay
off the first lien loan and any remaining funds are applied to pay off the
second lien. As a result of this subordinate position to the first lien, second
lien loans carry a significantly higher risk of loss.

Closed-end Seconds
(CES) 
Second lien mortgage 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 loan that generally
conforms 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  A 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 cashflow from residential mortgage securitizations.

International Mortgage loans on properties outside of
the United States.

RAM
Re has exposure to RMBS, including transactions that contain risk to the above
types of mortgages and risk classifications. In the direct RMBS sector, RAM Re
generally reinsures the most senior tranche of the RMBS, from a given loss
attachment point to the top of the capital structure. The RMBS in the BBB
portion of the table below are generally all relatively large senior tranches
that reside at the top of the capital structure. Because of their size and
position in the capital structure, these tranches generally produce lower
levels of loss severity, upon collateral default, than BBB-rated mezzanine
tranches with similar collateral.

Recent
credit downgrades of the RMBS by the major independent rating agencies have
been concentrated in transactions which are comprised principally of first and
second lien mortgage loans originated during the 2005 through 2007 period. The
primary factors driving these rating downgrades are increasing foreclosure and
delinquency rates for loans originated during this time period. Market
participants believe a primary factor contributing to this poor credit
performance was a pronounced deterioration in credit underwriting standards by
mortgage originators.

The
following table provides the break-down of RAM Res mortgage exposure
outstanding as of December 31, 2007 for deals closed since January 1, 2005 by
product type and RAM Re Rating.1 In the fourth quarter RAM Re downgraded internal RAM Re Ratings on a large

---

1 RAM Re ratings are current as of RAM Res credit review on January 19, 2008. 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.


47

---



portion of our
HELOC exposure and a portion of our CES to below investment grade. Our ratings
reflect our own judgement regarding the credit quality of our exposures and are
believed to represent more timely ratings than provided by the rating agencies.

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

|                   |  |               |         |   |   |       |  |      |       |       |   |       |  |   |         | 
|------------------ |  | ------------- | ------- | - | - | ----- |  | ---- | ----- | ----- | - | ----- |  | - | ------- | 
|($ in millions)    |  | RAM Re Rating |        
|                   |  | AAA/AA        |         | A |   | BBB   |  | BIG* |       | Total |  
|                   |  |               |         |   |   |       |  |      |       |       |  
|Prime 1sts         |  | $             | 70.7    |   | $ | 9.6   |  |      |      |       |   |      |  | $ | 80.3    | 
|HELOCs             |  |               | 21.2    |   |   | 11.2  |  |      | 297.8 |       |   | 399.9 |  |   | 730.2   | 
|Closed-End Seconds |  |               | 50.9    |   |   | 8.1   |  |      | 352.5 |       |   | 31.2  |  |   | 442.7   | 
|Alt A              |  |               | 393.7   |   |   | 58.8  |  |      |      |       |   |      |  |   | 452.5   | 
|Subprime           |  |               | 79.9    |   |   | 152.8 |  |      | 86.1  |       |   |      |  |   | 318.9   | 
|Manuf. Housing     |  |               |        |   |   | 8.4   |  |      |      |       |   |      |  |   | 8.4     | 
|NIMs               |  |               | 0.1     |   |   | 0.3   |  |      | 1.0   |       |   |      |  |   | 1.4     | 
|International      |  |               | 434.6   |   |   | 2.3   |  |      | 17.4  |       |   |      |  |   | 454.2   | 
|                   |  |               |         |   |   |       |  |      |       |       |   |       |  |   |         | 
|Total              |  | $             | 1,051.1 |   | $ | 251.5 |  | $    | 754.9 |       | $ | 431.1 |  | $ | 2,488.6 | 
|                   |  |               |         |   |   |       |  |      |       |       |   |       |  |   |         | 

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

The
following table lists the top five largest issuers of U.S. 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                     |  | $     | 815.4   |       | $ | 550.4 |  | $        | 207.0 |       | $ | 43.2  |  | $ | 13.5  | 
|2               | Residential
 Capital (GMAC-RFC) |  |       | 402.0   |       |   | 193.8 |  |          | 135.2 |       |   | 63.3  |  |   | 9.4   | 
|3               | Deutsche
 Bank                  |  |       | 153.4   |       |   |      |  |          |      |       |   |      |  |   | 153.4 | 
|4               | Morgan
 Stanley                 |  |       | 112.5   |       |   | 14.6  |  |          |      |       |   | 97.9  |  |   |      | 
|5               | Greenpoint                      |  |       | 99.5    |       |   | 73.2  |  |          |      |       |   |      |  |   | 3.0   | 
|                |                                 |  |       |         |       |   |       |  |          |       |       |   |       |  |   |       | 
|                | Total                           |  | $     | 1,582.7 |       | $ | 831.9 |  | $        | 342.2 |       | $ | 204.3 |  | $ | 179.2 | 
|                |                                 |  |       |         |       |   |       |  |          |       |       |   |       |  |   |       | 

CDO Exposure

RAM
Re also has exposure to residential mortgage loan collateral in CDOs. RAM Res
exposure to residential mortgage loans is a sub-set of our CDOs backed by
multi-sector (MS) collateral (see definition below). The following table sets
forth the RAM Re Rating of the MS CDOs in our portfolio as of December 31,
2007.

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


|              |  |                  |         |   |       |  
|------------- |  | ---------------- | ------- | - | ----- | -
|RAM Re Rating |  | Outstanding
 Par |         | % |      
|              |  |                  |         |   |      
|AAA           |  | $                | 3,203.2 |   | 79.7  | %
|AA            |  |                  | 87.1    |   | 2.2   | %
|A             |  |                  | 100.0   |   | 2.5   | %
|BBB           |  |                  | 42.0    |   | 1.0   | %
|BIG           |  |                  | 586.0   |   | 14.6  | %
|              |  |                  |         |   |       |  
|Total         |  | $                | 4,018.3 |   | 100.0 | %
|              |  |                  |         |   |       |  

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

48

---



|  |                                                         
|- | --------------------------------------------------------
| | CDO - which
 are CDOs backed by CDOs (or CDO-squared).

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

|         |  |                  |         |   |       |  
|-------- |  | ---------------- | ------- | - | ----- | -
|CDO Type |  | Outstanding
 Par |         | % |      
|         |  |                  |         |   |      
|HG       |  | $                | 1,000.8 |   | 24.9  | %
|CMBS     |  |                  | 2,631.8 |   | 65.5  | %
|Mez      |  |                  | 60.3    |   | 1.5   | %
|CDO      |  |                  | 325.4   |   | 8.1   | %
|         |  |                  |         |   |       |  
|Total    |  | $                | 4,018.3 |   | 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  |  |      |        |    |   |        |  |     | 0.2  |       |   |      |  |   | 0.2     | 
|2001  |  |      |        |    |   |        |  |     | 0.6  |       |   | 1.3   |  |   | 1.9     | 
|2002  |  |      | 0.5     |    |   |        |  |     | 17.3 |       |   |      |  |   | 17.8    | 
|2003  |  |      |        |    |   | 65.8    |  |     | 4.0  |       |   | 7.5   |  |   | 77.3    | 
|2004  |  |      | 44.8    |    |   |        |  |     | 38.0 |       |   | 60.9  |  |   | 143.7   | 
|2005  |  |      | 156.2   |    |   | 205.1   |  |     | 0.1  |       |   | 100.0 |  |   | 461.4   | 
|2006  |  |      | 232.6   |    |   | 332.4   |  |     |     |       |   | 5.6   |  |   | 570.7   | 
|2007  |  |      | 2,197.7 |    |   | 397.5   |  |     |     |       |   | 150.0 |  |   | 2,745.2 | 
|      |  |      |         |    |   |         |  |     |      |       |   |       |  |   |         | 
|Total |  | $    | 2,631.8 |    | $ | 1,000.8 |  | $   | 60.3 |       | $ | 325.4 |  | $ | 4,018.3 | 
|      |  |      |         |    |   |         |  |     |      |       |   |       |  |   |         | 

CMBS
MS CDOs include Structured CMBS Pools and Commercial Real Estate CDOs. The CMBS
CDOs we reinsured in 2007 are all rated AAA and have super-senior attachment
points.

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, CES, HELOCs, ABS
CDOs, Non-ABS CDOs and Other. 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 |  | Current subordination |   | Total 
 RMBS |                     | Sub-
 prime |  | Alt A |   | CES |    | HELOCs |  | ABS 
 CDOs |   | Non-
 ABS 
 CDOs |    | Other (2) |  | Total |  
|                |  |                |  |              |  |                 |  |                       |   |              |                     |             |  |       |   |     |    |        |  |            |   |                  |    |           |  |       |  
|HIGH GRADE
CDOs |  |                |  |              |  |                 |  |                       |   |              |                     |             |  |       |   |     |    |        |  |            |   |                  |    |           |  |       |   |  |    |   |  |    |   |  |    
|RAM00006928     |  | 2005           |  | AAA          |  | 50.0            |  | 20.1                  | % |              | 79                  | %           |  | 34    | % |     | 11 | %      |  | 0          | % |                  | 33 | %         |  | 9     | % |  | 10 | % |  | 3  | % |  | 100 | % | 
|RAM00006950     |  | 2005           |  | AAA          |  | 75.0            |  | 46.8                  | % |              | 67                  | %           |  | 28    | % |     | 8  | %      |  | 0          | % |                  | 0  | %         |  | 25    | % |  | 0  | % |  | 39 | % |  | 100 | % | 
|RAM00007029     |  | 2005           |  | AAA          |  | 80.1            |  | 11.5                  | % |              | 32                  | %           |  | 10    | % |     | 18 | %      |  | 0          | % |                  | 4  | %         |  | 0     | % |  | 10 | % |  | 58 | % |  | 100 | % | 
|RAM00007132     |  | 2006           |  | BIG          |  | 59.4            |  | 12.0                  | % |              | 70                  | %           |  | 16    | % |     | 15 | %      |  | 6          | % |                  | 1  | %         |  | 30    | % |  | 0  | % |  | 32 | % |  | 100 | % | 
|RAM00007209     |  | 2006           |  | A            |  | 100.0           |  | 11.1                  | % |              | 66                  | %           |  | 12    | % |     | 22 | %      |  | 9          | % |                  | 3  | %         |  | 24    | % |  | 2  | % |  | 28 | % |  | 100 | % | 
|RAM00007210     |  | 2006           |  | BIG          |  | 37.5            |  | 11.7                  | % |              | 70                  | %           |  | 8     | % |     | 36 | %      |  | 0          | % |                  | 0  | %         |  | 8     | % |  | 2  | % |  | 45 | % |  | 100 | % | 
|RAM00007266     |  | 2006           |  | AAA          |  | 9.5             |  | 14.3                  | % |              | 76                  | %           |  | 20    | % |     | 0  | %      |  | 0          | % |                  | 32 | %         |  | 22    | % |  | 1  | % |  | 24 | % |  | 100 | % | 
|RAM00007318     |  | 2006           |  | BBB          |  | 42.0            |  | 6.1                   | % |              | 73                  | %           |  | 11    | % |     | 25 | %      |  | 11         | % |                  | 2  | %         |  | 15    | % |  | 1  | % |  | 36 | % |  | 100 | % | 
|RAM00007324     |  | 2006           |  | AA           |  | 22.3            |  | 16.2                  | % |              | 57                  | %           |  | 24    | % |     | 2  | %      |  | 9          | % |                  | 0  | %         |  | 6     | % |  | 29 | % |  | 30 | % |  | 100 | % | 
|RAM00007337     |  | 2006           |  | BIG          |  | 40.4            |  | 13.8                  | % |              | 75                  | %           |  | 9     | % |     | 55 | %      |  | 0          | % |                  | 0  | %         |  | 15    | % |  | 10 | % |  | 10 | % |  | 100 | % | 
|RAM00007339     |  | 2006           |  | AAA          |  | 21.4            |  | 20.0                  | % |              | 73                  | %           |  | 20    | % |     | 15 | %      |  | 4          | % |                  | 0  | %         |  | 22    | % |  | 5  | % |  | 33 | % |  | 100 | % | 
|RAM00007448     |  | 2007           |  | BIG          |  | 32.1            |  | 6.3                   | % |              | 80                  | %           |  | 14    | % |     | 46 | %      |  | 4          | % |                  | 2  | %         |  | 12    | % |  | 7  | % |  | 16 | % |  | 100 | % | 
|RAM00007465     |  | 2007           |  | BIG          |  | 14.1            |  | 15.0                  | % |              | 70                  | %           |  | 18    | % |     | 15 | %      |  | 4          | % |                  | 0  | %         |  | 27    | % |  | 3  | % |  | 34 | % |  | 100 | % | 
|RAM00007579     |  | 2007           |  | BIG          |  | 16.4            |  | 14.9                  | % |              | 66                  | %           |  | 16    | % |     | 29 | %      |  | 0          | % |                  | 0  | %         |  | 24    | % |  | 6  | % |  | 25 | % |  | 100 | % | 
|RAM00007583     |  | 2007           |  | BIG          |  | 48.4            |  | 14.0                  | % |              | 53                  | %           |  | 0     | % |     | 37 | %      |  | 0          | % |                  | 0  | %         |  | 9     | % |  | 2  | % |  | 51 | % |  | 100 | % | 
|RAM00007587     |  | 2007           |  | BIG          |  | 100.0           |  | 9.9                   | % |              | 49                  | %           |  | 32    | % |     | 10 | %      |  | 0          | % |                  | 0  | %         |  | 20    | % |  | 10 | % |  | 29 | % |  | 100 | % | 
|RAM00007588     |  | 2007           |  | BIG          |  | 19.7            |  | 15.1                  | % |              | 68                  | %           |  | 28    | % |     | 17 | %      |  | 0          | % |                  | 0  | %         |  | 26    | % |  | 4  | % |  | 25 | % |  | 100 | % | 
|RAM00007589     |  | 2007           |  | AA           |  | 31.1            |  | 17.0                  | % |              | 86                  | %           |  | 24    | % |     | 34 | %      |  | 0          | % |                  | 1  | %         |  | 10    | % |  | 4  | % |  | 27 | % |  | 100 | % | 
|RAM00007594     |  | 2007           |  | BIG          |  | 14.4            |  | 15.3                  | % |              | 70                  | %           |  | 12    | % |     | 27 | %      |  | 0          | % |                  | 0  | %         |  | 30    | % |  | 0  | % |  | 31 | % |  | 100 | % | 
|RAM00007652     |  | 2007           |  | BIG          |  | 16.9            |  | 10.0                  | % |              | 70                  | %           |  | 21    | % |     | 15 | %      |  | 5          | % |                  | 0  | %         |  | 30    | % |  | 0  | % |  | 30 | % |  | 100 | % | 
|RAM00007653     |  | 2007           |  | BIG          |  | 23.4            |  | 15.6                  | % |              | 70                  | %           |  | 28    | % |     | 3  | %      |  | 0          | % |                  | 0  | %         |  | 25    | % |  | 5  | % |  | 38 | % |  | 100 | % | 
|RAM00007781     |  | 2007           |  | AAA          |  | 36.0            |  | 14.2                  | % |              | 50                  | %           |  | 50    | % |     | 0  | %      |  | 0          | % |                  | 0  | %         |  | 0     | % |  | 28 | % |  | 22 | % |  | 100 | % | 
|RAM00007721     |  | 2007           |  | BIG          |  | 13.1            |  | 15.0                  | % |              | 62                  | %           |  | 6     | % |     | 38 | %      |  | 5          | % |                  | 1  | %         |  | 26    | % |  | 4  | % |  | 20 | % |  | 100 | % | 
|RAM00007724     |  | 2007           |  | AA           |  | 31.9            |  | 15.0                  | % |              | 85                  | %           |  | 44    | % |     | 6  | %      |  | 4          | % |                  | 0  | %         |  | 4     | % |  | 3  | % |  | 40 | % |  | 100 | % | 
|                |  |                |  |              |  |                 |  |                       |   |              |                     |             |  |       |   |     |    |        |  |            |   |                  |    |           |  |       |   |  |    |   |  |    |   |  |     |   | 
|Mez CDOs        |  |                |  |              |  |                 |  |                       |   |              |                     |             |  |       |   |     |    |        |  |            |   |                  |    |           |  |       |   |  |    |   |  |    |   |  |     |   | 
|RAM00000664     |  | 2005           |  | AA           |  | 0.1             |  | 51.3                  | % |              | 48                  | %           |  | 7     | % |     | 0  | %      |  | 0          | % |                  | 8  | %         |  | 0     | % |  | 7  | % |  | 78 | % |  | 100 | % | 
|                |  |                |  |              |  |                 |  |                       |   |              |                     |             |  |       |   |     |    |        |  |            |   |                  |    |           |  |       |   |  |    |   |  |    |   |  |     |   | 
|CDO of CDO      |  |                |  |              |  |                 |  |                       |   |              |                     |             |  |       |   |     |    |        |  |            |   |                  |    |           |  |       |   |  |    |   |  |    |   |  |     |   | 
|RAM00006955(1)  |  | 2005           |  | AAA          |  | 100.0           |  | 10.0                  | % |              | 20                  | %           |  | 20    | % |     | 0  | %      |  | 0          | % |                  | 0  | %         |  | 15    | % |  | 65 | % |  | 0  | % |  | 100 | % | 
|RAM00007770     |  | 2007           |  | BIG          |  | 150.0           |  | 15.0                  | % |              | 22                  | %           |  | 15    | % |     | 8  | %      |  | 0          | % |                  | 0  | %         |  | 44    | % |  | 33 | % |  | 0  | % |  | 100 | % | 
|                |  |                |  |              |  |                 |  |                       |   |              |                     |             |  |       |   |     |    |        |  |            |   |                  |    |           |  |       |   |  |    |   |  |    |   |  |     |   | 
|                |  |                |  |              |  |                 |  |                       |   |              |                     |             |  |       |   |     |    |        |  |            |   |                  |    |           |  |       |   |  |    |   |  |    |   |  |     |   | 
|                |  |                |  | Total        |  | $    1,185.1    |  |                       |   |              |                     |             |  |       |   |     |    |        |  |            |   |                  |    |           |  |       |   |  |    |   |  |    |   |  |     |   | 
|                |  |                |  |              |  |                 |  |                       |   |              |                     |             |  |       |   |     |    |        |  |            |   |                  |    |           |  |       |   |  |    |   |  |    |   |  |     |   | 

|    |                                                         
|--- | --------------------------------------------------------
|(1) | This CDO is
 predominantly backed by Corporates         
|    |                                                         
|(2) | May include
 other RMBS such as international and prime.

