##### 



Exhibit 99.1
 Consolidated Financial Statements




---



##### 



Contents
 Report of Independent Registered Public Accounting Firm
    
    
    1Consolidated Balance Sheets
    
    
    2Consolidated Statements of Income
    
    
    3Consolidated Statements of Stockholders Equity
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6




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##### 



1




---



##### 



(Dollars in thousands, except per share amounts)
 December 312007
    
    2006AssetsFixed maturity securities, available for sale, at fair value (amortized cost
of $3,927,752 in 2007 and $3,627,344 in 2006)
    
    $
    3,960,907
    
    
    $
    3,627,007Variable interest entity fixed maturity securities, held to maturity
at amortized cost
    
    
    750,000
    
    
    
    750,000Short-term investments
    
    
    115,687
    
    
    
    211,726Total investments
    
    
    4,826,594
    
    
    
    4,588,733Cash and cash equivalents
    
    
    125,355
    
    
    
    29,963Accrued investment income
    
    
    55,596
    
    
    
    49,843Reinsurance recoverable on losses
    
    
    8,693
    
    
    
    1,485Prepaid reinsurance premiums
    
    
    225,516
    
    
    
    156,708Policy acquisition costs deferred, net
    
    
    107,854
    
    
    
    93,170Receivable from related parties
    
    
    
    
    
    
    2,483Property and equipment, net of accumulated depreciation of $3,870 in 2007
and $2,107 in 2006
    
    
    16,414
    
    
    
    2,617Deferred income taxes
    
    
    800,770
    
    
    
    3,491Income taxes receivable
    
    
    146,775
    
    
    
    Derivative assets
    
    
    267
    
    
    
    314Other assets
    
    
    26,541
    
    
    
    17,275Total assets
    
    $
    6,340,375
    
    
    $
    4,946,082Liabilities and stockholders equityLiabilities:Unearned premiums
    
    $
    1,458,476
    
    
    $
    1,347,592Loss and loss adjustment expense reserves
    
    
    1,267,420
    
    
    
    40,299Ceded reinsurance balances payable
    
    
    3,696
    
    
    
    7,524Accounts payable, accrued expenses and other liabilities
    
    
    55,991
    
    
    
    41,588Derivative liabilities
    
    
    1,938,930
    
    
    
    1,817Payable for securities purchased
    
    
    
    
    
    
    10,770Variable interest entity floating rate notes
    
    
    750,000
    
    
    
    750,000Accrued interest expense  variable interest entity
    
    
    1,208
    
    
    
    1,298Capital lease obligations
    
    
    1,562
    
    
    
    2,941Federal and foreign income taxes payable
    
    
    
    
    
    
    17,520Deferred income taxes
    
    
    
    
    
    
    76,551Payable to related parties
    
    
    105
    
    
    
    Dividends payable
    
    
    10,000
    
    
    
    10,000Total liabilities
    
    
    5,487,388
    
    
    
    2,307,900Stockholders equity:Common stock, par value $1,500 per share; 10,000 shares authorized,
issued and outstanding
    
    
    15,000
    
    
    
    15,000Additional paid-in capital
    
    
    1,911,252
    
    
    
    1,901,799Accumulated other comprehensive income, net of tax
    
    
    36,215
    
    
    
    6,500Retained (loss) earnings
    
    
    (1,109,480
    )
    
    
    714,883Total stockholders equity
    
    
    852,987
    
    
    
    2,638,182Total liabilities and stockholders equity
    
    $
    6,340,375
    
    
    $
    4,946,082
 See accompanying notes.
 2




---



##### 



(Dollars in thousands)
 Year Ended December 312007
    
    2006
    
    2005Revenues:Gross direct and assumed premiums written
    
    $
    451,268
    
    
    $
    441,231
    
    
    $
    410,202Ceded premiums written
    
    
    (103,907
    )
    
    
    (74,417
    )
    
    
    (29,148
    )Net premiums written
    
    
    347,361
    
    
    
    366,814
    
    
    
    381,054Change in net unearned premiums
    
    
    (42,076
    )
    
    
    (100,357
    )
    
    
    (156,485
    )Net premiums earned
    
    
    305,285
    
    
    
    266,457
    
    
    
    224,569Net investment income
    
    
    156,352
    
    
    
    138,475
    
    
    
    117,072Interest income  investments held by
variable
interest entity
    
    
    41,691
    
    
    
    35,893
    
    
    
    Net realized gains
    
    
    872
    
    
    
    274
    
    
    
    101Net mark-to-market (losses) gains on credit
derivative contracts
    
    
    (1,936,536
    )
    
    
    507
    
    
    
    (167
    )Other income
    
    
    560
    
    
    
    1,815
    
    
    
    762Total revenues
    
    
    (1,431,776
    )
    
    
    443,421
    
    
    
    342,337Expenses:Loss and loss adjustment expenses
    
    
    1,226,775
    
    
    
    (8,700
    )
    
    
    18,506Underwriting and other operating expenses
    
    
    94,895
    
    
    
    91,614
    
    
    
    82,064Policy acquisition costs deferred, net
    
    
    (29,615
    )
    
    
    (39,728
    )
    
    
    (38,069
    )Amortization of policy acquisition
costs deferred
    
    
    15,652
    
    
    
    11,486
    
    
    
    8,302Interest expense  debt held by
variable interest entity
    
    
    41,691
    
    
    
    35,893
    
    
    
    Total expenses
    
    
    1,349,398
    
    
    
    90,565
    
    
    