49

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The
multi-sector CDOs shown in the table above include reinsured exposures
representing both the most senior tranches of the CDO capital structure and
other, less than senior-most, tranches. In instances where our exposure is to
a non-senior-most tranche, our exposure is to the next most-senior tranche in
the capital structure below the senior-most tranche. The total outstanding par
amount of CDOs in the table above representing non-senior-most tranches is $178
million. The subordination percentage (shown in the table above) is sometimes
referred to as our attachment point and represents the percent of the total
CDO collateral available to absorb losses prior to our exposure. When our
exposure is senior-most, the detachment point for our exposure is 100% of the
total CDO collateral. The difference between the detachment point and
attachment point represents the total principal balance of our exposure. In
instances where our exposure is non-senior-most, our detachment points are in
the range of 40% to 90%. All of the CDOs shown in the table above were
super-senior tranches at the time of underwriting, which means that, whether
or not they were senior-most tranches, they had subordination in excess of the
subordination required by the rating agencies for triple-A ratings. On average,
the initial subordination was approximately 2.5 times of the rating agency
triple-A requirement.

In
the table above, all CDOs for which we have established credit impairments are
rated below investment grade (BIG) by RAM Re.

As
shown in the following table, RAM Res total CDO par exposure was $9.7 billion
as of December 31, 2007. 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       |  | $                | 3,549.5 |   | 36.5  | %
|IG       |  |                  | 1,826.3 |   | 18.8  | %
|MS       |  |                  | 4,018.3 |   | 41.3  | %
|EM       |  |                  | 247.0   |   | 2.5   | %
|DBL      |  |                  | 94.3    |   | 1.0   | %
|         |  |                  |         |   |       |  
|Total    |  | $                | 9,735.5 |   | 100.0 | %
|         |  |                  |         |   |       |  

The
definitions of the 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 RMBS (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.

50

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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           |  | $                | 8,426.0 |   | 86.5  | %
|AA            |  | $                | 501.8   |   | 5.2   | %
|A             |  | $                | 169.2   |   | 1.7   | %
|BBB           |  | $                | 50.1    |   | 0.5   | %
|BIG           |  | $                | 588.4   |   | 6.0   | %
|              |  |                  |         |   |       |  
|Total         |  | $                | 9,735.5 |   | 100.0 | %
|              |  |                  |         |   |       |  

Acquisition
Expenses. Acquisition expenses were $21.5 million in
2007, $17.7 million in 2006, and $15.6 million in 2005. The changes in
acquisition costs over the periods are directly related to the changes in
earned premiums. The ratio of acquisition costs to earned premiums was 35.8% in
2007, down from 36.2% in 2006, which was also a decrease relative to the 2005
ratio of 36.6%. The decline in the ratio of acquisition costs to earned
premiums reflects 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.

General Expenses.
    General or operating expenses were $13.4 million in both 2007 and 2006, operating
    expenses in 2006 were $1.9 million or 16.5% higher than the $11.5 million
    of operating expenses in 2005. 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. Expenses connected to the IPO
    have been expensed as incurred in proportion to the shares sold in the IPO
    by the selling shareholders, with $0.3 million of IPO expenses relating to
    the issuance of new shares allocated against the proceeds, while 2005 operating
    costs included $2.5 million of non-recurring compensation expense associated
    with a termination feature of a stock option plan. Without these non recurring
    costs, operating expenses increased by 16.2% in 2007 over 2006, and by 23.3%
    in 2006 as compared to 2005, primarily reflecting the ongoing costs of being
    a public company. Operating expenses as a percentage of earned premiums were
22.3% in 2007, 27.4% in 2006, and 27.1% in 2005.

Interest Expense. Interest expense was
$8.4 million in 2007 and $2.8 million in both 2006 and 2005. Preferred share
dividends, classified as interest expense, of $5.6 million were paid during
2007. The preferred shares were issued on December 14, 2006 and therefore no
dividends were paid in the prior years. Dividends on the preferred shares are payable semi-annually on June 15 and
December 15 each year if declared by the board of directors. Interest expense
on long term debt was $2.8 million in 2007, 2006 and 2005.

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 capital markets, which may be
unlikely in the near term given current market conditions and RAMs current
stock valuation. Our principal uses of liquidity are for payment of interest on
our senior notes, dividends on our preference shares and capital investments in
RAM Re. Based on the amount of dividends that we expect to receive from RAM Re
in 2008, we believe that we will have sufficient liquidity to satisfy our needs
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 market changes,
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, capital contributions from RAM Holdings, 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, dividends to RAM Holdings and for purchases of new investments. We
believe that RAM Res expected operating liquidity needs can be funded
exclusively from its operating cash flow.

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 $16.7 million at December 31, 2007. RAM Res statutory
capital and surplus was $369.7 million at December 31, 2007. In addition to the
foregoing solvency criteria, Bermuda law limits the maximum amount of annual dividends
or distributions payable and in certain instances

51

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requires the
prior notification to, or approval of, the BMA. Based upon these tests, without
regulatory approval, the maximum amount that will be available during 2008 for
payment by RAM Re is approximately $51.3 million.

Cash Flows.
    During 2007, net operating cash flows were $84.5 million compared to $57.1
    million and $45.0 million for 2006 and 2005, respectively. Our operating
    cash flows are primarily the result of the excess of net premiums received
    and investment income over operating expenses, claims payments and interest
    expenses. Net cash flows from financing activities were $Nil, $90.0 million,
    and ($1.0) million for 2007, 2006, and 2005, respectively. In 2006 net financing
    cash flows related primarily to the issuance of preferred shares amounting
    to $75.0 million, preferred share issuance costs of $1.1 million, additional
    common share issuance and the committed preferred securities expenses, and
    in 2005 to committed preferred securities expenses. Net cash used in investment
    activities amounted to $106.0 million, $111.1 million, and $74.1 million
    for the periods ending December 31, 2007, 2006 and 2005, respectively, and
    related to the purchase of investments, offset by sales and maturities of
investments.

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, which contains an
annual extension provision subject to bank approval, has a term ending on May
11, 2015. As of December 31, 2007, no amounts were outstanding 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 $40.0 million facility has a term
ending on February 3, 2014, and had an annual extension feature, subject to
approval of the lenders. This facility was not extended for an additional year
on February 3, 2008. As of December 31, 2007, no amounts are outstanding 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 preferred 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 preferred 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 preferred shares have a mandatory
redemption date of December 15, 2066. We can redeem the preferred 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. As of December 31, 2007, there have been dividends
amounting to $5.6 million 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, 2007.
During the year ended 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 pays the counterparty a floating put option
fee. The counterparty is a trust established by Lehman Brothers Inc. The trust
was created as a vehicle for providing capital support to RAM Re by allowing it
to obtain, at its discretion and following the procedures 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. The option agreement
has no scheduled termination date or maturity, but will be terminated if RAM Re
takes certain actions as specified in the operative facility

52

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documents. RAM
Re has the option to redeem the Class B preference shares issued upon exercise
of its put option, subject to certain specified terms and conditions. If the
put option is exercised in full, RAM Re would receive up to $50.0 million in
connection with the issuance of the preference shares, the proceeds of which
may be used for any purpose including the payment of claims. To fund the
purchase of preference shares upon exercise of the put option by RAM Re, the
trust issued $50.0 million of its own auction market perpetual preferred
securities which are rated A+ by Standard & Poors, on CreditWatch with
negative implications, and A2 with a negative outlook by Moodys. The rate
paid by the trust on these securities is currently at its maximum rate for our
current rating of LIBOR plus 200. A downgrade of the trusts auction market
perpetual preferred securities would increase the maximum rate paid by the
trust on these securities from LIBOR plus 200 to LIBOR plus 300, and RAM Res
put option fee (calculated as the rate paid on the auction market perpetual
preferred securities less the stated yield on the commercial paper held by the
trust during the relevant period after deducting certain expenses of the trust)
would be increased correspondingly. The proceeds of this issuance are held by
the trust in certain high-quality, short-term commercial paper investments. In
the years ended December 31, 2007 and 2006 $0.8 million and $0.5 million,
respectively, of expenses relating to the operation of this facility have been
paid. As of December 31, 2007 the put option has not been exercised.

From
time to time, RAM may access the capital markets to increase its capital and
support the growth of its business. As such, RAM filed a registration statement
on Form S-3 with the SEC in December 2007 covering one or more offerings of
$350 million of securities which has not yet been declared effective. This shelf
    registration statement permits RAM to issue various debt and equity securities
    described in the prospectus filed as part of the registration statement.
    Under current market conditions we do not expect to be raising any additional
    debt, hybrid or equity capital.

Investment Portfolio. At December 31,
2007, our investment portfolio consisted of $696.5 million of fixed income
securities and $19.9 million of cash and cash equivalents. At December 31,
2006, our investment portfolio consisted of $568.6 million of fixed income
securities, $10.0 million of short-term investments and $41.9 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. We report changes in
fair value as part of Accumulated other comprehensive income in shareholders
equity. Our portfolio is managed by two professional asset management firms,
New England Asset Management and MBIA Capital, a wholly owned subsidiary of one
of our ceding companies, 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, 2007, is 4.83 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 4.92% and the book yield of the portfolio was 5.04% at December
31, 2007. The effective duration of our portfolio at December 31, 2006, was
4.08 years. The yield to maturity of the portfolio was 5.36% and the book yield
of the portfolio was 4.93% at December 31, 2006. At December 31, 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). At
year-end 2006, RAM Re had $329.9 million of our invested assets in trust
accounts for the benefit of primary insurers (out of $620.6 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.

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 an other than temporary impairment of $3.6
million relating to an investment with subprime exposure at December 31, 2007.
We had two other investments with subprime exposure amounting to fair value of
$2.3 million, with unrealized losses of $0.02 million. We do not believe these
two subprime investments to be other than temporarily impaired. No impairments
were recognized as at December 31, 2006.

The
following table summarizes our investment portfolio by bond type, fair value
and amortized cost thereof at December 31, 2007 and December 31, 2006:

|                                     |  |                         |         |            |   |         | 
|------------------------------------ |  | ----------------------- | ------- | ---------- | - | ------- | 
|                                     |  | 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 | 
|                                     |  |                         |         |            |   |         | 

|                                     |  |                         |         |            |   |         | 
|------------------------------------ |  | ----------------------- | ------- | ---------- | - | ------- | 
|                                     |  | As of December 31, 2006 |        
|                                     |  |                         |        
|Fixed
  Income Securities            |  | Amortized Cost          |         | Fair Value |  
|                                     |  |                         |         |            |  
|                                     |  | (Dollars in thousands)  |        
|Agencies                             |  | $                       | 86,145  |            | $ | 85,555  | 
|U.S. government obligations          |  |                         | 70,411  |            |   | 69,306  | 
|Corporate debt securities            |  |                         | 136,043 |            |   | 134,442 | 
|Municipal securities                 |  |                         | 11,720  |            |   | 12,376  | 
|Mortgage and asset-backed securities |  |                         | 279,767 |            |   | 276,910 | 
|                                     |  |                         |         |            |   |         | 
|Total                                |  | $                       | 584,086 |            | $ | 578,589 | 
|                                     |  |                         |         |            |   |         | 

53

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The
amortized cost and estimated fair value of fixed income securities available
for sale as of December 31, 2007 and December 31, 2006 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, 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 | 
|                                       |  |                         |         |            |   |         | 

|                                       |  |                         |         |            |   |         | 
|-------------------------------------- |  | ----------------------- | ------- | ---------- | - | ------- | 
|                                       |  | As of December 31, 2006 |        
|                                       |  |                         |        
|Fixed
  Income Securities              |  | Amortized Cost          |         | Fair Value |  
|                                       |  |                         |         |            |  
|                                       |  | (Dollars in thousands)  |        
|Less than one year                     |  | $                       | 46,245  |            | $ | 46,181  | 
|Due after one year through five years  |  |                         | 111,710 |            |   | 109,447 | 
|Due after five years through ten years |  |                         | 85,609  |            |   | 83,773  | 
|Due after ten years                    |  |                         | 60,755  |            |   | 62,278  | 
|Mortgage and asset-backed securities   |  |                         | 279,767 |            |   | 276,910 | 
|                                       |  |                         |         |            |   |         | 
|Total                                  |  | $                       | 584,086 |            | $ | 578,589 | 
|                                       |  |                         |         |            |   |         | 

The
following table provides the ratings distribution of our investment portfolio
at each of December 31, 2007 and December 31, 2006:

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

|          |  |                             |       |  
|--------- |  | --------------------------- | ----- | -
|          |  |                             |       |  
|Rating(1) |  | As of
  December 31,
  2006 |      
|          |  |                             |      
|AAA(2)    |  |                             | 74.0  | %
|AA        |  |                             | 14.0  | %
|A         |  |                             | 11.0  | %
|Cash      |  |                             | 1.0   | %
|         
|Total     |  |                             | 100.0 | %
|          |  |                             |       |  

|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Ratings
  represent Standard & Poors classifications. If unavailable, Moodys
  ratings are used.                                                                                         
|    |                                                                                                                                                                                            
|(2) | Includes
  U.S. Treasury and agency obligations, which comprised approximately 35.7% and
  26.7% of the investment portfolio as of December 31, 2007 and December 31,
  2006, respectively.

54

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Contractual Obligations

We
have various contractual obligations as of December 31, 2007 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 preferred shares(1)                             |  | $     | 75.0  |                      |                       |            |  |             |     |                       |   |     |  | $ | 75.0  | 
|Long-term debt(2)                                          |  | $     | 40.0  |                      |                       |            |  |             |     |                       |   |     |  | $ | 40.0  | 
|Interest on long-term debt                                 |  | $     | 44.7  |                      | $                     | 2.8         |  | $           | 5.5  |                       | $ | 5.5  |  | $ | 30.9  | 
|Operating lease commitments(3)                             |  | $     | 0.6   |                      | $                     | 0.3         |  | $           | 0.3  |                       |   |     |  |   |      | 
|Losses and loss expense and credit impairments reserves(4) |  | $     | 263.9 |                      | $                     | 29.6        |  | $           | 16.8 |                       | $ | 8.3  |  | $ | 209.2 | 
|                                                           |  |       |       |                      |                       |             |  |             |      |                       |   |      |  |   |       | 
|Total                                                      |  | $     | 424.2 |                      | $                     | 32.7        |  | $           | 22.6 |                       | $ | 13.8 |  | $ | 355.1 | 
|                                                           |  |       |       |                      |                       |             |  |             |      |                       |   |      |  |   |       | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Par value
  only of non-cumulative, non mandatory, redeemable preferred shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(2) | Principal
  only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(3) | Lease
  payments are subject to escalation in building operating costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(4) | Losses and
  loss expense reserves and credit impairment reserves 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 $209.2 million due in more than 5 years, $196.4 million
    is not expected to be paid out for more than 20 years. 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, the majority of this is therefore
    expected to pay out after more than 20 years.

Off-Balance Sheet Arrangements

As
of December 31, 2007, 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 differ, depending on whether we are conducting
facultative or treaty-based reinsurance activities. 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.

We,
like other reinsurers, rely in 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 Standard & Poors 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.

55

---



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 two professional asset management firms,
New England Asset Management and MBIA Capital. 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
reviews 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 our investment securities, assuming immediate changes in
interest rates at specified levels at December 31, 2007:

|                           |  |                            |       |                                                      |   |        |  
|-------------------------- |  | -------------------------- | ----- | ---------------------------------------------------- | - | ------ | -
|Change in
  Interest Rates |  | Estimated Net
  Fair Value |       | Estimated 
  (Decrease)/Increase
  in Net Fair Value |  
|                           |  |                            |       |                                                      |  
|                           |  | (Dollars in millions)      |      
|300 basis
  point rise     |  | $                          | 612.2 |                                                      | $ | (104.2 | )
|200 basis
  point rise     |  |                            | 647.8 |                                                      |   | (68.6  | )
|100 basis
  point rise     |  |                            | 682.5 |                                                      |   | (33.9  | )
|50 basis
  point rise      |  |                            | 699.5 |                                                      |   | (16.9  | )
|Base
  scenario            |  |                            | 716.4 |                                                      |   |       |  
|50 basis
  point decline   |  |                            | 733.2 |                                                      |   | 16.8   |  
|100 basis
  point decline  |  |                            | 750.0 |                                                      |   | 33.6   |  
|200 basis
  point decline  |  |                            | 784.0 |                                                      |   | 67.6   |  
|300 basis
  point decline  |  |                            | 819.1 |                                                      |   | 102.7  |  

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 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. We estimate the
potential impact of credit spread changes on the value of our contracts

56

---



and the
following table summarizes the estimated changes in the fair value of our portfolio
assuming immediate changes in credit spreads at specified levels at December
31, 2007:

|                            |  |                              |         |                         |   |         |  
|--------------------------- |  | ---------------------------- | ------- | ----------------------- | - | ------- | -
|Change in
  Credit Spreads  |  | Estimated
  Net
  Fair Value |         | Estimated
  Gain/(Loss) |  
|                            |  |                              |         |                         |   |         |  
|                           
|100 basis
  point narrowing |  | $                            | (47.39  | )                       | $ | 130.33  |  
|75 basis point
  narrowing  |  |                              | (102.89 | )                       |   | 74.83   |  
|50 basis
  point narrowing  |  |                              | (146.79 | )                       |   | 30.93   |  
|Base
  scenario             |  |                              | (177.72 | )                       |   |        |  
|50 basis
  point widening   |  |                              | (214.26 | )                       |   | (36.54  | )
|75 basis
  point widening   |  |                              | (271.11 | )                       |   | (93.39  | )
|100 basis
  point widening  |  |                              | (349.61 | )                       |   | (171.89 | )

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
April 18, 2007, the Financial Accounting Standards Board (FASB) issued the
Exposure Draft Accounting for Financial Guarantee Insurance Contracts  an
interpretation of FASB Statement No. 60 (Exposure Draft). The Exposure Draft
among other things, would change current industry practices with respect to the
recognition of premium revenue and claim liabilities. In addition, the Exposure
Draft would require that the measurement of the initial deferred premium
revenue (liability) be the present value of the contractual premium due
pursuant to the terms of the financial guarantee insurance contract, thereby
changing current industry accounting practice with respect to insurance
policies with installments by requiring that the present value of contractual
premiums due under such contracts, currently or in the future, be recorded on
the Companys balance sheet as premiums receivable and unearned premiums.
Under current industry practice such premiums are not reflected on the balance
sheet. When the FASB issues authoritative guidance the Company and the rest of
the financial guaranty industry may be required to change some aspects of their
accounting for loss reserves, premium recognition and acquisition cost
recognition, and these changes could have a material effect on our financial
statements. The comment period for the Exposure Draft closed on June 15, 2007.
A FASB Round Table discussion was held in September 2007 with another FASB
meeting held in January 2008. The
FASB has indicated that the final FASB Statement is expected to be issued in
the first or second quarter of 2008. The Company is assessing the potential
impact and at this time is unable to quantify the effect of the adoption of the
proposed interpretation. Until the authoritative guidance is issued, the
Company intends to continue to apply its existing policies with respect to its
accounting for the establishment of both case and unallocated reserves as well
as for premium recognition and deferred acquisition costs.