    70,803(Loss) income before income tax (benefit)
expense
    
    
    (2,781,174
    )
    
    
    352,856
    
    
    
    271,534Income tax (benefit) expense:Current
    
    
    (91,559
    )
    
    
    67,895
    
    
    
    32,370Deferred
    
    
    (885,252
    )
    
    
    21,123
    
    
    
    32,738Total income tax (benefit) expense
    
    
    (976,811
    )
    
    
    89,018
    
    
    
    65,108Net (loss) income
    
    $
    (1,804,363
    )
    
    $
    263,838
    
    
    $
    206,426
 See accompanying notes.
 3




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##### 



(Dollars in thousands)
 AccumulatedOtherAdditional
    
    
    Comprehensive
    
    
    RetainedCommon
    
    
    Paid-in
    
    
    (Loss) Income,
    
    
    (Loss)Stock
    
    
    Capital
    
    
    Net of Tax
    
    
    Earnings
    
    
    TotalBalance at January 1, 2005
    
    $
    15,000
    
    
    $
    1,882,772
    
    
    $
    15,485
    
    
    $
    264,619
    
    
    $
    2,177,876Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206,426
    
    
    
    206,426Other comprehensive income:Change in fixed maturity securities available for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    (23,550
    )
    
    
    
    
    
    
    (23,550
    )Change in foreign currency translation adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    (5,532
    )
    
    
    
    
    
    
    (5,532
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,344Capital contribution
    
    
    
    
    
    
    12,211
    
    
    
    
    
    
    
    
    
    
    
    12,211Balance at December 31, 2005
    
    
    15,000
    
    
    
    1,894,983
    
    
    
    (13,597
    )
    
    
    471,045
    
    
    
    2,367,431Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    263,838
    
    
    
    263,838Other comprehensive income:Change in fixed maturity securities available for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    11,901
    
    
    
    
    
    
    
    11,901Change in foreign currency translation adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    8,196
    
    
    
    
    
    
    
    8,196Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283,935Dividends declared to FGIC Corp.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,000
    )
    
    
    (20,000
    )Amortization of stock options and restricted stock
    
    
    
    
    
    
    6,816
    
    
    
    
    
    
    
    
    
    
    
    6,816Balance at December 31, 2006
    
    
    15,000
    
    
    
    1,901,799
    
    
    
    6,500
    
    
    
    714,883
    
    
    
    2,638,182Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,804,363
    )
    
    
    (1,804,363
    )Other comprehensive income (loss):Change in fixed maturity securities available for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    21,818
    
    
    
    
    
    
    
    21,818Change in foreign currency translation adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    7,897
    
    
    
    
    
    
    
    7,897Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,774,648
    )Dividends declared to FGIC Corp.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,000
    )
    
    
    (20,000
    )Amortization of stock options and restricted stock
    
    
    
    
    
    
    9,453
    
    
    
    
    
    
    
    
    
    
    
    9,453Balance at December 31, 2007
    
    $
    15,000
    
    
    $
    1,911,252
    
    
    $
    36,215
    
    
    $
    (1,109,480
    )
    
    $
    852,987
 See accompanying notes.
 4




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##### 



(Dollars in thousands)
 Year Ended December 312007
    
    2006
    
    2005Operating activitiesNet (loss) income
    
    $
    (1,804,363
    )
    
    $
    263,838
    
    
    $
    206,426Adjustments to reconcile net (loss) income to net cash provided by
operating activities:Amortization of policy acquisition costs deferred
    
    
    15,652
    
    
    
    11,486
    
    
    
    8,574Policy acquisition costs deferred, net
    
    
    (29,615
    )
    
    
    (39,728
    )
    
    
    (38,069
    )Depreciation of property and equipment
    
    
    1,737
    
    
    
    1,222
    
    
    
    721Amortization of fixed maturity securities
    
    
    35,374
    
    
    
    33,774
    
    
    
    31,504Amortization of short-term investments
    
    
    (119
    )
    
    
    131
    
    
    
    481Net realized gains on investments
    
    
    (872
    )
    
    
    (274
    )
    
    
    (101
    )Stock compensation expense
    
    
    9,453
    
    
    
    6,816
    
    
    
    Change in accrued investment income, prepaid expenses, and
other assets, net
    
    
    (15,039
    )
    
    
    (14,725
    )
    
    
    (8,504
    )Change in mark-to-market losses on credit derivative contracts
    
    
    1,937,160
    
    
    
    1,336
    
    
    
    167Change in reinsurance recoverable on losses
    
    
    (7,208
    )
    
    
    1,786
    
    
    
    (217
    )Change in prepaid reinsurance premiums
    
    
    (68,808
    )
    
    
    (46,072
    )
    
    
    (1,344
    )Change in receivable from related parties
    
    
    2,588
    
    
    
    7,056
    
    
    
    (8,737
    )Change in unearned premiums
    
    
    111,121
    
    
    
    147,589
    
    
    
    157,829Change in loss and loss adjustment expenses
    
    
    1,227,121
    
    
    
    (14,513
    )
    
    
    15,631Change in ceded reinsurance balances payable, accounts
payable and accrued expenses and other liabilities
    
    
    9,198
    
    
    
    10,529
    
    
    
    8,923Change in current income taxes
    
    
    (164,295
    )
    
    
    19,678
    
    
    
    (6,559
    )Change in accrued interest expense  variable interest entity
    
    
    (90
    )
    
    
    1,298
    
    
    
    Change in deferred income taxes
    
    
    (882,351
    )
    
    
    20,878
    
    
    
    19,252Net cash provided by operating activities
    
    
    376,644
    
    
    
    412,105
    
    
    
    385,977Investing activitiesSales and maturities of fixed maturity securities
    
    
    229,718
    
    
    
    198,186
    
    
    
    122,638Purchases of fixed maturity securities
    
    
    (563,300
    )
    
    
    (576,386
    )
    
    
    (520,089
    )Purchases, sales and maturities of short-term investments, net
    
    
    97,298
    
    
    
    (52,126
    )
    
    
    (19,342
    )Receivable for securities sold
    
    
    20
    
    
    
    
    
    
    
    (20
    )Payable for securities purchased
    
    
    (10,770
    )
    
    
    10,770
    
    
    
    (5,715
    )Purchase of fixed assets
    
    
    (15,501
    )
    
    
    (477
    )
    
    
    (1,405
    )Purchase of investments held by variable interest entity
    
    
    
    
    
    
    (750,000
    )
    
    
    Net cash used in investing activities
    
    
    (262,535
    )
    
    
    (1,170,033
    )
    
    
    (423,933
    )Financing activitiesProceeds from issuance of debt held by variable interest entity
    
    
    
    
    
    
    750,000
    
    
    
    Capital contribution
    
    
    
    
    
    
    
    
    
    
    12,211Dividends paid
    
    
    (20,000
    )
    
    
    (10,000
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (20,000
    )
    
    
    740,000
    
    
    
    12,211Effect of exchange rate changes on cash
    
    
    1,283
    
    
    
    2,814
    
    
    
    1,530Net increase (decrease) in cash and cash equivalents
    
    
    95,392
    
    
    
    (15,114
    )
    
    
    (24,215
    )Cash and cash equivalents at beginning of period
    
    
    29,963
    
    
    
    45,077
    
    
    
    69,292Cash and cash equivalents at end of period
    
    $
    125,355
    
    
    $
    29,963
    
    
    $
    45,077Supplemental disclosure of cash flow informationIncome taxes paid
    
    $
    75,545
    
    
    $
    47,507
    
    
    $
    49,613Interest paid  debt held by variable interest entity
    
    $
    41,781
    
    
    $
    34,595
    
    
    $
    
 See accompanying notes.
 5




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##### 



(Dollars in thousands, except per share amounts)
 1. Business and Organization
   2. Recent Developments
  6




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##### 



(Dollars in thousands, except per share amounts)
 2. Recent Developments (continued)
    Fitch Ratings
    
    Moody's
    
    Standard & Poor'sFGIC
    
    Insurer Financial
Strength Rating
lowered from AAA to
AA
Remains on Ratings
Watch Negative
    
    Insurance Financial
Strength Rating
lowered from Aaa to
A3 
Remains on review
for possible
downgrade
    
    Financial Strength
Rating lowered from
AAA to A 
Remains on
CreditWatch with
developing
implicationsFGIC UK Ltd
    
    Insurer Financial
Strength Rating
lowered from AAA to
AA
Remains on Ratings
Watch Negative
    
    Insurance Financial
Strength Rating
lowered from Aaa to
A3 
Remains on review
for possible
downgrade
    
    Financial Strength
Rating lowered from
AAA to A 
Remains on
CreditWatch with
developing
implicationsGrand Central 
Capital Trusts I-VI
    
    NA
    
    Rating lowered from
Aa2 to Baa3 
Remains on review
for possible
downgrade
    
    Rating lowered from
AA to BBB 
Remains on
CreditWatch with
developing
implications
 7




---



##### 



(Dollars in thousands, except per share amounts)
 2. Recent Developments (continued)
    
 3. Basis of Presentation
  8




---



##### 



(Dollars in thousands, except per share amounts)
 3. Basis of Presentation (continued)
   4. Summary of Significant Accounting Policies
  a. Investments
    b. Cash and Cash Equivalents
  9




---



##### 



(Dollars in thousands, except per share amounts)
 4. Summary of Significant Accounting Policies (continued)
 c. Premium Revenue Recognition
       d. Policy Acquisition Costs
  10




---



##### 



(Dollars in thousands, except per share amounts)
 4. Summary of Significant Accounting Policies (continued)
   e. Loss and Loss Adjustment Expense Reserves
   11




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##### 



(Dollars in thousands, except per share amounts)
 4. Summary of Significant Accounting Policies (continued)
    f. Income Taxes
   Accounting for Uncertainty in Income Taxes-an Interpretation of FASB
Statement 109
 12




---



##### 



(Dollars in thousands, except per share amounts)
 4. Summary of Significant Accounting Policies (continued)
 g. Property and Equipment
   h. Foreign Currency Translation
  i. Stock Compensation Plan
  13




---



##### 



(Dollars in thousands, except per share amounts)
 4. Summary of Significant Accounting Policies (continued)
 Accounting for Stock Issued to Employees Accounting for Stock-Based
Compensation
 Share-Based Payment
 j. Variable Interest Entities
 Consolidation of Variable Interest Entities
 Consolidation of all Majority-Owned Subsidiaries.
  14




---



##### 



(Dollars in thousands, except per share amounts)
 4. Summary of Significant Accounting Policies (continued)
 k. Derivative Instruments
    l. Commitments
  m. New Accounting Pronouncements
 Fair Value Measurements
 15




---



##### 



(Dollars in thousands, except per share amounts)
 4. Summary of Significant Accounting Policies (continued)
  The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115
 Noncontrolling Interests in Consolidated Financial
Statements
  n. Review of Financial Guaranty Industry Accounting Practices
 Accounting for
Financial Guarantee Insurance Contracts, an Interpretation of FASB Statement No. 60. Accounting and Reporting by
Insurance Enterprises,
 16