In
February 2006, FASB issued FAS No. 155, Accounting for Certain Hybrid
Financial Instruments (FAS 155). FAS 155 amends FAS No. 133, Accounting for
Derivative Instruments and Hedging Activities (FAS 133) and FAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities (FAS 140), and resolves issues addressed in FAS 133
Implementation Issue No. D1, Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets. The primary objectives of FAS 155
are, with respect to FAS 133, to address the accounting for beneficial
interests in securitized financial assets and, as respects FAS 140, to
eliminate a restriction on the passive derivative instruments that a qualifying
special-purpose entity may hold. FAS 155 is effective for the Company for all
financial instruments acquired or issued after January 1, 2007. The adoption of
FAS 155 did not have any impact on the Companys operating results or financial
condition.

57

---



In
September 2006, the FASB issued FAS No. 157 (FAS 157), Fair Value
Measurement. 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. FAS 157 is effective for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. The Company adopted
FAS 157 effective January 1, 2008. FAS 157 is not expected to have a material
impact on our results of operations or financial position.

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 before November 15, 2007. We adopted
FAS 159 effective January 1, 2008. We did not apply the fair value option to
any eligible items on our adoption date.

|         |                                                            
|-------- | -----------------------------------------------------------
|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.

58

---



|        |                                             
|------- | --------------------------------------------
|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, 2007, 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, 2007.

The
effectiveness of the Companys internal controls over financial reporting
as of December 31, 2007 has been audited by PricewaterhouseCoopers, an
independent registered public accounting firm, as stated in their report included
in this Item under the heading Report of Independent Registered Public
Accounting Firm.

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

59

---



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 as of December 31, 2007 and 2006 and the related consolidated
statements of operations, of comprehensive income, of shareholders equity and
retained earnings, and of cash flows for the years then ended, and the combined
statements of operations, of comprehensive income, of shareholders equity and
retained earnings, and of cash flows for the year ended December 31, 2005, present
fairly, in all material respects, the financial position of RAM Holdings Ltd.
and its subsidiary at December 31, 2007 and 2006, and the results of their
operations and their cash flows for the years then ended, and the combined
results of RAM Holdings Ltd. and its subsidiarys operations and cash flows for
the year ended December 31, 2005 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 and combined financial statements. Also in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial statements and
financial statement schedules, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in Managements Report on Internal
Control Over Financial Reporting appearing under Item 9A. Our responsibility is
to express opinions on these financial statements, on the financial statement
schedules, and on the Companys internal control over financial reporting based
on our audits (which was an integrated audit in 2007). We conducted our audits
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 and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the
financial statements included 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. Our audit of internal
control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.

A companys
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) 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 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.

/s/ PricewaterhouseCoopers
Hamilton, Bermuda

March 17, 2008

60

---



RAM Holdings Ltd.
Consolidated Balance Sheets
December 31, 2007 and 2006

|                                                                                                                                                                                       |  |      |             |      |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | -
|                                                                                                                                                                                       |  | 2007 |             | 2006 |  
|                                                                                                                                                                                       |  |      |             |      |  
|ASSETS                                                                                                                                                                                 |  |      |             |      |   |             |  
|Investments:                                                                                                                                                                           |  |      |             |      |   |             |  
|Fixed-maturity
    securities held as available for sale, at fair value (amortized cost of $685,644,954
    and $574,127,066)                                                          |  | $    | 696,532,780 |      | $ | 568,630,422 |  
|Short-term investments, at amortized cost
  (which approximates fair value)                                                                                                            |  |      |            |      |   | 9,958,827   |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|Total investments                                                                                                                                                                      |  |      | 696,532,780 |      |   | 578,589,249 |  
|Cash and cash equivalents                                                                                                                                                              |  |      | 12,326,313  |      |   | 35,735,853  |  
|Restricted cash                                                                                                                                                                        |  |      | 8,177,757   |      |   | 6,253,333   |  
|Accrued investment income                                                                                                                                                              |  |      | 6,464,873   |      |   | 5,226,554   |  
|Premiums receivable                                                                                                                                                                    |  |      | 3,644,620   |      |   | 3,464,155   |  
|Recoverables on paid losses                                                                                                                                                            |  |      | 1,807,941   |      |   | 915,900     |  
|Deferred policy acquisition costs                                                                                                                                                      |  |      | 87,304,376  |      |   | 73,837,638  |  
|Prepaid reinsurance premiums                                                                                                                                                           |  |      | 2,662,673   |      |   | 2,091,354   |  
|Fixed assets                                                                                                                                                                           |  |      | 50,914      |      |   | 72,926      |  
|Deferred expenses                                                                                                                                                                      |  |      | 1,752,856   |      |   | 1,917,520   |  
|Prepaid expenses                                                                                                                                                                       |  |      | 195,291     |      |   | 184,626     |  
|Derivative assets                                                                                                                                                                      |  |      |            |      |   | 60,031      |  
|Financial instruments at fair value                                                                                                                                                    |  |      | 35,330,000  |      |   |            |  
|Other assets                                                                                                                                                                           |  |      | 4,015,065   |      |   | 3,554,163   |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|Total assets                                                                                                                                                                           |  | $    | 860,265,459 |      | $ | 711,903,302 |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|LIABILITIES AND SHAREHOLDERS
EQUITY                                                                                                                                                   |  |      |             |      |   |             |  
|Liabilities:                                                                                                                                                                           |  |      |             |      |   |             |  
|Losses and loss expense reserve                                                                                                                                                        |  | $    | 63,797,744  |      | $ | 14,505,778  |  
|Unearned premiums                                                                                                                                                                      |  |      | 242,829,191 |      |   | 194,322,365 |  
|Reinsurance balances payable                                                                                                                                                           |  |      | 539,394     |      |   | 1,210,683   |  
|Accounts payable and accrued liabilities                                                                                                                                               |  |      | 3,463,366   |      |   | 3,458,188   |  
|Accrued interest payable                                                                                                                                                               |  |      | 693,151     |      |   | 693,150     |  
|Derivative liabilities                                                                                                                                                                 |  |      | 177,717,110 |      |   |            |  
|Other liabilities                                                                                                                                                                      |  |      | 3,913,105   |      |   | 3,445,924   |  
|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, 2007 and 2006)       |  |      | 75,000,000  |      |   | 75,000,000  |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|Total liabilities                                                                                                                                                                      |  |      | 607,953,061 |      |   | 332,636,088 |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|Commitments and contingencies (Note 15)                                                                                                                                                |  |      |             |      |   |             |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|Shareholders equity:                                                                                                                                                                  |  |      |             |      |   |             |  
|Common shares ($0.10 par value; authorized
  shares  90,000,000; issued and outstanding shares  27,238,976 shares at
  December 31, 2007 and 27,234,755 shares at December 31, 2006) |  |      | 2,723,898   |      |   | 2,723,476   |  
|Additional paid-in capital                                                                                                                                                             |  |      | 229,378,418 |      |   | 227,436,840 |  
|Accumulated other comprehensive income
  (loss)                                                                                                                                        |  |      | 10,887,826  |      |   | (5,496,643  | )
|Retained earnings                                                                                                                                                                      |  |      | 9,322,256   |      |   | 154,603,541 |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|Total shareholders equity                                                                                                                                                             |  |      | 252,312,398 |      |   | 379,267,214 |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  
|Total liabilities and shareholders equity                                                                                                                                             |  | $    | 860,265,459 |      | $ | 711,903,302 |  
|                                                                                                                                                                                       |  |      |             |      |   |             |  

See accompanying Notes to Consolidated
Financial Statements.

61

---



|                                            
|--------------------------------------------
|RAM Holdings Ltd.
  Statements of Operations

|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|------------------------------------------------------- |  | ------------------------ | ------------ | ------------------- | - | --------------- | - | - | ----------- | -
|                                                        |  | Years Ended December 31, |             
|                                                        |  |                          |             
|                                                        |  | Consolidated
  2007      |              | Consolidated
  2006 |   | Combined
  2005 |  
|                                                        |  |                          |              |                     |   |                 |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|Revenues:                                               |  |                          |              |                     |   |                 |   |   |             |  
|Gross premiums written                                  |  | $                        | 108,749,672  |                     | $ | 77,631,605      |   | $ | 68,147,233  |  
|Ceded premiums                                          |  |                          | (751,528     | )                   |   | (2,145,659      | ) |   |            |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|Net written premiums                                    |  |                          | 107,998,144  |                     |   | 75,485,946      |   |   | 68,147,233  |  
|Change in unearned premiums                             |  |                          | (47,935,507  | )                   |   | (26,650,681     | ) |   | (25,537,804 | )
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|Net premiums earned                                     |  | $                        | 60,062,637   |                     | $ | 48,835,265      |   | $ | 42,609,429  |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|Net investment income                                   |  |                          | 33,148,540   |                     |   | 24,236,102      |   |   | 18,201,486  |  
|Net realized losses on investments                      |  |                          | (3,604,220   | )                   |   | (1,002,055      | ) |   | (1,583,540  | )
|Net losses on credit derivatives                        |  |                          | (177,777,141 | )                   |   | (14,426         | ) |   | (2,525,810  | )
|Net unrealized gain on other financial
  instruments    |  |                          | 35,330,000   |                     |   |                |   |   |            |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|Total revenues                                          |  |                          | (52,840,184  | )                   |   | 72,054,886      |   |   | 56,701,565  |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|Expenses:                                               |  |                          |              |                     |   |                 |   |   |             |  
|Losses and loss adjustment expenses                     |  |                          | 48,026,209   |                     |   | (2,781,236      | ) |   | 7,204,251   |  
|Acquisition expenses                                    |  |                          | 21,504,966   |                     |   | 17,654,466      |   |   | 15,627,570  |  
|Operating expenses                                      |  |                          | 13,373,223   |                     |   | 13,378,816      |   |   | 11,531,480  |  
|Interest expense                                        |  |                          | 8,375,000    |                     |   | 2,750,000       |   |   | 2,750,000   |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|Total expenses                                          |  |                          | 91,279,398   |                     |   | 31,002,046      |   |   | 37,113,301  |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|Net (loss) income                                       |  | $                        | (144,119,582 | )                   | $ | 41,052,840      |   | $ | 19,588,264  |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|                                                        |  |                          |              |                     |   |                 |   |   |             |  
|Net (loss) income per common share:                     |  |                          |              |                     |   |                 |   |   |             |  
|Basic                                                   |  | $                        | (5.29        | )                   | $ | 1.53            |   | $ | 0.76        |  
|Diluted                                                 |  |                          | (5.29        | )                   |   | 1.53            |   |   | 0.75        |  
|Weighted-average number of common shares
  outstanding: |  |                          |              |                     |   |                 |   |   |             |  
|Basic                                                   |  |                          | 27,237,481   |                     |   | 26,787,221      |   |   | 25,900,914  |  
|Diluted                                                 |  |                          | 27,237,481   |                     |   | 26,843,583      |   |   | 25,983,170  |  

See accompanying Notes to Consolidated
Financial Statements.

62

---



|                                         
|-----------------------------------------
|RAM Holdings Ltd.                        
|Statements of Comprehensive Income (Loss)

|                                                                                                         |  |                          |              |                     |   |                 |   |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------------ | ------------------- | - | --------------- | - | - | ---------- | -
|                                                                                                         |  | Years Ended December 31, |             
|                                                                                                         |  |                          |             
|                                                                                                         |  | Consolidated
  2007      |              | Consolidated
  2006 |   | Combined
  2005 |  
|                                                                                                         |  |                          |              |                     |   |                 |  
|                                                                                                         |  |                          |              |                     |   |                 |   |   |            |  
|Net (loss) income                                                                                        |  | $                        | (144,119,582 | )                   | $ | 41,052,840      |   | $ | 19,588,264 |  
|Other comprehensive income (loss)                                                                        |  |                          |              |                     |   |                 |   |   |            |  
|Change in unrealized
  appreciation/(depreciation) of investments                                        |  |                          | 12,780,249   |                     |   | (1,958,979      | ) |   | (8,909,790 | )
|Less: Reclassification adjustment for net
  realized losses on investments included in net (loss) income |  |                          | 3,604,220    |                     |   | 1,002,055       |   |   | 1,583,540  |  
|                                                                                                         |  |                          |              |                     |   |                 |   |   |            |  
|Other comprehensive income (loss)                                                                        |  |                          | 16,384,469   |                     |   | (956,924        | ) |   | (7,326,250 | )
|                                                                                                         |  |                          |              |                     |   |                 |   |   |            |  
|Comprehensive (loss) income for the year                                                                 |  |                          | (127,735,113 | )                   |   | 40,095,916      |   |   | 12,262,014 |  
|                                                                                                         |  |                          |              |                     |   |                 |   |   |            |  

See accompanying Notes to Consolidated Financial Statements.

63

---



RAM Holdings Ltd.
Statements of Shareholders Equity and Retained Earnings

|                                                        |  |               |           |                             |   |                                           |   |                    |            |       |   |              |   |   |              |  
|------------------------------------------------------- |  | ------------- | --------- | --------------------------- | - | ----------------------------------------- | - | ------------------ | ---------- | ----- | - | ------------ | - | - | ------------ | -
|                                                        |  | Share capital |           | Additional
 paid-in capital |   | Accumulated
 other
 comprehensive
 income |   | Retained
 earnings |            | Total |  
|                                                        |  |               |           |                             |   |                                           |   |                    |            |       |   |              |   |   |              |  
|Balance, January 1, 2005                                |  | $             | 2,591,726 |                             | $ | 211,974,556                               |   | $                  | 2,786,531  |       | $ | 94,152,681   |   | $ | 311,505,494  |  
|                                                        |  |               |           |                             |   |                                           |   |                    |            |       |   |              |   |   |              |  
|Share redemption                                        |  |               | (3,250    | )                           |   | (146,750                                  | ) |                    |           |       |   | (190,244     | ) |   | (340,244     | )
|Committed preferred share expenses                      |  |               |          |                             |   | (638,204                                  | ) |                    |           |       |   |             |   |   | (638,204     | )
|Non-cash compensation                                   |  |               |          |                             |   | (132,968                                  | ) |                    |           |       |   |             |   |   | (132,968     | )
|Net income                                              |  |               |          |                             |   |                                          |   |                    |           |       |   | 19,588,264   |   |   | 19,588,264   |  
|Other comprehensive loss                                |  |               |          |                             |   |                                          |   |                    | (7,326,250 | )     |   |             |   |   | (7,326,250   | )
|                                                        |  |               |           |                             |   |                                           |   |                    |            |       |   |              |   |   |              |  
|                                                        |  |               |           |                             |   |                                           |   |                    |            |       |   |              |   |   |              |  
|Balance, December 31, 2005                              |  |               | 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 preferred share expenses                      |  |               |          |                             |   | (523,499                                  | ) |                    |           |       |   |             |   |   | (523,499     | )
|Non-cash 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 preferred
 share expenses |  |               |          |                             |   | 1,161,703                                 |   |                    |           |       |   | (1,161,703   | ) |   |             |  
|Share issuance                                          |  |               | 422       |                             |   | (422                                      | ) |                    |           |       |   |             |   |   |             |  
|Non-cash 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  |  
|                                                        |  |               |           |                             |   |                                           |   |                    |            |       |   |              |   |   |              |  

See accompanying Notes to Consolidated
Financial Statements.

64

---



RAM Holdings Ltd.
Statements of Cash Flows

|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|----------------------------------------------------------------------------------------- |  | ------------------------ | ------------ | ------------------ | - | -------------- | - | - | ------------ | -
|                                                                                          |  | Years Ended December 31, |             
|                                                                                          |  |                          |             
|                                                                                          |  | Consolidated
 2007       |              | Consolidated
 2006 |   | Combined
 2005 |  
|                                                                                          |  |                          |              |                    |   |                |  
|                                                                                         
|Cash flows from operating activities:                                                     |  |                          |              |                    |   |                |   |   |              |  
|Net (loss) income for the year                                                            |  | $                        | (144,119,582 | )                  | $ | 41,052,840     |   | $ | 19,588,264   |  
|Adjustments to reconcile net (loss) income
 to net cash provided by operating activities: |  |                          |              |                    |   |                |   |   |              |  
|Net realized losses on investments                                                        |  |                          | 3,604,220    |                    |   | 1,002,055      |   |   | 1,583,540    |  
|Net losses on credit derivatives and
 foreign exchange                                    |  |                          | 177,777,141  |                    |   | 14,426         |   |   | 2,525,810    |  
|Net unrealized gain on other financial
 instruments                                       |  |                          | (35,330,000  | )                  |   |               |   |   |             |  
|Depreciation and amortization                                                             |  |                          | 210,534      |                    |   | 141,443        |   |   | 172,195      |  
|Amortization of debt discount                                                             |  |                          | 6,280        |                    |   | 6,280          |   |   | 6,271        |  
|Amortization of bond premium and discount                                                 |  |                          | 798,087      |                    |   | 486,654        |   |   | (218,127     | )
|Non-cash compensation                                                                     |  |                          | 780,297      |                    |   | 446,833        |   |   | 203,900      |  
|Changes in assets and liabilities:                                                        |  |                          |              |                    |   |                |   |   |              |  
|Accrued investment income                                                                 |  |                          | (1,238,319   | )                  |   | (534,583       | ) |   | (689,160     | )
|Premiums receivable                                                                       |  |                          | (180,465     | )                  |   | (1,476,118     | ) |   | (73,049      | )
|Recoverables on paid losses                                                               |  |                          | (892,041     | )                  |   | 363,603        |   |   | (111,928     | )
|Deferred policy acquisition costs                                                         |  |                          | (13,466,738  | )                  |   | (7,617,283     | ) |   | (7,567,728   | )
|Prepaid reinsurance premiums                                                              |  |                          | (571,319     | )                  |   | (2,091,354     | ) |   |             |  
|Prepaid expenses                                                                          |  |                          | (10,665      | )                  |   | (70,619        | ) |   | 44,884       |  
|Deferred expenses                                                                         |  |                          | 476          |                    |   | (40,346        | ) |   |             |  
|Losses and loss adjustment expenses                                                       |  |                          | 49,291,966   |                    |   | (2,089,089     | ) |   | 1,102,141    |  
|Unearned premiums                                                                         |  |                          | 48,506,826   |                    |   | 28,742,035     |   |   | 25,537,804   |  
|Reinsurance balances payable                                                              |  |                          | (671,289     | )                  |   | 1,210,683      |   |   |             |  
|Accounts payable and accrued liabilities                                                  |  |                          | 5,178        |                    |   | 350,214        |   |   | 112,005      |  
|Share based compensation liability                                                        |  |                          |             |                    |   | (2,801,535     | ) |   | 2,801,535    |  
|Accrued interest payable                                                                  |  |                          | 1            |                    |   | (2             | ) |   | 1            |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|Net cash provided by operating activities                                                 |  |                          | 84,500,588   |                    |   | 57,096,137     |   |   | 45,018,358   |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|Cash flows from investing activities:                                                     |  |                          |              |                    |   |                |   |   |              |  
|Purchases of investments                                                                  |  |                          | (244,097,849 | )                  |   | (220,303,995   | ) |   | (218,688,976 | )
|Proceeds from sales of investments                                                        |  |                          | 18,228,122   |                    |   | 111,000,298    |   |   | 129,661,043  |  
|Proceeds on maturities of investments                                                     |  |                          | 109,867,972  |                    |   | 7,996,521      |   |   | 14,998,000   |  
|Net sales (purchases) of short term
 investments                                          |  |                          | 10,040,385   |                    |   | (9,820,200     | ) |   |             |  
|Purchases of fixed assets                                                                 |  |                          | (24,334      | )                  |   | (19,864        | ) |   | (26,331      | )
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|Net cash used in investing activities                                                     |  |                          | (105,985,704 | )                  |   | (111,147,240   | ) |   | (74,056,264  | )
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|Cash flows from financing activities:                                                     |  |                          |              |                    |   |                |   |   |              |  
|Net issuance (redemption) of share capital                                                |  |                          |             |                    |   | 16,591,872     |   |   | (340,244     | )
|Net proceeds from issuance of preferred
 shares                                           |  |                          |             |                    |   | 73,901,496     |   |   |             |  
|Committed preferred securities expenses                                                   |  |                          |             |                    |   | (523,499       | ) |   | (638,204     | )
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|Net cash (used in) provided by financing
 activities                                      |  |                          |             |                    |   | 89,969,869     |   |   | (978,448     | )
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|Net (decrease) increase in cash and cash
 equivalents                                     |  |                          | (21,485,116  | )                  |   | 35,918,766     |   |   | (30,016,354  | )
|Cash and cash equivalents  Beginning of
 year                                            |  |                          | 41,989,186   |                    |   | 6,070,420      |   |   | 36,086,774   |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|Cash and cash equivalents  End of year                                                   |  | $                        | 20,504,070   |                    | $ | 41,989,186     |   | $ | 6,070,420    |  
|                                                                                          |  |                          |              |                    |   |                |   |   |              |  
|Supplemental cash flow disclosure:                                                        |  |                          |              |                    |   |                |   |   |              |  
|Interest paid on redeemable preferred
 shares                                             |  | $                        | 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.

65

---



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. 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.

|  |                                
|- | -------------------------------
|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 and/or combination                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | As discussed
  in Note 1, RAM Holdings Ltd and RAM Holdings II Ltd were amalgamated on May
  1, 2006 and the December 31, 2007 and 2006 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. Comparative financial
  information for the year ended December 31, 2005 is presented on a combined
  basis as the amalgamation was not yet effective. Holdings and Holdings II had
  common shareholders and were under common management. Intercompany balances
  and transactions were eliminated on consolidation and/or combination. There
  are no significant differences between financial statements prepared on a
  combined basis and those prepared on a consolidated basis.                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (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. 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)

66

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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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (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 2007, 2006, and 2005, respectively,
  includes $5.7 million, $6.3 million, and $3.3 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 and the estimated present value
  of net installment premiums to be received by underwriting year and by risk
  type. The Company will recognize a premium deficiency if the sum of expected
  losses and loss adjustment expenses, maintenance costs and unamortized policy
  acquisition costs exceed the related unearned premiums, the anticipated present
  value of future premiums for installment contracts written, and anticipated
  investment income. If a premium deficiency were calculated that was greater
  than unamortized acquisition costs, the unamortized acquisition costs would
  be reduced by a charge to expense, and a liability would be established for
  any remaining deficiency. There have been no premium deficiencies recorded by
  the Company since its inception.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

67

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |    |                                                                                                                                                                                                                                                                                                                                
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | commonly
  recognized measure of credit risk promulgated by Standard & Poors). 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |    |                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |    |                                                                                                                                                                                                                                                                                                                                
| |     | 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,
  there are 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |    |                                                                                                                                                                                                                                                                                                                                
| |     | 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 further guidance is provided
  by the FASB. 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. The Company currently has one retrocessional agreement in place which
  required a minimum cession that was complied with at December 31, 2007 and
    2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

68

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | Derivative instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The Company
  has entered into agreements to reinsure derivative instruments, consisting 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
  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 swap risks that the Company assume 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. Because management considers the Companys
  reinsurance of credit default swaps to be a normal extension of its financial
  guaranty reinsurance business and reinsurance in substance, management
  believes the most meaningful presentation of these derivatives is to reflect
  in the Statements of Operations (i) premiums that the Company receives from
  the reinsurance of such contracts in the line items entitled (i) gross
  written premium, ceded premium and change in unearned premiums, (ii) loss
  payments to the reinsured in loss and loss adjustment expenses, and (iii)
  change in fair value, including credit impairments, in the caption net
  unrealized losses on credit derivatives.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Through
June 30, 2007, RAM had 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 the present market conditions and the large changes in
credit spreads currently being experienced. Management therefore determined
that a more appropriate basis for our estimate of fair value was to use, from
September 30, 2007 onward, the valuation information provided to us by our
ceding companies as they have access to each underlying risk and their internal
models are able to reflect more detailed market data for each of those
underlying risks. The ceding companies use their
own internal valuation models where market prices are not available. 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. 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.  In addition, due
    to the complexity of fair value accounting and the application of FAS 133,
    future amendments or interpretations of FAS 133 may cause us to modify our
    accounting methodology in a manner which may have an adverse impact on our
    financial results. Management assess the reasonableness of the ceding companies valuations
  by i) discussions with primary insurers on 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) assessing the reasonableness of the valuations,
  including changes in the reported valuations against current observable market
data including credit spread movements and collateral delinquency information.
Upon occurrence of specific credit events such as a default, an appropriate reserve is
established in the derivative liability line item on the balance sheet to
reflect the market value. See further information on derivative instruments
in Note 4 to these consolidated financial statements                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (j) | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The put option relating to the Companys
  preferred share soft capital facility, 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 obtained
    from banks that value the put option using assumptions over the Company and
    the facility as well as other similar instruments in the market. While the
    gain reported is a measurement against similar instruments in the market,
    the Company would most likely not have the ability to realize the gain as
    it would be subject to negotiation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

69

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| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (k) | Recent accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | On April 18,
  2007, the Financial Accounting Standards Board (FASB) issued the Exposure
  Draft Accounting for Financial Guarantee Insurance Contracts  an
  interpretation of FASB Statement No. 60 (Exposure Draft). The Exposure
  Draft among other things, would change current industry practices with
  respect to the recognition of premium revenue and claim liabilities. In addition,
  the Exposure Draft would require that the measurement of the initial deferred
  premium revenue (liability) be the present value of the contractual premium
  due pursuant to the terms of the financial guarantee insurance contract,
  thereby changing current industry accounting practice with respect to
  insurance policies with installments by requiring that the present value of
  contractual premiums due under such contracts, currently or in the future, be
  recorded on the Companys balance sheet as premiums receivable and unearned
  premiums. Under current industry practice such premiums are not reflected on
  the balance sheet. When the FASB issues authoritative guidance the Company
  and the rest of the financial guaranty industry may be required to change
  some aspects of their accounting for loss reserves, premium recognition and
  acquisition cost recognition, and these changes could have a material effect
  on our financial statements. The comment period for the Exposure Draft closed
  on June 15, 2007. A FASB Round Table discussion was held in early September
  2007 with another FASB meeting held in January 2008. The FASB has indicated
  that the final FASB Statement is expected to be issued in the first or second
  quarter of 2008. The Company is assessing the potential impact and at this
  time is unable to quantify the effect of the adoption of the proposed interpretation.
  Until the authoritative guidance is issued, the Company intends to continue
  to apply its existing policies with respect to its accounting for the establishment
  of both case and unallocated reserves as well as for premium recognition and
  deferred acquisition costs.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | In February
  2006, the Financial Accounting Standards Board (FASB) issued FAS No. 155,
  Accounting for Certain Hybrid Financial Instruments (FAS 155). FAS 155
  amends FAS No. 133, Accounting for Derivative Instruments and Hedging
  Activities (FAS 133) and FAS No. 140, Accounting for Transfers and
  Servicing of Financial Assets and Extinguishments of Liabilities (FAS
  140), and resolves issues addressed in FAS 133 Implementation Issue No. D1,
  Application of Statement 133 to Beneficial Interests in Securitized
  Financial Assets. The primary objectives of FAS 155 are, with respect to FAS
  133, to address the accounting for beneficial interests in securitized
  financial assets and, as respects FAS 140, to eliminate a restriction on the
  passive derivative instruments that a qualifying special-purpose entity may
  hold. FAS 155 is effective for the Company for all financial instruments
  acquired or issued after January 1, 2007. The adoption of FAS 155 did not
  have any impact on the Companys operating results or financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | In September
  2006, the FASB issued FAS No. 157 (FAS 157), Fair Value Measurement. 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. FAS
  157 is effective for fiscal years beginning after November 15, 2007, and
  interim periods within those fiscal years. The Company adopted FAS 157
  effective January 1, 2008. FAS 157 is not expected to have a material impact
  on our results of operations or financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | 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. We adopted FAS 159
  effective January 1, 2008. We did not apply the fair value options to any
  eligible items on our adoption date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (l) | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Certain
  reclassifications have been made to the prior years amounts to conform to
  the current years presentation. In the current year we have reclassified
  committed preferred expenses amounting to $1.2 million to retained earnings,
  as this presentation reflects a more appropriate recording of these costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (m) | Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The Company
  has one reportable segment, financial guaranty reinsurance, which provides
  financial guaranty reinsurance for public finance, structured finance and
  other obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

70

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

As of December
31, 2007 and 2006, the Company had cash and cash equivalents of $8.2 million
    and $6.3 million, respectively, and investments at fair value of $406.7 million
    and $323.6 million, respectively, invested in trust accounts for the benefit
    of ceding companies. Pursuant to the terms of the reinsurance agreements
    with ceding companies, the Company is required to secure its obligations
    with ceding companies and may not withdraw funds from these trust accounts
    without their express permission.

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

Certain
transactions reinsured by the Company have been deemed to 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. 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. Fair value is defined as the amount at which
an asset or liability could be bought or sold in a current transaction between
willing parties. The credit derivative contracts the Company 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, are generally held to maturity, and the unrealized
gains and losses on derivative financial instruments will amortize to zero as
the exposure approaches its maturity date, unless there is a credit impairment.

As of December
31, 2007, 2006, and 2005, included in the Companys outstanding par exposure
were $11.9 billion, $5.5 billion, and $3.3 billion, respectively, credit default
swaps that have been fair valued under Statement of Financial Accounting
Standards No. 133. These derivative instruments had an average legal term to
maturity of 25.2 years, 12.5 years, and 11.8 years as of December 31, 2007,
2006, and 2005, respectively, although actual maturity of credit default swaps
is generally expected to be less than the legal term. In accordance with predominant
industry practice, the Company believes that the most meaningful presentation
of the financial statement impact of these derivative instruments is to record
premiums as installments are received and changes in fair value as incurred.
Changes in fair value are recorded in net losses on credit
derivatives and in derivative assets/liabilities. The estimated income
statement impact of derivative activity, by category, is as follows:

|                                                |  |      |              |      |   |            |   |   |            |  
|----------------------------------------------- |  | ---- | ------------ | ---- | - | ---------- | - | - | ---------- | -
|                                                |  | 2007 |              | 2006 |   | 2005       |  
|                                                |  |      |              |      |   |            |  
|                                                |  |      |              |      |   |            |   |   |            |  
|Gross premiums written                          |  | $    | 10,553,785   |      | $ | 4,413,266  |   | $ | 4,983,662  |  
|Change in unearned premiums                     |  |      | (1,437,570   | )    |   | 129,757    |   |   | (1,410,902 | )
|                                                |  |      |              |      |   |            |   |   |            |  
|                                               
|Premiums earned                                 |  |      | 9,116,215    |      |   | 4,543,023  |   |   | 3,572,760  |  
|Acquisition expenses                            |  |      | (3,175,469   | )    |   | (1,339,113 | ) |   | (1,203,670 | )
|Net losses on
    credit derivatives            |  |      | (177,777,141 | )    |   | (14,426    | ) |   | (2,525,810 | )
|                                                |  |      |              |      |   |            |   |   |            |  
|                                                |  |      |              |      |   |            |   |   |            |  
|Net (loss)/income from derivative
  instruments |  | $    | (171,836,395 | )    | $ | 3,189,484  |   | $ | (156,720   | )
|                                                |  |      |              |      |   |            |   |   |            |  

| | 
| | 

In determining the fair value of derivative instruments, management
    relies on an evaluation of ceding company reports of credit derivative contract
    valuations. The ceding companies use their own internal valuation models
    where market prices are not available. The
models used to fair value these instruments include a number of factors, including
    credit spreads, changes in interest rates, changes in correlation assumptions,
    current delinquencies, recovery rates and the credit ratings of referenced
    entities. Some of the primaries use market prices when available to determine
    the fair value of credit derivatives. If the market prices are not available,
    the fair value is estimated using a combination of observable market data
    and valuation models incorporating the above factors. Fair values from the
    primaries models may differ from values calculated
by companies outside of the financial guaranty industry because terms of the
credit default swap contracts insured generally differ from other non insured
    CDS contracts. Financial guaranty credit derivative terms generally include
    the absence of collateral support agreements or immediate settlement provisions,
    and are generally structured as pay
    as you go obligations
requiring payment only as losses come due. Most importantly the primaries have
the intent and the ability to hold the contracts to maturity. Because of these
terms and conditions, the fair value of the primaries 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 revaluated by the primaries and enhanced, as appropriate, based
upon improvements in modeling techniques and availability of more timely market
information.

Valuation models include the use of estimates and current market
    information, including assumptions on how the fair value of derivative instruments
    is affected by current market conditions. The primaries consider factors
    such as current prices charged for similar agreements, performance of underlying
    assets, life of the instrument, and the nature and extent of activity in
    the financial guaranty credit derivative marketplace. The assumptions used
    to determine fair value may change in the future due to market conditions.
    Due to the inherent uncertainties of the assumptions used in the valuation
    models to determine the fair value of these derivative products, actual experience
may differ from the estimates and the differences may be material.

The
    fair value loss recognized in our statement of operations for
    the year ended December 31, 2007, was $177.8 million, compared
    with an immaterial loss for the year ended December 31, 2006, and a
    $2.5 million loss for the year ended December 31, 2005. The 2007
    loss of $177.8 million primarily related to spreads widening and underlying
    collateral deterioration and included $44.4 million of credit impairments,
    compared to no credit impairments in prior years. It is expected that with
    the continued widening of credit spreads, the fair value amount will fluctuate
    significantly in future periods.