---



##### 



(Dollars in thousands, except per share amounts)
 4. Summary of Significant Accounting Policies (continued)
 Accounting for Derivative Instruments and Hedging Activities Amendment
of Statement 133 on Derivative Instruments and Hedging Activities
 5. Statutory Surplus and Accounting Practices
   17




---



##### 



(Dollars in thousands, except per share amounts)
 5. Statutory Surplus and Accounting Practices (continued)
  2007
    
    2006Net
    
    Stockholders
    
    Net
    
    Stockholders(Loss)
    
    Equity
    
    Income
    
    EquityGAAP-basis amount
    
    $
    (1,804,363
    )
    
    $
    852,987
    
    
    $
    263,838
    
    
    $
    2,638,182Unrealized gains on fixed maturity
securities held at fair value, net of tax
    
    
    
    
    
    
    (21,614
    )
    
    
    
    
    
    
    230Unrealized losses from subsidiaries:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FGIC Credit Products LLC (CDS issuer)
    
    
    1,846,381
    
    
    
    1,846,381
    
    
    
    
    
    
    
    All other subsidiaries
    
    
    108,150
    
    
    
    
    
    
    
    11,048
    
    
    
    Tax and loss bonds
    
    
    
    
    
    
    24,375
    
    
    
    
    
    
    
    24,375Premium revenue recognition
    
    
    (33,911
    )
    
    
    (311,255
    )
    
    
    (36,858
    )
    
    
    (277,344
    )Deferral of acquisition costs
    
    
    (13,963
    )
    
    
    (107,854
    )
    
    
    (28,242
    )
    
    
    (93,170
    )Mark-to-market losses on financial guarantee
insurance treated as derivatives under GAAP
    
    
    89,503
    
    
    
    89,503
    
    
    
    
    
    
    
    Non-admitted assets
    
    
    
    
    
    
    (471,067
    )
    
    
    
    
    
    
    (11,116
    )Loss reserves (primarily related to insurance
of CDS contracts)
    
    
    (800,323
    )
    
    
    (789,702
    )
    
    
    (7,038
    )
    
    
    10,619Contingency reserve
    
    
    
    
    
    
    (575,785
    )
    
    
    
    
    
    
    (1,274,274
    )Unauthorized reinsurance reserve
    
    
    
    
    
    
    (660
    )
    
    
    
    
    
    
    Deferral of income taxes
    
    
    (890,341
    )
    
    
    (285,939
    )
    
    
    21,091
    
    
    
    98,472Recognition of profit commission
    
    
    (529
    )
    
    
    (4,654
    )
    
    
    (24
    )
    
    
    (4,125
    )Purchase accounting adjustments, net of tax
    
    
    (1,737
    )
    
    
    16,022
    
    
    
    (1,844
    )
    
    
    17,758Capital lease obligation
    
    
    (1,378
    )
    
    
    1,562
    
    
    
    (1,321
    )
    
    
    2,941Other
    
    
    
    
    
    
    (1,391
    )
    
    
    (131
    )
    
    
    (1,769
    )Statutory-basis amount
    
    $
    (1,502,511
    )
    
    $
    260,909
    
    
    $
    220,519
    
    
    $
    1,130,779
  a. Investments
  18




---



##### 



(Dollars in thousands, except per share amounts)
 5. Statutory Surplus and Accounting Practices (continued)
    b. Premium Revenue Recognition
  c. Policy Acquisition Costs
  d. Credit Derivative Contracts
  19




---



##### 



(Dollars in thousands, except per share amounts)
 5. Statutory Surplus and Accounting Practices (continued)
 e. Non-admitted Assets
  f. Loss and Loss Adjustment Expense and Loss Reserves
    g. Contingency Reserves
  20




---



##### 



(Dollars in thousands, except per share amounts)
 5. Statutory Surplus and Accounting Practices (continued)
 h. Unauthorized Reinsurance
  i. Federal Income Taxes
  j. Profit Commission
  k. Purchase Accounting
  21




---



##### 



(Dollars in thousands, except per share amounts)
 5. Statutory Surplus and Accounting Practices (continued)
 l. Capital Leases
  6. Investments
  Gross
    
    GrossAmortized
    
    Unrealized
    
    UnrealizedCost
    
    Gains
    
    Losses
    
    Fair ValueAt December 31, 2007Available for sale:Obligations of states and
political subdivisions
    
    $
    3,376,228
    
    
    $
    38,798
    
    
    $
    7,605
    
    
    $
    3,407,421Asset- and mortgage-backed
securities
    
    
    307,218
    
    
    
    2,376
    
    
    
    1,485
    
    
    
    308,109U.S. Treasury securities and
obligations of U.S. government
corporations and agencies
    
    
    83,851
    
    
    
    2,700
    
    
    
    
    
    
    
    86,551Corporate bonds
    
    
    81,116
    
    
    
    262
    
    
    
    1,184
    
    
    
    80,194Debt securities issued by
foreign governments
    
    
    65,840
    
    
    
    1,219
    
    
    
    175
    
    
    
    66,884Preferred stock
    
    
    13,499
    
    
    
    
    
    
    
    1,751
    
    
    
    11,748Total fixed maturity securities
    
    
    3,927,752
    
    
    
    45,355
    
    
    
    12,200
    
    
    
    3,960,907Short-term investments
    
    
    115,682
    
    
    
    35
    
    
    
    30
    
    
    