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

The Company
derives the majority of its business from four United States based primary
financial guaranty insurance companies namely Ambac Assurance Corp., Financial
Guaranty Insurance Co. (FGIC), Financial Security Assurance Inc.,
and MBIA Insurance Corp. The four primary insurers accounted for 20%, 26%, 22%,
and 17% in 2007, for 25%, 12%, 30%, and 22% in 2006, and for 27%, 7%, 31%, and
31% in 2005 of gross premiums written. This customer concentration results from
the small number of primary insurance companies that are licensed to write financial
guaranty insurance. The majority of the Companys gross premiums written
are derived from treaty agreements that are renewed on an annual basis. One of
the four United States based primary financial guaranty insurance companies
identified above is also a related party. Description of the relationship is
discussed in Note 19 Related party transactions.

Our major competitors include Assured Guaranty Re, XL Financial
    Assurance Ltd., Channel Reinsurance Ltd., BluePoint Re Limited, and Radian
    Asset Assurance Inc., while several multiline insurance companies continue
    to offer financial guaranty reinsurance capacity as well. The capital adequacy
    of the financial guaranty reinsurers that we compete with has been reviewed
    by or is under review by the applicable rating agencies, and our competitive
    position will be determined in part by the ultimate outcome of the rating
    agencies reviews
    of RAM Re and its competitors. At least one new Bermuda-based financial guaranty
    reinsurance company has been formed recently, and it is possible that more
    will be formed in the near term, although we believe the barriers to entry,
    particularly rating agency requirements, remain significant. It is also possible
    that one or more of the primaries that has been downgraded will choose to
    become a reinsurer on a temporary or permanent basis. In this changing environment,
    it is not possible to predict with accuracy our competitors or competitive
    position in 2008. We also compete directly and indirectly with certain credit
    derivative transactions and other alternative transaction structures that
    may be a more attractive alternative to traditional financial guaranty reinsurance.
    In addition, issuers may choose to divide large transactions among several
    primary insurers reducing or eliminating the need for reinsurance. Primary
    insurers may also choose to reinsure transactions with other primary insurers
directly also reducing or eliminating the need for reinsurance.

71

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|  |                          
|- | -------------------------
|6 | EARNINGS/(LOSS) 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 stock. 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 antidilutive
    effect on net loss per share. As of
  December 31, 2007, there were 1,302,612 stock options and restricted stock
  units excluded from the diluted earnings per share calculation because they
  were antidilutive. As of December 31, 2006 and 2005, there were no stock options
  that were not included in the diluted earnings per share calculation because
they were antidilutive.

The following
table sets forth the computation of basic and diluted earnings per share for
the years ended December 31, 2007, 2006 and 2005:

|                                  |  |      |              |      |   |            |  |   |            | 
|--------------------------------- |  | ---- | ------------ | ---- | - | ---------- |  | - | ---------- | 
|                                  |  | 2007 |              | 2006 |   | 2005       | 
|                                  |  |      |              |      |   |            | 
|                                  |  |      |              |      |   |            |  |   |            | 
|Net (loss) income                 |  | $    | (144,119,582 | )    | $ | 41,052,840 |  | $ | 19,588,264 | 
|                                  |  |      |              |      |   |            |  |   |            | 
|Basic weighted-average shares     |  |      | 27,237,481   |      |   | 26,787,221 |  |   | 25,900,914 | 
|Effect of stock options           |  |      |             |      |   | 56,362     |  |   | 82,256     | 
|                                  |  |      |              |      |   |            |  |   |            | 
|Diluted weighted-average shares   |  |      | 27,237,481   |      |   | 26,843,583 |  |   | 25,983,170 | 
|                                  |  |      |              |      |   |            |  |   |            | 
|                                  |  |      |              |      |   |            |  |   |            | 
|Basic earnings/(loss) per share   |  | $    | (5.29        | )    | $ | 1.53       |  | $ | 0.76       | 
|Diluted earnings/(loss) per share |  | $    | (5.29        | )    | $ | 1.53       |  | $ | 0.75       | 

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

The amortized
cost and estimated fair value of investments at December 31, 2007 and 2006 were
as follows:

|                                     |  |                 |             |                          |   |                         |  |                       |           |  |   |             | 
|------------------------------------ |  | --------------- | ----------- | ------------------------ | - | ----------------------- |  | --------------------- | --------- |  | - | ----------- | 
|                                     |  | Amortized
 Cost |             | Gross
 Unrealized
 Gains |   | GrossUnrealized
 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 | 
|                                     |  |                 |             |                          |   |                         |  |                       |           |  |   |             | 

|                                     |  |                 |             |                          |   |                         |  |                       |           |  |   |             | 
|------------------------------------ |  | --------------- | ----------- | ------------------------ | - | ----------------------- |  | --------------------- | --------- |  | - | ----------- | 
|                                     |  | Amortized
 Cost |             | Gross
 Unrealized
 Gains |   | GrossUnrealized
 Losses |  | Estimated
 Fair Value |          
|2006:                                |  |                 |             |                          |   |                         |  |                       |           |  |   |             | 
|Fixed interest securities:           |  |                 |             |                          |   |                         |  |                       |           |  |   |             | 
|Agencies                             |  | $               | 86,144,714  |                          | $ | 252,451                 |  |                       | 842,064   |  | $ | 85,555,101  | 
|U.S. government obligations          |  |                 | 70,410,817  |                          |   | 243,127                 |  |                       | 1,347,841 |  |   | 69,306,103  | 
|Corporate debt securities            |  |                 | 136,043,292 |                          |   | 1,679,925               |  |                       | 3,281,109 |  |   | 134,442,109 | 
|Municipal securities                 |  |                 | 11,719,818  |                          |   | 750,275                 |  |                       | 93,955    |  |   | 12,376,137  | 
|Mortgage and asset-backed securities |  |                 | 279,767,252 |                          |   | 1,009,358               |  |                       | 3,866,811 |  |   | 276,909,799 | 
|                                     |  |                 |             |                          |   |                         |  |                       |           |  |   |             | 
|                                     |  |                 |             |                          |   |                         |  |                       |           |  |   |             | 
|Total                                |  | $               | 584,085,893 |                          | $ | 3,935,136               |  | $                     | 9,431,780 |  | $ | 578,589,249 | 
|                                     |  |                 |             |                          |   |                         |  |                       |           |  |   |             | 

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, 2007
and 2006.

72

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The
investments that have unrealized loss positions as of December 31, 2007 and
2006, 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 | 
|                                      |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |           | 
|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  |            |   | 2,088,477        |  |   | 86,089,756  |  |   | 2,184,507 | 
|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 |            |   | 1,773,642        |  |   | 125,179,858 |  |   | 1,801,872 | 
|                                      |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |           | 
|Total temporarily impaired securities |  | $                   | 20,622,524  |                   | $ | 135,544    |  | $                | 204,854,042 |            | $ | 3,932,892        |  | $ | 225,476,566 |  | $ | 4,068,436 | 
|                                      |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |           | 
|2006:                                 |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |           | 
|Fixed income securities               |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |           | 
|Agencies                              |  | $                   | 27,477,100  |                   | $ | 200,646    |  | $                | 42,290,127  |            | $ | 641,418          |  | $ | 69,767,227  |  | $ | 842,064   | 
|U.S. government obligations           |  |                     | 31,330,635  |                   |   | 487,786    |  |                  | 25,512,668  |            |   | 860,054          |  |   | 56,843,303  |  |   | 1,347,840 | 
|Corporate debt securities             |  |                     | 23,699,150  |                   |   | 255,552    |  |                  | 82,133,028  |            |   | 3,025,557        |  |   | 105,832,178 |  |   | 3,281,109 | 
|Municipal securities                  |  |                     |            |                   |   |           |  |                  | 2,911,045   |            |   | 93,955           |  |   | 2,911,045   |  |   | 93,955    | 
|Mortgage and asset-backed securities  |  |                     | 60,593,675  |                   |   | 288,688    |  |                  | 136,658,795 |            |   | 3,578,123        |  |   | 197,252,470 |  |   | 3,866,811 | 
|                                      |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |           | 
|Total temporarily impaired securities |  | $                   | 143,100,560 |                   | $ | 1,232,672  |  | $                | 289,505,663 |            | $ | 8,199,107        |  | $ | 432,606,223 |  | $ | 9,431,779 | 
|                                      |  |                     |             |                   |   |            |  |                  |             |            |   |                  |  |   |             |  |   |           | 

As of December
31, 2007, 71 out of 168 securities were in unrealized loss positions. As of
December 31, 2007, 6 securities with total unrealized losses of $113,724 had
continued losses for 6 months or less, 2 securities with total unrealized
losses of $21,820 had continued losses for 7 months to 12 months and 63
securities with an unrealized loss of $3,932,892 had a continued loss for more
than 12 months. The unrealized losses as of December 31, 2007 are attributed to
the current interest rate environment and the Company believes the impairments
to be temporary. The Company has the ability and intends to hold these
investments until recovery.

The amortized
cost and estimated fair value of fixed interest securities classified as
available for sale as of 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 repay obligations with or without call
or prepayment penalties.

|                                       |  |                 |             |                       |   |             | 
|-------------------------------------- |  | --------------- | ----------- | --------------------- | - | ----------- | 
|                                       |  | Amortized
 Cost |             | Estimated
 Fair Value |  
|                                       |  |                 |             |                       |  
|2007                                   |  |                 |             |                       |   |             | 
|Less than one year                     |  | $               | 18,031,027  |                       | $ | 18,034,673  | 
|Due after one year through five years  |  |                 | 143,996,575 |                       |   | 145,200,795 | 
|Due after five years through ten years |  |                 | 137,654,013 |                       |   | 142,539,820 | 
|Due after ten years                    |  |                 | 80,847,738  |                       |   | 84,838,747  | 
|Mortgage and asset-backed securities   |  |                 | 305,115,601 |                       |   | 305,918,745 | 
|                                       |  |                 |             |                       |   |             | 
|                                       |  |                 |             |                       |   |             | 
|Total                                  |  | $               | 685,644,954 |                       | $ | 696,532,780 | 
|                                       |  |                 |             |                       |   |             | 

Proceeds from
maturities and sales of investments in fixed interest securities available for
sale during 2007, 2006, and 2005 were $128,096,094, $118,996,819, and
$144,659,043 respectively. Gross gains of $6,007, $nil and $144,908 in 2007,
2006, and 2005, respectively, and gross losses of $10,227, $1,002,055, and
$1,728,448 in 2007, 2006, and 2005, respectively, were realized on those sales.
As at December 31, 2007, the Company has recognized an other than temporary impairment
of $3.6 million relating to an investment with subprime exposure, the fair
value of this investment is $2.4 million. The Company had two other investments
    with subprime exposure with a fair value of $2.3, million, and unrealized
    losses were immaterial. The Company does not believe these two subprime investments
    to be impaired. No impairments were recognized as at December 31, 2006.

Major
categories of net investment income are summarized as follows:

|                                                    |  |      |            |      |   |            |   |   |            |  
|--------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                    |  | 2007 |            | 2006 |   | 2005       |  
|                                                    |  |      |            |      |   |            |  
|Interest from debt securities and cash
 equivalents |  | $    | 33,684,707 |      | $ | 24,530,389 |   | $ | 19,876,055 |  
|Net foreign exchange gains/(losses)                 |  |      | 37,928     |      |   | 59,951     |   |   | (931,514   | )
|Interest income  shareholder loan                  |  |      |           |      |   |           |   |   | 7,212      |  
|Pension fair value increase                         |  |      | 317,205    |      |   | 412,220    |   |   | 94,895     |  
|Investment expense                                  |  |      | (891,300   | )    |   | (766,458   | ) |   | (845,162   | )
|                                                    |  |      |            |      |   |            |   |   |            |  
|                                                    |  |      |            |      |   |            |   |   |            |  
|Net investment income                               |  | $    | 33,148,540 |      | $ | 24,236,102 |   | $ | 18,201,486 |  
|                                                    |  |      |            |      |   |            |   |   |            |  

73

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

On July 1,
2005, RAM Re entered into a retrocession agreement with a AA rated
financial guaranty company to retrocede 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. As at December 31, 2007 and 2006, premiums of
$0.8 million and $2.1 million respectively, had been retroceded as part of the
treaty. There are currently no loss recoveries recorded under this agreement.

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

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

As of December
31, 2007 and 2006, 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 renewal provision subject to approval by the banks,
has a nine-year term ending on May 11, 2015. As of December 31, 2007 and 2006,
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 $40.0 million facility has a seven-year term ending on
February 3, 2014, and had an annual extension feature, subject to approval of
    the lenders. This facility was not extended for an additional year on February
    3, 2008. As of December 31, 2007 and 2006, no amounts were outstanding nor
    have there been any borrowings under this facility.

On December
23, 2003, RAM Re entered into a contingent 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 pays the counterparty a monthly floating put option fee. The
counterparty is 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. The rights of the holders of the
preference shares are subordinate to those of ceding companies under
reinsurance contracts. The put agreement has no scheduled termination date or
maturity, but will be terminated if RAM Re takes certain actions as specified
in the operative facility documents. RAM Re has the option to redeem the Class
B preference shares issued upon exercise of its put option, subject to certain
specified terms and conditions. If the put option is exercised in full, RAM Re
would receive up to $50.0 million in connection with the issuance of the
preference shares, the proceeds of which may be used for any purpose including
the payment of claims. To fund the purchase of preference shares upon exercise
of the put option by RAM Re, the trust issued $50.0 million of its own auction
market perpetual preferred securities which are rated A+ and on CreditWatch
for a downgrade by Standard & Poors and A2 on negative outlook by
Moodys. The proceeds of this issuance are held by the trust in certain high
quality, short-term commercial paper investments. As of December 31, 2007, the
perpetual put options have not been exercised. During the years ended December
31, 2007, 2006 and 2005, expenses of $0.8 million, $0.5 million and $0.6 million,
respectively, were paid, relating to the operation of the facility.

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

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

The fair
values of investments 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. 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, 2007 the fair
value of the Companys $75.0 million redeemable preferred shares was $22.0
million. The fair values of the Companys long term debt and
accrued interest payable are assumed to approximate carrying value. The put
option on the Companys contingent capital facility is a financial instrument
and is required to be fair valued. As at December 31, 2007, the unrealized gain
on this financial instrument was $35.3 million and is included in other
financial instruments on the

74

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consolidated
balance sheet and as an unrealized gain on other financial instruments in the
statement of operations, the unrealized gain at December 31, 2006 and 2005 was
$Nil.

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 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 4.26% and 4.56%, was $234.2
million and $161.4 million at December 31, 2007 and 2006, 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:

|                                                              |  |      |            |      |   |            |   |   |            |  
|------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                              |  | 2007 |            | 2006 |   | 2005       |  
|                                                              |  |      |            |      |   |            |   |   |            |  
|                                                              |  |      |            |      |   |            |  
|Case basis loss reserves:                                     |  |      |            |      |   |            |   |   |            |  
|Balance  Beginning of year                                   |  | $    | 3,009,524  |      | $ | 6,257,286  |   | $ | 5,149,198  |  
|Less: Recoverables on paid losses                             |  |      | (915,900   | )    |   | (1,279,503 | ) |   | (1,167,575 | )
|                                                              |  |      |            |      |   |            |   |   |            |  
|Net balance  Beginning of year                               |  |      | 2,093,624  |      |   | 4,977,783  |   |   | 3,981,623  |  
|                                                              |  |      |            |      |   |            |   |   |            |  
|Additions to case reserves related to:                        |  |      |            |      |   |            |   |   |            |  
|Current year                                                  |  |      | 8,036,791  |      |   |           |   |   |           |  
|Prior years                                                   |  |      | 18,134,969 |      |   | (3,939,903 | ) |   | 7,533,852  |  
|                                                              |  |      |            |      |   |            |   |   |            |  
|Total additions to case reserves                              |  |      | 26,171,760 |      |   | (3,939,903 | ) |   | 7,533,852  |  
|                                                              |  |      |            |      |   |            |   |   |            |  
|Net losses paid related to:                                   |  |      |            |      |   |            |   |   |            |  
|Current year                                                  |  |      |           |      |   |           |   |   |           |  
|Prior years                                                   |  |      | (373,707   | )    |   | (1,055,744 | ) |   | 6,537,692  |  
|                                                              |  |      |            |      |   |            |   |   |            |  
|Total paid                                                    |  |      | (373,707   | )    |   | (1,055,744 | ) |   | 6,537,692  |  
|                                                              |  |      |            |      |   |            |   |   |            |  
|Net balance  End of year                                     |  |      | 28,639,095 |      |   | 2,093,624  |   |   | 4,977,783  |  
|Add: Recoverables on paid losses                              |  |      | 1,807,941  |      |   | 915,900    |   |   | 1,279,503  |  
|                                                              |  |      |            |      |   |            |   |   |            |  
|Balance  End of year                                         |  |      | 30,447,036 |      |   | 3,009,524  |   |   | 6,257,286  |  
|                                                              |  |      |            |      |   |            |   |   |            |  
|Unallocated loss reserve:                                     |  |      |            |      |   |            |   |   |            |  
|Balance  Beginning of year                                   |  |      | 11,496,254 |      |   | 10,337,582 |   |   | 10,343,528 |  
|Net provision/(release) for unallocated
 reserves established |  |      | 21,854,454 |      |   | 1,158,672  |   |   | (5,947     | )
|Transfers to case reserves                                    |  |      |           |      |   |           |   |   |           |  
|                                                              |  |      |            |      |   |            |   |   |            |  
|Balance  End of year                                         |  |      | 33,350,708 |      |   | 11,496,254 |   |   | 10,337,581 |  
|                                                              |  |      |            |      |   |            |   |   |            |  
|Total losses and loss expense reserve                         |  | $    | 63,797,744 |      | $ | 14,505,778 |   | $ | 16,594,867 |  
|                                                              |  |      |            |      |   |            |   |   |            |  

The effect of the credit and mortgage markets, as a consequence
    of the subprime crisis, 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 $26.2 million in 2007, ($3.9 million) in 2006, and $7.5
million in 2005 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 $21.9 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 company insures par relating to RMBS exposure of $2.5 billion,
of which $352.6 million has case reserves amounting to $27.5 million at
December 31, 2007. RMBS exposure includes obligations backed by 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 $1.2 million in 2006, and the immaterial decrease in 2005 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.