    115,687Held to maturity:Variable interest entity fixed
maturity securities
    
    
    750,000
    
    
    
    
    
    
    
    
    
    
    
    750,000Total investments
    
    $
    4,793,434
    
    
    $
    45,390
    
    
    $
    12,230
    
    
    $
    4,826,594
 22




---



##### 



(Dollars in thousands, except per share amounts)
 6. Investments (continued)
 Gross
    
    GrossAmortized
    
    Unrealized
    
    UnrealizedCost
    
    Gains
    
    Losses
    
    Fair ValueAt December 31, 2006Available for sale:Obligations of states and
political subdivisions
    
    $
    3,117,989
    
    
    $
    27,105
    
    
    $
    20,879
    
    
    $
    3,124,215Asset- and mortgage-backed
securities
    
    
    275,647
    
    
    
    814
    
    
    
    3,574
    
    
    
    272,887U.S. Treasury securities and
obligations of U.S. government
corporations and agencies
    
    
    90,978
    
    
    
    528
    
    
    
    1,655
    
    
    
    89,851Corporate bonds
    
    
    87,805
    
    
    
    85
    
    
    
    1,776
    
    
    
    86,114Debt securities issued by
foreign governments
    
    
    41,426
    
    
    
    15
    
    
    
    245
    
    
    
    41,196Preferred stock
    
    
    13,499
    
    
    
    
    
    
    
    755
    
    
    
    12,744Total fixed maturity securities
    
    
    3,627,344
    
    
    
    28,547
    
    
    
    28,884
    
    
    
    3,627,007Short-term investments
    
    
    211,749
    
    
    
    
    
    
    
    23
    
    
    
    211,726Held to maturity:Variable interest entity fixed
maturity securities
    
    
    750,000
    
    
    
    
    
    
    
    
    
    
    
    750,000Total investments
    
    $
    4,589,093
    
    
    $
    28,547
    
    
    $
    28,907
    
    
    $
    4,588,733
  Less Than 12 Months
    
    12 Months or More
    
    TotalFair
    
    Unrealized
    
    No. of
    
    Fair
    
    Unrealized
    
    No. of
    
    Fair
    
    Unrealized
    
    No. ofValue
    
    Losses
    
    Securities
    
    Value
    
    Losses
    
    Securities
    
    Value
    
    Losses
    
    SecuritiesObligations of
states and
political
subdivisions
    
    $
    321,749
    
    
    $
    4,080
    
    
    
    60
    
    
    $
    670,911
    
    
    $
    3,525
    
    
    
    218
    
    
    $
    992,660
    
    
    $
    7,605
    
    
    
    278Asset- and
mortgage-backed
securities
    
    
    8,775
    
    
    
    28
    
    
    
    3
    
    
    
    101,774
    
    
    
    1,457
    
    
    
    30
    
    
    
    110,549
    
    
    
    1,485
    
    
    
    33U.S. Treasury
securities and
obligations of U.S.
government
corporations and
agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    7,065
    
    
    
    34
    
    
    
    11
    
    
    
    73,695
    
    
    
    1,325
    
    
    
    92
    
    
    
    80,760
    
    
    
    1,359
    
    
    
    103Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,748
    
    
    
    1,751
    
    
    
    1
    
    
    
    11,748
    
    
    
    1,751
    
    
    
    1Total temporarily
impaired securities
    
    $
    337,589
    
    
    $
    4,142
    
    
    
    74
    
    
    $
    858,128
    
    
    $
    8,058
    
    
    
    341
    
    
    $
    1,195,717
    
    
    $
    12,200
    
    
    
    415
 23




---



##### 



(Dollars in thousands, except per share amounts)
 6. Investments (continued)
    Fixed Maturity Securities by Contractual Maturity Date
As of December 31, 2007
 Amortized
    
    FairCost
    
    ValueFixed Maturity SecuritiesDue within one year
    
    $
    102,332
    
    
    $
    102,272Due after one year through five years
    
    
    781,343
    
    
    
    779,875Due after five years through ten years
    
    
    1,466,090
    
    
    
    1,482,423Due after ten years
    
    
    1,270,769
    
    
    
    1,288,229Mortgage-backed securities
    
    
    307,218
    
    
    
    308,108Total
    
    $
    3,927,752
    
    
    $
    3,960,907
  24




---



##### 



(Dollars in thousands, except per share amounts)
 6. Investments (continued)
  Year Ended December 312007
    
    2006
    
    2005Income from fixed maturity securities
    
    $
    148,048
    
    
    $
    130,498
    
    
    $
    112,616Income from short-term investments
    
    
    11,562
    
    
    
    10,556
    
    
    
    6,801Total investment income
    
    
    159,610
    
    
    
    141,054
    
    
    
    119,417Investment expenses
    
    
    (3,258
    )
    
    
    (2,579
    )
    
    
    (2,345
    )Net investment income
    
    
    156,352
    
    
    
    138,475
    
    
    
    117,072Interest income  investments held by variable
interest entity
    
    
    41,691
    
    
    
    35,893
    
    
    
    Total
    
    $
    198,043
    
    
    $
    174,368
    
    
    $
    117,072
  Fair ValueNew York
    
    $
    324,357Texas
    
    
    305,909California
    
    
    254,243Florida
    
    
    231,263Illinois
    
    
    211,350Massachusetts
    
    
    205,059New Jersey
    
    
    190,201Michigan
    
    
    127,0911,849,473All other states
    
    
    1,431,075All other investments
    
    
    796,046Total investments
    
    $
    4,076,594
 25




---



##### 



(Dollars in thousands, except per share amounts)
 7. Property and Equipment
  2007
    
    2006Artwork
    
    $
    371
    
    
    $
    371Computer equipment
    
    
    1,685
    
    
    
    1,104Furniture and fixtures
    
    
    3,639
    
    
    
    1,324Leasehold improvements
    
    
    13,661
    
    
    
    1,515Capitalized software
    
    
    928
    
    
    
    41020,284
    
    
    
    4,724Accumulated depreciation and amortization
    
    
    (3,870
    )
    
    
    (2,107
    )Total Property and equipment, net
    
    $
    16,414
    
    
    $
    2,617
   8. Derivative Instruments
  26




---



##### 



(Dollars in thousands, except per share amounts)
 8. Derivative Instruments (continued)
    Year Ended December 312007
    
    2006
    
    2005Mark-to-market (losses)
    
    $
    (1,937,160
    )
    
    $
    (1,336
    )
    
    $
    (167
    )Realized gains
    
    
    624
    
    
    
    1,843
    
    
    
    Net mark-to-market
(losses) gains on credit
derivative contracts
    
    $
    (1,936,536
    )
    
    $
    507
    
    
    $
    (167
    )
  27




---



##### 



(Dollars in thousands, except per share amounts)
 8. Derivative Instruments (continued)
  9. Income Taxes
   28




---



##### 



(Dollars in thousands, except per share amounts)
 9. Income Taxes (continued)
  Year Ended December 312007
    
    2006
    
    2005Income taxes computed on (loss)
income before provision for federal
income taxes, at the statutory
income tax rate
    
    $
    (973,411
    )
    
    $
    123,500
    
    
    $
    95,037State and local income taxes, net
of federal income taxes
    
    
    (775
    )
    
    
    756
    
    
    
    453Tax effect of:Tax-exempt interest
    
    
    (39,393
    )
    
    
    (35,646
    )
    
    
    (31,072
    )Foreign subsidiary adjustments
    
    
    37,312
    
    
    
    
    
    
    
    Reductions following completion
of IRS audit of 2003 and 2004
    
    
    (5,354
    )
    
    
    
    
    
    
    Other, net
    
    
    4,808
    
    
    
    408
    
    
    
    690(Benefit) provision for income taxes
    
    $
    (976,811
    )
    
    $
    89,018
    
    
    $
    65,108Following are the foreign and domestic components of the (benefit) provision for income taxes:Year Ended December 312007
    
    2006
    
    2005ForeignCurrent
    
    $
    (835
    )
    
    $
    (383
    )
    
    $
    2,409Deferred
    
    
    3,128
    
    
    
    (752
    )
    
    
    (3,038
    )DomesticCurrent
    
    
    (90,725
    )
    
    
    68,278
    
    
    
    29,961Deferred
    
    
    (888,379
    )
    
    
    21,875
    
    
    
    35,776Total
    
    $
    (976,811
    )
    
    $
    89,018
    
    
    $
    65,108
  29




---



##### 



(Dollars in thousands, except per share amounts)
 9. Income Taxes (continued)
  2007
    
    2006Deferred tax assets:Net mark-to-market losses on credit derivative
contracts
    
    $
    402,245
    
    
    $
    Tax and loss bonds
    
    
    24,375
    
    
    
    24,375Loss and loss adjustment expense reserves
    
    
    2
    
    
    
    3,717AMT credit carryforward
    
    
    8,816
    
    
    
    Property and equipment
    
    
    
    
    
    
    125Deferred compensation
    
    
    10,426
    
    
    
    5,222Capital lease
    
    
    2,171
    
    
    
    2,591Net operating loss carryforward foreign subsidiaries
    
    
    31,410
    
    
    
    4,228Net operating loss carryforward
    
    
    443,794
    
    
    
    Other
    
    
    2,174
    
    
    
    586Total gross deferred tax assets
    
    
    925,413
    
    
    
    40,844Valuation allowance
    
    
    31,410
    
    
    
    Total net deferred tax assets
    
    
    894,003
    
    
    
    40,844Deferred tax liabilities:Contingency reserves
    
    
    
    
    
    
    42,656Unrealized gains on fixed maturity securities
available for sale
    
    
    24,910
    
    
    
    15,734Deferred acquisition costs
    
    
    28,528
    
    
    
    26,558Premium revenue recognition
    
    
    34,102
    
    
    
    22,915Profit commission
    
    
    1,629
    
    
    
    1,444Unrealized gains on foreign currency
    
    
    3,419
    
    
    
    3,581Property and equipment
    
    
    69
    
    
    
    Other
    
    
    576
    
    
    
    1,016Total deferred tax liabilities
    
    
    93,233
    
    
    
    113,904Net deferred tax asset (liability)
    
    $
    800,770
    
    
    $
    (73,060
    )
 30




---



##### 



(Dollars in thousands, except per share amounts)
 9. Income Taxes (continued)
    Balance at January 1, 2007
    
    $
    17,057Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    
    916Reductions for tax positions of prior year
    
    
    (6,024
    )Payments following completion of IRS audit of 2003 and 2004
    
    
    (5,353
    )Balance at December 31, 2007
    
    $
    6,596
  31




---



##### 



(Dollars in thousands, except per share amounts)
 9. Income Taxes (continued)
    10. Reinsurance
    32




---



##### 



(Dollars in thousands, except per share amounts)
 10. Reinsurance (continued)
     Year Ended December 312007
    