As of December
31, 2007, 2006, and 2005, recoverables on paid losses included $0.5 million,
$0.9 million, and $0.7 million, respectively, in collateral certificates
purchased by one of our ceding companies, MBIA (see Note 19 Related party
transactions) in a foreclosure on assets underlying certain insured equipment
trust lease obligations reinsured by the Company. The recoverable is recorded
at its estimated fair value based on the estimated present value of lease
payments over an average of 92 months, 92 months, and 15 months as of December
31, 2007,

75

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2006, and
2005, respectively, and the estimated present value of the recovery value of
the underlying assets. There are no assurances that the ultimate value received
or recovered will not be materially different than the estimated fair value.
    As of December 31, 2007, the difference between the paid loss less lease
    payments received to date of $0.6 million and the estimated fair value of
    $0.5 million was $0.1 million. As of December 31, 2006, the difference between
    the paid loss less lease payments received to date of $1.0 million and the
    estimated fair value of $0.9 million was $0.1 million. As of December 31,
    2005, the difference between the paid loss of $1.2 million and the estimated
    fair value of $0.7 million was $0.5 million. This change in fair value for
    the year ended December 31, 2007, 2006, and 2005, respectively, has been
    recorded as part of losses and loss adjustment expenses on the income statement.
    Subsequent to year end, the Company has received additional reimbursements
totaling $0.1 million.

As of December 31, 2007 and included within net losses on credit derivatives was $44.4 million related
  to credit impairments which are expected to be paid out over the term of the
  contracts, see Note 4 Derivative instruments.

|   |                     
|-- | --------------------
|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. As of December 31, 2007 and
2006, the Companys outstanding principal reinsured was $45.4 billion and $31.1
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, 2007 and 2006 by credit sector was (in
millions) (1):

|                                     |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|------------------------------------ |  | ------ | ------ | ---- |  | ----- | ------ |  | - | ------ |  |  | ----- | -
|                                     |  | 2007   |        | 2006
|                                     |  |        |        |      |  |      
|US Public Finance                    |  | OS Par |        | %    |  |       | OS Par |  | % |       
|General Obligation and Lease         |  | $      | 7,964  |      |  | 17.5  | %      |  | $ | 5,692  |  |  | 18.3  | %
|Tax backed                           |  |        | 2,571  |      |  | 5.7   | %      |  |   | 2,318  |  |  | 7.4   | %
|Transportation                       |  |        | 3,078  |      |  | 6.8   | %      |  |   | 2,478  |  |  | 8.0   | %
|Healthcare                           |  |        | 2,570  |      |  | 5.7   | %      |  |   | 2,203  |  |  | 7.1   | %
|Utility                              |  |        | 3,723  |      |  | 8.2   | %      |  |   | 2,888  |  |  | 9.3   | %
|Investor Owned Utilities             |  |        | 769    |      |  | 1.7   | %      |  |   | 570    |  |  | 1.8   | %
|Other                                |  |        | 1,545  |      |  | 3.4   | %      |  |   | 888    |  |  | 2.9   | %
|                                     |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|Total US Public Finance              |  | $      | 22,219 |      |  | 48.9  | %      |  | $ | 17,037 |  |  | 54.7  | %
|                                     |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|                                     |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|                                     |  | 2007   |        | 2006
|                                     |  |        |        |      |  |      
|US Structured Finance                |  | OS Par |        | %    |  |       | OS Par |  | % |       
|Commercial ABS and CDOs              |  | $      | 9,221  |      |  | 20.3  | %      |  | $ | 4,700  |  |  | 15.1  | %
|RMBS                                 |  |        | 2,488  |      |  | 5.5   | %      |  |   | 1,373  |  |  | 4.4   | %
|Other Structured Finance & Corporate |  |        | 1,422  |      |  | 3.1   | %      |  |   | 1,347  |  |  | 4.3   | %
|                                     |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|Total US Structured Finance          |  | $      | 13,131 |      |  | 28.9  | %      |  | $ | 7,420  |  |  | 23.8  | %
|                                     |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|                                     |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|                                     |  | 2007   |        | 2006
|                                     |  |        |        |      |  |      
|International                        |  | OS Par |        | %    |  |       | OS Par |  | % |       
|Asset Backed                         |  | $      | 5,052  |      |  | 11.1  | %      |  | $ | 3,438  |  |  | 11.0  | %
|Public Finance                       |  |        | 3,119  |      |  | 6.9   | %      |  |   | 2,226  |  |  | 7.2   | %
|Investor Owned Utilities and Other   |  |        | 1,873  |      |  | 4.1   | %      |  |   | 998    |  |  | 3.2   | %
|                                     |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|Total International                  |  | $      | 10,044 |      |  | 22.1  | %      |  | $ | 6,662  |  |  | 21.4  | %
|                                     |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|Total                                |  | $      | 45,394 |      |  | 100.0 | %      |  | $ | 31,119 |  |  | 100.0 | %
|                                     |  |        |        |      |  |       |        |  |   |        |  |  |       |  

Outstanding principal reinsured
at December 31, 2007 and 2006 by geographic location was (in millions) (1):

|                  |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|----------------- |  | ------ | ------ | ---- |  | ----- | ------ |  | - | ------ |  |  | ----- | -
|                  |  | 2007   |        | 2006
|                  |  |        |        |     
|                  |  | OS Par |        | %    |  |       | OS Par |  | % |       
|Multi-state       |  | $      | 12,859 |      |  | 28.3  | %      |  | $ | 7,434  |  |  | 23.9  | %
|International     |  |        | 10,044 |      |  | 22.1  | %      |  |   | 6,662  |  |  | 21.4  | %
|California        |  |        | 3,618  |      |  | 8.0   | %      |  |   | 2,300  |  |  | 7.4   | %
|New York          |  |        | 2,652  |      |  | 5.8   | %      |  |   | 1,841  |  |  | 5.9   | %
|Florida           |  |        | 1,559  |      |  | 3.4   | %      |  |   | 1,345  |  |  | 4.3   | %
|Illinios          |  |        | 1,358  |      |  | 3.0   | %      |  |   | 1,040  |  |  | 3.3   | %
|Other U.S. States |  |        | 13,304 |      |  | 29.3  | %      |  |   | 10,496 |  |  | 33.7  | %
|                  |  |        |        |      |  |       |        |  |   |        |  |  |       |  
|                  |  | $      | 45,394 |      |  | 100.0 | %      |  | $ | 31,119 |  |  | 100.0 | %
|                  |  |        |        |      |  |       |        |  |   |        |  |  |       |  

76

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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, all exposure information
is reported on a one quarter lag, which is consistent with the reinsurance
industry practice.

|   |                                       
|-- | --------------------------------------
|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, 2007, 2006, and 2005 was $0.4
million, $0.5 million, and $0.4 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.

|   |                  
|-- | -----------------
|14 | STOCK OPTION PLAN

Prior to
January 1, 2006, stock 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 stock 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 stock options granted subsequent to January 1, 2006 in accordance with
FAS 123R. The Company continues to account for stock options issued under APB
25, where no compensation expense is recognized in net income for stock options
granted under the plan as the exercise price is equal to the fair value of the
underlying common stock 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, 2007, 2006, and 2005, the Company recognized $0.1 million, $0.1
million and $0.2 million, respectively, of compensation expense in the period
for stock options with an exercise price less than the market value of the
underlying common stock 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, 2007, outstanding awards of 1,252,197 share options and 50,415 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, 2007 ranges from $5.46 to $16.20.
Restricted share units will vest in equal annual installments over a four-year
period.

Stock Options

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

|                                       |  |                                   |       |      |   |      |  
|-------------------------------------- |  | --------------------------------- | ----- | ---- | - | ---- | -
|                                       |  | Twelve
 Months Ended December 31, |      
|                                       |  |                                   |      
|                                       |  | 2007                              |       | 2006 |  
|                                       |  |                                   |       |      |  
|Dividend yield                         |  |                                   | 0     | %    |   | 0    | %
|Expected volatility                    |  |                                   | 23.05 | %    |   | 25.7 | %
|Risk-free interest rate                |  |                                   | 4.6   | %    |   | 4.9  | %
|Forfeiture rate                        |  |                                   | 10.0  | %    |   |     |  
|Expected life of options (in years)    |  |                                   | 5.2   |      |   | 5.42 |  
|Weighted-average grant-date fair value |  | $                                 | 4.04  |      | $ | 3.90 |  

77

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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 stock 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, (iv)
the risk free rate is the U.S. Treasury rate effective at the time of grant for
the duration of the options granted, and (v) the forfeiture rate is based on
actual forfeitures adjusted for future forfeiture expectations due to limited
historical forfeiture data. Compensation cost is recognized on a straight-line
basis over the vesting period and is net of estimated forfeitures. At December
31, 2007, the weighted average grant date fair value, using FAS 123 for
disclosure purposes, was $3.95.

As at December
31, 2007, there was $0.1 million of unrecognized compensation expense related
to the stock options granted under FAS 123R which is expected to be recognized
over the remaining service period of 2.72 years.

The following
tables summarizes the stock option activity for the years ended December 31,
2007, 2006 and 2005:

|                                                                            |   |                 |           |                                         |   |                                           |  |                             |            |  |   |   | 
|--------------------------------------------------------------------------- | - | --------------- | --------- | --------------------------------------- | - | ----------------------------------------- |  | --------------------------- | ---------- |  | - | - | 
|12 Months Ended December 31, 2007                                           |   | Number ofshares |           | Weighted averageexercise price pershare |   | Weighted-AverageRemainingContractual Life |  | AggregateIntrinsic Value(1) |           
|                                                                            |   |                 |           |                                         |   |                                           |  |                             |           
|Options                                                                     |   |                 |           |                                         |   |                                           |  |                             |            |  |   |   | 
|Outstanding  Beginning of year                                             |   |                 | 1,141,504 |                                         | $ | 12.10                                     |  |                             |            |  |   |   | 
|Purchased from employee                                                     |   |                 |          |                                         |   |                                           |  |                             |            |  |   |   | 
|Forfeited                                                                   |   |                 | (201,864  | )                                       |   | 13.70                                     |  |                             |            |  |   |   | 
|Granted during the period                                                   |   |                 | 312,557   |                                         |   | 15.39                                     |  |                             |            |  |   |   | 
|                                                                            |   |                 |           |                                         |   |                                           |  |                             |            |  |   |   | 
|                                                                            |   |                 |           |                                         |   |                                           |  |                             |            |  |   |   | 
|Outstanding  End of period                                                 |   |                 | 1,252,197 |                                         |   | 12.66                                     |  |                             | 5.56 years |  | $ |  | 
|                                                                            |   |                 |           |                                         |   |                                           |  |                             |            |  |   |   | 
|                                                                            |   |                 |           |                                         |   |                                           |  |                             |            |  |   |   | 
|Exercisable  End of period                                                 |   |                 | 607,989   |                                         |   | 11.50                                     |  |                             |           |  | $ |  | 
|                                                                            |   |                 |           |                                         |   |                                           |  |                             |            |  |   |   | 
|                                                                            |   |                 |           |                                         |   |                                           |  |                             |            |  |   |   | 
|Weighted average fair value per share of
 options granted during the period | $ | 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 averageexercise price pershare |   | Weighted-AverageRemainingContractual Life |  | AggregateIntrinsic Value(1) |           
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |   |           | 
|Options                                                                             |   |                 |           |                                         |   |                                           |  |                             |            |  |   |           | 
|Outstanding  Beginning of year                                                     |   |                 | 752,700   |                                         | $ | 11.18                                     |  |                             |            |  |   |           | 
|Purchased from employee                                                             |   |                 | (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                                     |  |                             | 6.59 years |  | $ | 2,499,857 | 
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |   |           | 
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |   |           | 
|Exercisable  End of period                                                         |   |                 | 389,241   |                                         |   | 11.15                                     |  |                             | 7.32 years |  | $ | 1,216,491 | 
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |   |           | 
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |   |           | 
|Weighted average exercise price per share
 of options granted during the period (2) | $ | 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.

78

---



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.

|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |  |         | 
|----------------------------------------------------------------------------------- | - | --------------- | --------- | --------------------------------------- | - | ----------------------------------------- |  | --------------------------- | ---------- |  |  | ------- | 
|12 Months
 Ended December 31, 2005                                                  |   | Number ofshares |           | Weighted averageexercise price pershare |   | Weighted-AverageRemainingContractual Life |  | AggregateIntrinsic Value(1) |           
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |           
|Options                                                                             |   |                 |           |                                         |   |                                           |  |                             |            |  |  |         | 
|Outstanding
  Beginning of year                                                    |   |                 | 1,408,420 |                                         | $ | 10.69                                     |  |                             |            |  |  |         | 
|Purchased
 from employee                                                            |   |                 | (478,920  | )                                       |   | 10.23                                     |  |                             |            |  |  |         | 
|Forfeited                                                                           |   |                 | (344,500  | )                                       |   | 10.94                                     |  |                             |            |  |  |         | 
|Granted
 during the period                                                          |   |                 | 167,700   |                                         |   | 12.06                                     |  |                             |            |  |  |         | 
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |  |         | 
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |  |         | 
|Outstanding  End of period                                                         |   |                 | 752,700   |                                         |   | 11.18                                     |  |                             | 8.37 years |  |  | 964,458 | 
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |  |         | 
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |  |         | 
|Exercisable  End of period                                                         |   |                 | 263,172   |                                         |   | 11.00                                     |  |                             | 8.13 years |  |  | 386,153 | 
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |  |         | 
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |  |         | 
|Weighted average exercise price per share
 of options granted during the period (2) | $ | 12.06           |           |                                         |   |                                           |  |                             |           
|                                                                                    |   |                 |           |                                         |   |                                           |  |                             |            |  |  |         | 

| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | (2)
 FAS 123R was adopted on January 1, 2006, prior to that stock options were
 accounted for under APB 25.

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, 2007 and 2006:

|                                  |  |                         |         |                                                       |   |       | 
|--------------------------------- |  | ----------------------- | ------- | ----------------------------------------------------- | - | ----- | 
|12 Months Ended December 31, 2007 |  | Number of 
 share units |         | Weighted
 average 
 grant date fair value 
 per share |  
|Restricted Share Units            |  |                         |         |                                                       |   |       | 
|Nonvested 
 Beginning of year    |  |                         | 19,044  |                                                       |   | 13.39 | 
|Granted                           |  |                         | 48,079  |                                                       |   | 16.19 | 
|Vested                            |  |                         | (4,221  | )                                                     |   | 13.38 | 
|Forfeited                         |  |                         | (12,487 | )                                                     |   | 15.42 | 
|                                  |  |                         |         |                                                       |   |       | 
|                                  |  |                         |         |                                                       |   |       | 
|Nonvested 
 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            |  |                         |        |                                                     |   |       | 
|Nonvested 
 Beginning of year    |  |                         |       |                                                     |   |      | 
|Granted                           |  |                         | 20,032 |                                                     |   | 13.39 | 
|Vested                            |  |                         |       |                                                     |   |      | 
|Forfeited                         |  |                         | (988   | )                                                   |   | 13.45 | 
|                                  |  |                         |        |                                                     |   |       | 
|                                  |  |                         |        |                                                     |   |       | 
|Nonvested 
 End of period        |  |                         | 19,044 |                                                     | $ | 13.39 | 
|                                  |  |                         |        |                                                     |   |       | 

79

---



The Company
expensed $0.2 million in compensation expense related to the restricted share
units for 2007 (2006 - immaterial). The compensation expense for
restricted share units is expensed on a prorated basis over the vesting period.
At December 31, 2007, there is unrecognized compensation expense related to the
nonvested restricted share units of $0.6 million, which will be recognized over
the weighted average remaining service period of 2.96 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.

|   |                              
|-- | -----------------------------
|15 | COMMITMENTS AND CONTINGENCIES

On July 1,
2005, the Company entered into a retrocession agreement with a AA rated
financial guaranty company to retrocede business that exceeds its single risk
limits on a facultative basis. As at December 31, 2007, the Company had met the
requirements under the agreement.

During 2007,
the Company renewed its agreement to lease office space for the two years
ending December 31, 2009. As of December 31, 2007, the future minimum
commitment under the lease, for the years remaining, is $0.7 million. Rental
expense for the aforementioned lease amounted to $0.3 million in all years
presented.

|   |                        
|-- | -----------------------
|16 | RISKS AND UNCERTAINTIES

A downgrade of
     RAM Res ratings could have a material adverse affect on RAM Res
ability to compete in the financial guaranty reinsurance industry and
significantly decrease the value of the reinsurance provided. In some cases upon
a downgrade of our financial strength ratings by Standard & Poors, and
in all cases upon a downgrade of our rating by Moodys, the primaries would
have the right, after a cure period, to increase the ceding commission, as
stipulated in the treaties, or terminate the treaties and either leave their
existing business with RAM Re or recapture it. In the case of a downgrade by
S&P from AAA to AA, the primaries may generally increase the ceding
commission but not all of the primaries have the right to terminate their
treaties with RAM Re. RAM Res treaty contracts allow a cure period,
generally between 30 to 90 days, in which RAM Re may restore its ratings or
restore the reinsurance credit received by the primaries to the level associated
with RAM Res rating prior to downgrade by providing additional collateral,
which may be in the form of additions to the trust accounts maintained by RAM Re
for the benefit of its U.S. based customers. To the extent policies are
recaptured, RAM must forfeit to the primary an amount determined by formula
under each treaty contract which generally consists of RAMs allocated
share of the statutory unearned premium, net of the ceding commission paid by
RAM to the primary (subject to a penalty amount in some cases), and loss
reserves established with respect to the policies ceded, as applicable. 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
two years.

Through December 31, 2007, RAM Re had been assigned a AAA
  (Extremely Strong) rating with negative outlook from Standard & Poors
  and a Aa3 (Excellent) rating from Moodys. Moodys rating
  outlook was stable while in July of 2006 S&P revised its outlook
  for the rating from stable to negative, commenting that
  the revision reflects the below-average earnings and ROE earned by the
  company over the past several years, coupled with concern regarding the level
  and pace of improvement in the near to intermediate future. On February 1,
  2008, Moodys announced that it had placed the Aa3 rating of RAM Re on
  review for possible downgrade, reflecting Moodys revised expected loss
  projections for residential mortgage backed securities and related
  collateralized debt obligations risk, and the corresponding implications for RAM
  Res capital adequacy. On February 14, 2008, Standard & Poors
  placed the AAA rating on RAM Re on CreditWatch with negative implications.
  Standard & Poors stated that under its guidelines, CreditWatch with
  negative implications means that there is a one-in-two chance of a ratings
  change within the short term, typically within 90 days. Standard &
  Poors stated that the ratings action reflects Standard & Poors
  view of the shortfall of approximately $82 - $132 million in RAM Res
  capital cushion at December 31, 2007, relative to projected subprime losses.
  Standard & Poors also stated that the action incorporates and elevates
  the importance of RAM Re demonstrating improved financial metrics, as first
  cited in July 2006 when Standard & Poors assigned a negative outlook
  to RAM Re and RAM Holdings. On March 7, 2008, Moodys confirmed the Aa3
  insurance financial strength rating of RAM Re and changed the outlook to
  negative. Moodys stated that RAM Re remains adequately capitalized for its
  Aa3 rating. Moodys stated that the negative outlook assigned reflects
  continued uncertainty regarding both the ultimate performance of mortgage and
  mortgage-related collateralized debt obligation exposures, as well as RAM
  Res future underwriting prospects given its reliance on the primaries for
  business.

An actual reduction in or loss of
rating could have a material adverse affect on our ability to compete, on the
terms of our reinsurance and on our financial results, particularly if the
downgrade is below the AA-level. RAM is pursuing a number of alternatives to improve its capital
position, including but not limited to: commutations and reassumption of
selected exposures with our customers, seeking reinsurance and reducing its
growth.

|   |               
|-- | --------------
|17 | 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, 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, 2007, 2006 and 2005 has been
recorded.

80

---



|   |                             
|-- | ----------------------------
|18 | REDEEMABLE PREFERENCE SHARES

On December
14, 2006, the Company issued 75,000 preferred shares at $1,000 per share for
total consideration of $75.0 million. The preferred 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 preferred shares have a
mandatory redemption date of December 15, 2066. The Company can redeem the
preferred shares at any time from December 15, 2016 with no penalty to the
Company but redemptions prior to that can be redeemed at the redemption price
and a make-whole amount, amounting to dividends for the remainder of the
period to December 15, 2016. As of December 31, 2007 there have been dividends
amounting to $5.6 million declared and paid. There were no dividends declared
or paid in 2006

|   |                           
|-- | --------------------------
|19 | 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. Prior to the initial public offering, we
engaged MBIA Capital, a wholly-owned subsidiary of the parent company to MBIA,
to provide us with investment advisory and management services. We have 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, we have agreed to reimburse custodian fees, transfer agent fees and
brokerage costs, fees and commissions and certain other out-of -pocket
expenses. An immaterial amount and $0.2 million were payable as of December 31,
2007 and December 31, 2006, respectively, to MBIA Capital for these services.

In December
2003, two of our shareholders became investors in FGIC Corporation, an
insurance holding company whose subsidiary FGIC is one of the four largest
United States based primary financial guaranty insurance companies. In the
ordinary course of business, we have entered into facultative reinsurance
agreements with FGIC. In 2007 and 2006, gross written premiums ceded from FGIC
accounted for 26% and 12% of total gross premiums written by us, respectively.
Amounts due from FGIC as of December 31, 2007 and 2006 were $Nil and $1.1
million respectively and have been included in premiums receivable.

|   |              
|-- | -------------
|20 | SHARE CAPITAL

Shares issued
and outstanding as at December 31, 2007 and December 31, 2006 were 27,238,976
and 27,234,755, respectively.

|   |         
|-- | --------
|21 | 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 United
States and, accordingly, does not expect to be subject to United States
taxation.

|   |                       
|-- | ----------------------
|22 | 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, 2007 and 2006 these
requirements have been met. The minimum required statutory capital and surplus
was $16.7 million and $11.6 million and actual statutory capital and surplus
was $369.7 million and $413.5 million as of December 31, 2007 and 2006,
respectively. The minimum required level of liquid assets was $268.1 million
and $221.4 million and actual liquid assets were $727.1 million and $629.2
million as of December 31, 2007 and 2006, respectively.

The Act limits
the maximum amount of the annual distributions paid by RAM Reinsurance without
the approval of 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 $51.3 million and $51.2
million as at December 31, 2007 and 2006, respectively without consideration
    of GAAP retained earnings.

Statutory
financial statements prepared under the Act differ from financial statements
prepared in accordance with US GAAP due to the exclusion of non-admitted assets
such as deferred policy acquisition costs, prepaid expenses and the fair value
adjustment of derivative instruments.

81

---



|   |                                            
|-- | -------------------------------------------
|23 | QUARTERLY FINANCIAL INFORMATION (unaudited)

A summary of
selected quarterly statement of operations information follows:

|                                                                                                            |  |       |        |        |   |         |   |        |         |   |   |          |   | 
|----------------------------------------------------------------------------------------------------------- |  | ----- | ------ | ------ | - | ------- | - | ------ | ------- | - | - | -------- | - | 
|($ in
  thousands, except per share data)                                                                   |  |       |        |        |   |         |   |        |         |   |   |          |   | 
|2007                                                                                                        |  | First |        | Second |   | Third   |   | Fourth |         |  
|                                                                                                            |  |       |        |        |   |         |   |        |         |  
|Gross
  written premiums                                                                                    |  | $     | 22,158 |        | $ | 29,839  |   | $      | 28,928  |   | $ | 27,825   |   | 
|Net written
  premiums                                                                                      |  |       | 22,158 |        |   | 29,839  |   |        | 28,928  |   |   | 27,073   |   | 
|Net earned
  premiums                                                                                       |  |       | 13,954 |        |   | 13,838  |   |        | 16,471  |   |   | 15,800   |   | 
|Net
  investment income                                                                                     |  |       | 7,645  |        |   | 8,404   |   |        | 8,409   |   |   | 8,690    |   | 
|Net realized
  investment gains (losses) and losses on credit derivatives and other
  financial instruments |  |       | (30    | )      |   | (16     | ) |        | (28,369 | ) |   | (117,636 | ) | 
|Loss and
  loss adjustment expenses                                                                         |  |       | 1,014  |        |   | (935    | ) |        | (1,273  | ) |   | (46,833  | ) | 
|Other
  expenses                                                                                            |  |       | (8,259 | )      |   | (12,175 | ) |        | (9,900  | ) |   | (12,918  | ) | 
|Net income
  (loss)                                                                                         |  |       | 14,324 |        |   | 9,116   |   |        | (14,662 | ) |   | (152,897 | ) | 
|Earnings per
  share(2):                                                                                    |  |       |        |        |   |         |   |        |         |   |   |          |   | 
|Basic                                                                                                       |  | $     | 0.53   |        | $ | 0.33    |   | $      | (0.54   | ) | $ | (5.61    | ) | 
|Diluted                                                                                                     |  | $     | 0.52   |        | $ | 0.33    |   | $      | (0.54   | ) | $ | (5.61    | ) | 

|                                                                                             |  |       |        |        |   |        |   |        |        |   |   |        |   | 
|-------------------------------------------------------------------------------------------- |  | ----- | ------ | ------ | - | ------ | - | ------ | ------ | - | - | ------ | - | 
|($ in
  thousands, except per share data)                                                    |  |       |        |        |   |        |   |        |        |   |   |        |   | 
|2006                                                                                         |  | First |        | Second |   | Third  |   | Fourth |        |  
|                                                                                             |  |       |        |        |   |        |   |        |        |  
|Gross
  written premiums                                                                     |  | $     | 14,576 |        | $ | 17,485 |   | $      | 23,509 |   | $ | 22,062 |   | 
|Net written
  premiums                                                                       |  |       | 14,576 |        |   | 17,485 |   |        | 23,086 |   |   | 20,339 |   | 
|Net earned
  premiums                                                                        |  |       | 10,706 |        |   | 11,602 |   |        | 15,056 |   |   | 11,472 |   | 
|Net
  investment income                                                                      |  |       | 5,395  |        |   | 5,746  |   |        | 6,143  |   |   | 6,952  |   | 
|Net realized
  investment gains (losses) and unrealized gains (losses) on credit derivatives |  |       | (222   | )      |   | (547   | ) |        | (8     | ) |   | (239   | ) | 
|Loss and
  loss adjustment expenses                                                          |  |       | (1,099 | )      |   | 4,170  |   |        | 41     |   |   | (331   | ) | 
|Other
  expenses                                                                             |  |       | (8,167 | )      |   | (8,809 | ) |        | (8,983 | ) |   | (7,825 | ) | 
|Net income                                                                                   |  |       | 6,613  |        |   | 12,162 |   |        | 12,249 |   |   | 10,029 |   | 
|Earnings per
  share(2):                                                                     |  |       |        |        |   |        |   |        |        |   |   |        |   | 
|Basic (1)                                                                                    |  | $     | 0.26   |        | $ | 0.45   |   | $      | 0.45   |   | $ | 0.37   |   | 
|Diluted(1)                                                                                   |  | $     | 0.25   |        | $ | 0.45   |   | $      | 0.45   |   | $ | 0.37   |   | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Basic and
  diluted EPS prior to the second quarter 2006 are based on shares outstanding
  prior to the IPO.                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(2) | 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.

The  net  unrealized   investment  gains  (losses)  and  losses  on  credit
derivatives  and other  financial  instruments  in the  fourth  quarter  of 2007
resulted  from the  significant  widening of credit  spreads and the  underlying
collateral  deterioration  observed in the fourth quarter of 2007. The effect of
the credit and mortgage  markets,  as a consequence of the subprime crisis,  has
resulted  in  the  establishment  of a  significant  amount  of  Loss  and  loss
adjustment  expenses in the fourth  quarter of 2007.  Investments  are discussed
further in note 7, Derivatives in note 4 and Losses and loss expense reserves in
note 11 to these financial statements.

|   |                  
|-- | -----------------
|24 | SUBSEQUENT EVENTS

The Company holds three investments with
exposure to the subprime sector. Subsequent to December 31, 2007, one of these
subprime investments, which was other than temporarily impaired at December 31,
2007, decreased in fair value to $1.5 million at February 29, 2008 from $2.4
million at December 31, 2007, an unrealized losses of $0.9 million. This
investment was also downgraded from AAA at December 31, 2007 to BBB+ at
February 29, 2008. There was no significant change in the unrealized loss
position or rating of the other two subprime investments and Management
continues to have the intent and ability to hold these investments to recovery,
and therefore, no loss has been realized on these two investments at December
31, 2007 or subsequent thereto.

The
primaries have reported that insured volume as a percentage of total volume in
the public finance market has reduced significantly since December 2007 as a
result of uncertainty regarding the financial stability and ratings of the
primaries. This uncertainty has also reportedly caused a reduction in new issuance
    as certain municipalities either (i) delayed issuance or (ii) were unable
    to find purchasers for their uninsured obligations at acceptable prices.
    The primaries have also reported that structured finance volume has decreased
    since the fourth quarter of 2007 as a result of the credit crisis and that
    such volume is uncertain for the future. Ambac and MBIA have announced not
    to underwrite structured finance transactions for six months. In addition,
    Ambac and MBIA have reported that they have determined not to insure credit
    derivatives transactions in the future. Furthermore, we believe FGIC and
    SCA have essentially  ceased to write new business, at least temporarily.
    Finally there is currently uncertainty regarding future actions regulators
    may take regarding participants within the financial guaranty industry. Reinsurance
    ceded by the aforementioned primaries have been a significant part of RAMs
    business volume in recent years. The reduction in business origination by
    these primaries  is therefore anticipated to result in a lower volume of
    reinsurance business ceded.

|        |                                                                                        
|------- | ---------------------------------------------------------------------------------------
|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.

82

---



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, 2007, 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, 2007 was
effective.

The
effectiveness of the Companys internal control over financial reporting as of
December 31, 2007 has been audited by PricewaterhouseCoopers, an independent
registered public accounting firm, as stated in their report which appears
herein.

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 2007, 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.

The
information required in response to this Item is contained under the captions
Information about Directors, Corporate Governance and Director Compensation
and Information about Executives and Executive Compensation in the Proxy
Statement, to be filed not later than 120 days after December 31, 2007 (the
Proxy Statement), filed with the U.S. Securities and Exchange Commission (the
SEC) pursuant to Regulation 14A. These portions of the Proxy Statement are
hereby incorporated by reference herein.

We have
adopted a written code of ethics, the RAM Holdings Ltd. Code of Conduct, that
is applicable to all our directors, officers and employees, including our
principal executive officer, principal financial officer, principal accounting
officer or controller and other executive officers identified pursuant to this
Item 10 who perform similar functions (collectively, the Selected Officers).
In accordance with the rules and regulations of the SEC, a copy of the code is
filed herewith, and is available on our website. We will disclose any changes
in or waivers from our code of ethics applicable to any Selected Officer on our
website at http://www.ramre.com. The information on our website does not
constitute a part of this annual report on Form 10-K.

|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation.

The
information required in response to this Item is contained under the caption
Information about Executives and Executive Compensation in the Proxy
Statement. These portions of the Proxy Statement are hereby incorporated by
reference herein.

|         |                                                                                                  
|-------- | -------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and
 Related Stockholder Matters .

The
information required in response to Item 403 of Regulation S-K regarding
security ownership of certain beneficial owners and management is contained
under the caption Information about the Ownership of our Common Shares in the
Proxy Statement. This portion of the Proxy Statement is hereby incorporated by
reference herein.

83

---



Equity Compensation Plan Information

The
following table provides information about securities authorized for issuance
under our equity compensation plans as of December 31, 2007:

|                                                            |  |                                                                                             |  |                                                                             |     |                                                                                                                                             |  |   |       |     |  |  |  |           |     | 
|----------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | --- | ------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ----- | --- |  |  |  | --------- | --- | 
|Plan
 category                                              |  | Number of securities to beissued upon exercise ofoutstanding options, warrantsand rights(a) |  | Weighted averageexercise price ofoutstanding options,warrants and rights(b) |     | Number of securities remainingavailable for future issuance underequity compensation plans (excludingsecurities reflected in column (a))(c) | 
|                                                            |  |                                                                                             |  |                                                                             |     |                                                                                                                                             | 
|Equity compensation plans approved by
 security holders(1)  |  |                                                                                             |  | 1,302,612                                                                   | (2) |                                                                                                                                             |  | $ | 12.66 | (3) |  |  |  | 1,791,067 | (4) | 
|Equity compensation plans not approved by
 security holders |  |                                                                                             |  | N/A                                                                         |     |                                                                                                                                             |  |   | N/A   |     |  |  |  | N/A       |     | 
|                                                            |  |                                                                                             |  |                                                                             |     |                                                                                                                                             |  |   |       |     |  |  |  |           |     | 
|Total                                                       |  |                                                                                             |  | 1,302,612                                                                   |     |                                                                                                                                             |  |   |       |     |  |  |  | 1,791,067 |     | 
|                                                            |  |                                                                                             |  |                                                                             |     |                                                                                                                                             |  |   |       |     |  |  |  |           |     | 

|    |                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of
 the following equity compensation plans: the 2001 Stock Option Plan and the
 2006 Equity Plan.                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                        
|(2) | Consists of
 (i) 624,297 shares subject to outstanding share options and 50,415 shares
 subject to unvested restricted share units under the 2006 Equity Plan and
 (ii) 627,900 share subject to outstanding share options under the 2001 Stock
 Option Plan.                          
|    |                                                                                                                                                                                                                                                                                        
|(3) | Excludes
 50,415 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 and Director
 Independence.

The
information required in response to this Item is contained under the caption
Information about Directors, Corporate Governance and Director Compensation 
Independence and Information about Directors, Corporate Governance and
Director Compensation  Transactions with Related Persons, Promoters and
Certain Control Persons in the Proxy Statement. This portion of the Proxy
Statement is hereby incorporated by reference herein.

|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accountant Fees and Services.

The
information required in response to this Item is contained under the caption
Information about Directors, Corporate Governance and Director Compensation 
Principal Accountant Fees and Services in the Proxy Statement. This portion of
the Proxy Statement is hereby incorporated by reference herein.

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                                                                     | 60
|Consolidated Balance Sheets as of December 31, 2007 and 2006                                                                | 61
|Consolidated Statements of Operations and Comprehensive Income (Loss)
 for the years ended December 31, 2007, 2006 and 2005 | 62
|Consolidated Statements of Shareholders Equity for the years ended
 December 31, 2007, 2006 and 2005                       | 64
|Consolidated Statements of Cash Flows for the years ended December
 31, 2007, 2006 and 2005                                 | 65
|Notes to
 Consolidated Financial Statements                                                                                 | 66

(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                                                        

The
report of the Registrants independent registered public accounting firm with
respect to the above listed financial statement schedules is included with the
schedules.

All
other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.