    
    2006
    
    
    2005Written
    
    
    Earned
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect
    
    $
    447,629
    
    
    $
    338,245
    
    
    $
    425,242
    
    
    $
    293,962
    
    
    $
    409,237
    
    
    $
    246,914Assumed
    
    
    3,639
    
    
    
    2,194
    
    
    
    15,989
    
    
    
    819
    
    
    
    965
    
    
    
    54Ceded
    
    
    (103,907
    )
    
    
    (35,154
    )
    
    
    (74,417
    )
    
    
    (28,324
    )
    
    
    (29,148
    )
    
    
    (22,399
    )Net premiums
    
    $
    347,361
    
    
    $
    305,285
    
    
    $
    366,814
    
    
    $
    266,457
    
    
    $
    381,054
    
    
    $
    224,569
  33




---



##### 



(Dollars in thousands, except per share amounts)
 11. Loss and Loss Adjustment Expenses Reserves
  Year Ended December 312007
    
    
    2006
    
    
    2005Balance at beginning of period:Case reserves
    
    $
    28,558
    
    
    $
    33,328
    
    
    $
    15,700Watch list reserves
    
    
    11,741
    
    
    
    21,484
    
    
    
    23,481Total
    
    
    40,299
    
    
    
    54,812
    
    
    
    39,181Less reinsurance recoverable
    
    
    (1,485
    )
    
    
    (3,271
    )
    
    
    (3,054
    )Net balance at beginning of period
    
    
    38,814
    
    
    
    51,541
    
    
    
    36,127Incurred related to:Current period
    
    
    1,239,069
    
    
    
    
    
    
    
    23,985Prior periods
    
    
    (12,294
    )
    
    
    (8,700
    )
    
    
    (5,479
    )Total incurred
    
    
    1,226,775
    
    
    
    (8,700
    )
    
    
    18,506Paid related to:Current period
    
    
    (7,920
    )
    
    
    
    
    
    
    (1,993
    )Prior periods
    
    
    3,894
    
    
    
    (4,027
    )
    
    
    (1,099
    )Total paid
    
    
    (4,026
    )
    
    
    (4,027
    )
    
    
    (3,092
    )FX on UK Ltd reserves
    
    
    (2,836
    )
    
    
    
    
    
    
    Net balance
    
    
    1,258,727
    
    
    
    38,814
    
    
    
    51,541Plus reinsurance recoverable
    
    
    8,693
    
    
    
    1,485
    
    
    
    3,271Case reserves
    
    
    1,259,202
    
    
    
    28,558
    
    
    
    33,328Watchlist reserves
    
    
    8,218
    
    
    
    11,741
    
    
    
    21,484Balance at end of period
    
    $
    1,267,420
    
    
    $
    40,299
    
    
    $
    54,812
  34




---



##### 



(Dollars in thousands, except per share amounts)
 11. Loss and Loss Adjustment Expenses Reserves (continued)
    35




---



##### 



(Dollars in thousands, except per share amounts)
 12. Variable Interest Entities
   ,
   36




---



##### 



(Dollars in thousands, except per share amounts)
 12. Variable Interest Entities (continued)
  13. Related Party Transactions
     37




---



##### 



(Dollars in thousands, except per share amounts)
 13. Related Party Transactions (continued)
      14. Compensation Plans
  38




---



##### 



(Dollars in thousands, except per share amounts)
 14. Compensation Plans (continued)
   15. Stock Compensation Plan
  Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation.
  39




---



##### 



(Dollars in thousands, except per share amounts)
 15. Stock Compensation Plan (continued)
  Year EndedDecember 31,2005Net income, as reported
    
    $
    190,466Stock option compensation expense determined under
fair value-based method, net of tax
    
    
    (2,109
    )Pro forma net income
    
    $
    188,357
  Weighted AverageNumber of Shares
    
    Exercise Price perSubject to Options
    
    ShareBalance at December 31, 2004
    
    
    114,153
    
    
    $
    824Granted
    
    
    27,145
    
    
    
    711Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (1,876
    )
    
    
    685Expired
    
    
    
    
    
    
    Balance at December 31, 2005
    
    
    139,422
    
    
    
    804Granted
    
    
    38,113
    
    
    
    850Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (6,504
    )
    
    
    776Expired
    
    
    
    
    
    
    Balance at December 31, 2006
    
    
    171,031
    
    
    
    815Granted
    
    
    49,058
    
    
    
    971Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (4,042
    )
    
    
    847Expired
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    216,047
    
    
    $
    850Shares subject to options exercisable at:December 31, 2007
    
    
    106,616
    
    
    $
    818December 31, 2006
    
    
    72,585
    
    
    $
    818December 31, 2005
    
    
    42,630
    
    
    $
    840
 40




---



##### 



(Dollars in thousands, except per share amounts)
 15. Stock Compensation Plan (continued)
   Year Ended December 312007
    
    2006
    
    2005Expected life
    
    3.8 Years
    
    4 Years
    
    5 YearsRisk-free interest rate
    
    
    4.50
    %
    
    
    4.46
    %
    
    
    3.691
    %Volatility factor
    
    
    20.7
    %
    
    
    25.0
    %
    
    
    5.0
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
   41




---



##### 



(Dollars in thousands, except per share amounts)
 15. Stock Compensation Plan (continued)
 Restricted Stock Units
  WeightedAverage GrantShares
    
    Date Fair ValueBalance at December 31, 2004:
    
    
    200
    
    
    $
    600Granted
    
    
    37
    
    
    
    710Delivered
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Balance at December 31, 2005:
    
    
    237
    
    
    
    617Granted
    
    
    2,949
    
    
    