84

---



(a)(3) Exhibits

|       |                                                                                                                                                                                                                                                                                                                                   
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3 .1   | Certificate
 of Incorporation and Memorandum of Association of RAM Holdings Ltd.
 (incorporated by reference, to Exhibit 3.1 of the Registrants Amended
 Registration Statement on Form S-1/A (File No. 333-131763)).                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                   
|3 .2   | Form of
 Amended and Restated Bye-laws of RAM Holdings Ltd. (incorporated by
 reference, to Exhibit 3.2 of the Registrants Amended Registration Statement
 on Form S-1/A (File No. 333-131763)).                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                   
|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    | Form of Debt
 Securities Indenture of RAM Holdings Ltd. (incorporated by reference to
 Exhibit 4.8 to the Registrants Registration Statement on Form S-3 filed on
 December 28, 2007)                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                   
|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
 Employment Agreement, between the Registrant and Vernon M. Endo (incorporated
 by reference, to Exhibit 10.3 of the Registrants Amended Registration
 Statement on Form S-1/A (File No. 333-131763)).                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                   
|10 .4  | Amended
 Employment Agreement, between the Registrant and David K. Steel (incorporated
 by reference, to Exhibit 10.5 of the Registrants Amended Registration
 Statement on Form S-1/A (File No. 333-131763)).                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                   
|10 .5  | Employment
 Agreement, between the Registrant and James P. Gerry (incorporated by
 reference, to Exhibit 10.7 of the Registrants Amended Registration Statement
 on Form S-1/A (File No. 333-131763)).                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                   
|10 .6  | Employment
 Agreement, between the Registrant and Victoria W. Guest (incorporated by
 reference, to Exhibit 10.2 of the Registrants Amended Registration Statement
 on Form S-1/A (File No. 333-131763)).                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                   
|10.7   | Employment
 Agreement, dated January 28, 2008, among RAM Holdings Ltd., RAM Reinsurance
 Company Ltd., and Edward U. Gilpin (incorporated by reference to Exhibit 10.1
 of the Registrants current report on Form 8-K, dated January 29, 2008)                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                   
|10.8   | Statement of
 Employment between the Registrant and Laryssa Yuel.                                                                                                                                                                                                                                                                
|       |                                                                                                                                                                                                                                                                                                                                   
|10 .9  | 2000
 Supplemental Retirement Plan (incorporated by reference, to Exhibit 10.8 of
 the Registrants Amended Registration Statement on Form S-1/A (File No.
 333-131763)).                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                                   
|10 .10 | 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 .11 | 2006 Equity
 Plan (incorporated by reference, to Exhibit 10.10 of the Registrants Amended
 Registration Statement on Form S-1/A (File No. 333-131763)).                                                                                                                                                                         
|       |                                                                                                                                                                                                                                                                                                                                   
|10 .12 | Form of
 Indemnification Agreement entered into by the Registrant and its officers and
 directors (incorporated by reference, to Exhibit 10.14 of the Registrants
 Amended Registration Statement on Form S-1/A (File No. 333-131763)).                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                   
|10 .13 | 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 .14 | 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 .15 | 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 .16 | 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)).                                                                         

85

---



|       |                                                                                                                                                                                                                                                                                                                                                              
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10 .17 | Form of RAM
 Holdings Ltd. Share Option Award Agreement for Employees (incorporated by
 reference, to Exhibit 10.10 of the Registrants Report on Form 10-Q, for the
 quarter ended June 30, 2006)                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                              
|10 .18 | Form of RAM
 Holdings Ltd. Share Option Award Agreement for Non-Employee Directors
 (incorporated by reference, to Exhibit 10.11 of the Registrants Report on
 Form 10-Q, for the quarter ended June 30, 2006)                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                              
|10 .19 | Form of RAM
 Holdings Ltd. Restricted Share Unit Award Agreement (incorporated by
 reference, to Exhibit 10.12 of the Registrants Report on Form 10-Q, for the
 quarter ended June 30, 2006)                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                                              
|10 .20 | Form of RAM
 Holdings Ltd. Restricted Share Unit Award Agreement [Annual Bonus Award]
 (incorporated by reference, to Exhibit 10.13 of the Registrants Report on
 Form 10-Q, for the quarter ended June 30, 2006)                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                              
|10 .21 | 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)                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                              
|10.22  | Compensation
 program for Non-Employee Directors (incorporated by reference to the
 Registrants Current Report on Form 8-K dated August 7, 2007).                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                              
|10.23  | 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)
|       |                                                                                                                                                                                                                                                                                                                                                              
|14 .1  | Code of
 Conduct                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                              
|21 .1  | Subsidiaries
 of the registrant.                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                              
|23. 1  | Consent of
 PricewaterhouseCoopers                                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                              
|24 .1  | Power of
 Attorney (included as part of the signature pages)                                                                                                                                                                                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                                              
|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.

86

---



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
| | March 17,
 2008                       

Power of Attorney and Signatures

We, the undersigned directors and officers of RAM Holdings Ltd., hereby
severally appoint Vernon M. Endo and Edward U. Gilpin, with full powers of
substitution and resubstitution, our true and lawful attorney, with full powers
to sign for us, in our names and in the capacities indicated below, any and all
amendments to this annual report on Form 10-K, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as each of them might or could do in person, and hereby
ratifying and confirming all that such attorneys, and each of them, or their
substitute or substitutes, shall do or cause to be done by virtue of this Power
of Attorney.

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
indicated on the dates indicated.

|                          |  |                          |  |               
|------------------------- |  | ------------------------ |  | --------------
|Signature                 |  | Title                    |  |               
|                          |  |                          |  |               
|                          |  |                          |  |               
|/s/ Steven
 J. Tynan      |  | Chairman of
 the Board;  |  | March 17, 2008
|                          |  | Director                 |  |               
|Name: Steven
 J. Tynan    |  |                          |  |               
|                          |  |                          |  |               
|/s/ Vernon
 M. Endo       |  | President
 and Chief     |  | March 17, 2008
|                          |  | Executive                |  |               
|Name: Vernon
 M. Endo     |  | Officer and
 Director    |  |               
|                          |  | (principal               |  |               
|                          |  | executive
 officer)      |  |               
|                          |  |                          |  |               
|/s/ Edward
 U. Gilpin     |  | Chief
 Financial Officer |  | March 17, 2008
|                          |  | (principal               |  |               
|Name: Edward
 U. Gilpin   |  | financial
 officer)      |  |               
|                          |  |                          |  |               
|/s/ Laryssa
 Yuel         |  | Financial
 Controller    |  | March 17, 2008
|                          |  | (principal               |  |               
|Name:
 Laryssa Yuel       |  | accounting
 officer)     |  |               
|                          |  |                          |  |               
|/s/ Edward
 F. Bader      |  | Director                 |  | March 17, 2008
|                          |  |                          |  |               
|Name: Edward
 F. Bader    |  |                          |  |               
|                          |  |                          |  |               
|/s/ David L.
 Boyle       |  | Director                 |  | March 17, 2008
|                          |  |                          |  |               
|Name: David
 L. Boyle     |  |                          |  |               
|                          |  |                          |  |               
|/s/ Allan S.
 Bufferd     |  | Director                 |  | March 17, 2008
|                          |  |                          |  |               
|Name: Allan
 S. Bufferd   |  |                          |  |               
|                          |  |                          |  |               
|/s/ Joan H.
 Dillard      |  | Director                 |  | March 17, 2008
|                          |  |                          |  |               
|Name: Joan
 H. Dillard    |  |                          |  |               
|                          |  |                          |  |               
|                          |  |                          |  |               
|/s/ Joseph
 M. Donovan    |  | Director                 |  | March 17, 2008
|                          |  |                          |  |               
|Name: Joseph
 M. Donovan  |  |                          |  |               
|                          |  |                          |  |               
|/s/ Michael
 J. Normile   |  | Director                 |  | March 17, 2008
|                          |  |                          |  |               
|Name:
 Michael J. Normile |  |                          |  |               
|                          |  |                          |  |               
|/s/ Bradley
 M. Shuster   |  | Director                 |  | March 17, 2008
|                          |  |                          |  |               
|Name:
 Bradely M. Shuster |  |                          |  |               
|                          |  |                          |  |               
|/s/ Dirk A.
 Stuurop      |  | Director                 |  | March 17, 2008
|                          |  |                          |  |               
|Name: Dirk A.
 Stuurop    |  |                          |  |               
|                          |  |                          |  |               
|/s/ Conrad
 P. Voldstad   |  | Director                 |  | March 17, 2008
|                          |  |                          |  |               
|Name: Conrad
 P. Voldstad |  |                          |  |               

87

---



Schedule II 
RAM Holdings Ltd. (Parent Company) 
Condensed Balance Sheets 
(in thousands of U.S. dollars)

|                                           |  |                    |         |      |   |         | 
|------------------------------------------ |  | ------------------ | ------- | ---- | - | ------- | 
|                                           |  | As of December 31, |        
|                                           |  |                    |        
|                                           |  | 2007               |         | 2006 |  
|                                           |  |                    |         |      |  
|Assets                                     |  |                    |         |      |   |         | 
|Investments
 in subsidiaries               |  | $                  | 364,425 |      | $ | 491,238 | 
|Cash and
 cash equivalents                 |  |                    | 37      |      |   | 37      | 
|Intercompany
 receivable                   |  |                    | 2,052   |      |   | 2,052   | 
|Other assets                               |  |                    | 1,491   |      |   | 1,633   | 
|                                           |  |                    |         |      |   |         | 
|Total assets                               |  | $                  | 368,005 |      | $ | 494,960 | 
|                                           |  |                    |         |      |   |         | 
|Liabilities and shareholders equity       |  |                    |         |      |   |         | 
|Liabilities                                |  |                    |         |      |   |         | 
|Long term
 debt                            |  | $                  | 40,000  |      | $ | 40,000  | 
|Redeemable
 preferred shares               |  |                    | 75,000  |      |   | 75,000  | 
|Other
 liabilities                         |  |                    | 693     |      |   | 693     | 
|                                           |  |                    |         |      |   |         | 
|Total liabilities                          |  |                    | 115,693 |      |   | 115,693 | 
|                                           |  |                    |         |      |   |         | 
|Total shareholders equity                 |  |                    | 252,312 |      |   | 379,267 | 
|                                           |  |                    |         |      |   |         | 
|Total liabilities and shareholders
equity |  | $                  | 368,005 |      | $ | 494,960 | 
|                                           |  |                    |         |      |   |         | 

Schedule II 
RAM Holdings Ltd. (Parent Company) 
Condensed Statements of Operations 
For the years ended December 31, 2007, 2006 and 2005

(in thousands of U.S. dollars)

|                                                |  |      |          |      |   |        |  |   |        | 
|----------------------------------------------- |  | ---- | -------- | ---- | - | ------ |  | - | ------ | 
|                                                |  | 2007 |          | 2006 |   | 2005   | 
|                                                |  |      |          |      |   |        | 
|Revenues                                        |  |      |          |      |   |        |  |   |        | 
|Dividends
 from subsidiary                      |  | $    | 8,375    |      | $ | 2,750  |  | $ | 2,757  | 
|Equity in
 undistributed earnings of subsidiary |  |      | (143,978 | )    |   | 41,090 |  |   | 19,612 | 
|                                                |  |      |          |      |   |        |  |   |        | 
|Total revenues                                  |  |      | (135,603 | )    |   | 43,840 |  |   | 22,369 | 
|                                                |  |      |          |      |   |        |  |   |        | 
|Expenses                                        |  |      |          |      |   |        |  |   |        | 
|General and
 administrative expenses            |  |      | 141      |      |   | 37     |  |   | 32     | 
|Interest
 expense                               |  |      | 8,375    |      |   | 2,750  |  |   | 2,750  | 
|                                                |  |      |          |      |   |        |  |   |        | 
|Total expenses                                  |  |      | 8,516    |      |   | 2,787  |  |   | 2,782  | 
|                                                |  |      |          |      |   |        |  |   |        | 
|Net income                                      |  | $    | (144,119 | )    | $ | 41,053 |  | $ | 19,588 | 
|                                                |  |      |          |      |   |        |  |   |        | 

88

---



Schedule II 
RAM Holdings Ltd. (Parent Company) 
Condensed Statements of Cash Flows 
For the years ended December 31, 2007, 2006 and 2005 
(in thousands of U.S. dollars)

|                                                                                             |  |      |          |      |   |         |   |   |         |  
|-------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | ------- | - | - | ------- | -
|                                                                                             |  | 2007 |          | 2006 |   | 2005    |  
|                                                                                             |  |      |          |      |   |         |  
|Cash flows from operating activities                                                         |  |      |          |      |   |         |   |   |         |  
|Net (loss)
      income                                                                      |  | $    | (144,119 | )    | $ | 41,053  |   | $ | 19,588  |  
|Adjustments to
    reconcile net (loss) income to net cash provided by operating activities: |  |      |          |      |   |         |   |   |         |  
|Equity in undistributed net income of
 Subsidiary                                            |  |      | 143,978  |      |   | (41,090 | ) |   | (19,612 | )
|Amortization of debt discount                                                                |  |      | 6        |      |   | 6       |   |   | 6       |  
|Amortization of deferred expenses                                                            |  |      | 135      |      |   | 30      |   |   | 24      |  
|Deferred expenses                                                                            |  |      |         |      |   |        |   |   |        |  
|Discount on long term debt                                                                   |  |      |         |      |   |        |   |   |        |  
|Accrued interest payable                                                                     |  |      |         |      |   |        |   |   |        |  
|Due from shareholders                                                                        |  |      |         |      |   |        |   |   | 69,     |  
|Related party (receivables)/payables                                                         |  |      |         |      |   | 349     |   |   | (176    | )
|                                                                                             |  |      |          |      |   |         |   |   |         |  
|Net cash flows provided by operating
 activities                                             |  |      |         |      |   | 348     |   |   | (101    | )
|                                                                                             |  |      |          |      |   |         |   |   |         |  
|Investing activities                                                                         |  |      |          |      |   |         |   |   |         |  
|Net Contributions (to)/from subsidiaries                                                     |  |      |         |      |   | (90,842 | ) |   | 440     |  
|Purchase of preferred shares in subsidiary                                                   |  |      |         |      |   |        |   |   |        |  
|                                                                                             |  |      |          |      |   |         |   |   |         |  
|Net cash flows used by investing activities                                                  |  |      |         |      |   | (90,842 | ) |   | 440     |  
|Financing activities                                                                         |  |      |          |      |   |         |   |   |         |  
|Proceeds from issuance of preferred shares                                                   |  |      |         |      |   | 73,902  |   |   |        |  
|Loan repayment from shareholder                                                              |  |      |         |      |   |        |   |   | 100     |  
|Shares issued (redeemed)                                                                     |  |      |         |      |   | 16,592  |   |   | (440    | )
|                                                                                             |  |      |          |      |   |         |   |   |         |  
|Net cash flows used in financing activities                                                  |  |      |         |      |   | 90,494  |   |   | (340    | )
|Increase (decrease) in cash and cash
 equivalents                                            |  |      |         |      |   |        |   |   | (1      | )
|Cash and cash equivalents at beginning of
 period                                            |  |      | 37       |      |   | 37      |   |   | 38      |  
|                                                                                             |  |      |          |      |   |         |   |   |         |  
|Cash and cash equivalents at end of period                                                   |  | $    | 37       |      | $ | 37      |   | $ | 37      |  
|                                                                                             |  |      |          |      |   |         |   |   |         |  
|Supplemental cash flow disclosures:                                                          |  |      |          |      |   |         |   |   |         |  
|Preferred shares dividend paid                                                               |  |      | 5,625    |      |   |        |   |   |        |  
|Long term debt interest paid                                                                 |  | $    | 2,750    |      | $ | 2,750   |   | $ | 2,750   |  

89

---



-Schedule II 
RAM Holdings Ltd. (Parent Company) 
Notes to the Condensed Financial Information 
For the years ended December 31, 2007, 2006 and 2005

The condensed
financial information of RAM Holdings Ltd. for the years ended December 31,
2007, 2006 and 2005, should be read in conjunction with the consolidated
financial statements of RAM Holdings Ltd. and the notes thereto.

90

---



Schedule IVReinsurance
Net Earned Premiums (in millions of U.S. dollars):

|                     |  |                                        |   |       |   |         |  |     |      |                                  |   |      |  |       |   | 
|-------------------- |  | -------------------------------------- | - | ----- | - | ------- |  | --- | ---- | -------------------------------- | - | ---- |  | ----- | - | 
|                     |  | For the
  Year Ended December 31, 2007 |  
|                     |  |                                        |  
|Type of Business:    |  | Direct                                 |   | Ceded |   | Assumed |  | Net |      | Percentage
  of
  assumed to net |  
|                     |  |                                        |   |       |   |         |  |     |      |                                  |  
|Financial
  guaranty |  | $                                      |  |       | $ | 0.2     |  | $   | 60.3 |                                  | $ | 60.1 |  | 100.3 | % | 
|                     |  | $                                      |  |       | $ | 0.2     |  | $   | 60.3 |                                  | $ | 60.1 |  | 100.3 | % | 
|                     |  |                                        |   |       |   |         |  |     |      |                                  |   |      |  |       |   | 
|                     |  |                                        |   |       |   |         |  |     |      |                                  |   |      |  |       |   | 
|                     |  | For the Year Ended December 31, 2006   |  
|                     |  |                                        |  
|Type of
  Business:  |  | Direct                                 |   | Ceded |   | Assumed |  | Net |      | Percentage of
  assumed to net   |  
|                     |  |                                        |   |       |   |         |  |     |      |                                  |  
|Financial
  guaranty |  | $                                      |  |       | $ | 0.1     |  | $   | 48.9 |                                  | $ | 48.8 |  | 100.2 | % | 
|                     |  | $                                      |  |       | $ | 0.1     |  | $   | 48.9 |                                  | $ | 48.8 |  | 100.2 | % | 
|                     |  |                                        |   |       |   |         |  |     |      |                                  |   |      |  |       |   | 
|                     |  |                                        |   |       |   |         |  |     |      |                                  |   |      |  |       |   | 
|                     |  | For the Year Ended December 31, 2005   |  
|                     |  |                                        |  
|Type of
  Business:  |  | Direct                                 |   | Ceded |   | Assumed |  | Net |      | Percentage of
  assumed to net   |  
|                     |  |                                        |   |       |   |         |  |     |      |                                  |  
|Financial
  guaranty |  | $                                      |  |       | $ |        |  | $   | 42.6 |                                  | $ | 42.6 |  | 100.0 | % | 
|                     |  | $                                      |  |       | $ |        |  | $   | 42.6 |                                  | $ | 42.6 |  | 100.0 | % | 

91

---