    850Delivered
    
    
    (237
    )
    
    
    617Forfeited
    
    
    (213
    )
    
    
    850Balance at December 31, 2006:
    
    
    2,736
    
    
    
    850Granted
    
    
    362
    
    
    
    971Delivered
    
    
    (326
    )
    
    
    850Forfeited
    
    
    
    
    
    
    Balance at December 31, 2007:
    
    
    2,772
    
    
    $
    866
  42




---



##### 



(Dollars in thousands, except per share amounts)
 16. Dividends
   17. Revolving Credit Facility
   18. Preferred Trust Securities
  43




---



##### 



(Dollars in thousands, except per share amounts)
 18. Preferred Trust Securities (continued)
   19. Financial Instruments
 (a)
    
    Fair Value of Financial InstrumentsThe following methods and assumptions were used by the Company in estimating the fair values of
financial instruments. Fair values estimated based upon internal valuation models are not
necessarily indicative of the amount the Company could realize in a current market exchange.Fixed Maturity Securities:Fair values for fixed maturity securities are based on quoted market
prices, if available. If a quoted market price is not available, fair values are estimated using
quoted market prices for similar securities. Fair value disclosure for fixed maturity securities
is included in the consolidated balance sheets and in Note 6.Short-Term Investments:Short-term investments are carried at fair value, which approximates
cost.
 44




---



##### 



(Dollars in thousands, except per share amounts)
 19.
    
    Financial Instruments (continued)Cash and Cash Equivalents, Accrued Investment Income, Receivable from Related Parties, Ceded
Reinsurance Balances Payable, and Payable for Securities Purchased:The carrying amounts of
these items approximate their fair values.Financial Guaranties:The carrying value of the Companys financial guaranties is represented by
the unearned premium reserve net of prepaid reinsurance premiums. Estimated fair values of these
guaranties are based on an estimate of the balance that is necessary to bring the future returns
for the Companys embedded book of business to a market return. The Company does not record a
carrying value for future expected installment premiums. The fair value of future expected
installment premiums as of December 31, 2007 and 2006 was approximately $838,533 and $630,831,
respectively, both discounted at 5%.Loss and loss adjustment expense reserves, net:The carrying amount of case reserves is an
estimate of the present value of the anticipated shortfall between (1) payments on insured
obligations plus anticipated loss adjustment expenses and (2) anticipated cash flow from, and
proceeds to be received on, sales of any collateral supporting the obligation and/or other
anticipated recoveries. The discount rate used in calculating the net present value of estimated
losses is based upon the risk-free rate for the duration of the anticipated shortfall. The
carrying amount of watchlist reserves is an estimate of probable loss given evidence of
impairment, and a reasonable estimate of the amount of loss given default. The carrying amounts
of these items approximate their fair values.Derivative assets and liabilities:Derivative assets and liabilities are carried at fair value,
as determined each quarter based on internally developed models. These models require
market-driven inputs, including dealer quotes for the underlying bonds, credit spreads and yield
curves. The models calculate a theoretical exit price and reflect managements best judgment
about current market conditions. There may be volatility in the market-driven inputs obtained
from an illiquid market for CDS and the underlying bonds and other obligations, and
differences may exist between available market data and assumptions used by management to
estimate the fair value of these instruments. Accordingly, the valuation results from the model
could differ materially from amounts that would be realized in the market if the derivative were
traded. Moreover, volatile market conditions are likely to cause future valuations to differ,
possibly materially, from those reflected in the current period (see Note 8).
 45




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##### 



(Dollars in thousands, except per share amounts)
 19.
    
    Financial Instruments (continued)Put agreements on FGIC perpetual preferred stock:As noted in Notes 12 and 18, FGIC has put
agreements with six non consolidated trusts that obligates the trusts, at FGICs discretion, to
purchase Perpetual Preferred Stock of FGIC. The exercise of the put options would provide FGIC
access to new capital at a pre-established rate. Given the downgrades in the Companys financial
strength and credit ratings and the resulting increase in credit spreads on Companys debt, the
fair value of the put options was estimated to be $60,120 and $0 at December 31, 2007 and 2006,
respectively.The carrying amounts and estimated fair values of the Companys financial instruments at
December 31, 2007 and 2006 were as follows:
 2007
    
    2006Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash on hand and in-demand accounts
    
    $
    125,355
    
    
    $
    125,355
    
    
    $
    29,963
    
    
    $
    29,963Short-term investments
    
    
    115,687
    
    
    
    115,687
    
    
    
    211,726
    
    
    
    211,726Fixed maturity securities, available
for sale
    
    
    3,960,907
    
    
    
    3,960,907
    
    
    
    3,627,007
    
    
    
    3,627,007Variable interest entity fixed maturity
securities, held to maturity
    
    
    750,000
    
    
    
    750,000
    
    
    
    750,000
    
    
    
    750,000Financial liabilities:Liability for net financial guaranties
    
    
    1,232,960
    
    
    
    1,139,968
    
    
    
    1,190,884
    
    
    
    1,124,179Loss and loss adjustment expense
reserves, net
    
    
    1,258,727
    
    
    
    1,258,727
    
    
    
    38,814
    
    
    
    38,814Derivative liabilities, net
    
    
    1,938,663
    
    
    
    1,938,663
    
    
    
    1,503
    
    
    
    1,503
 46




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##### 



(Dollars in thousands, except per share amounts)
 19. Financial Instruments (continued)
 (b)
    
    Concentrations of Credit RiskThe Company considers its role in providing insurance to be credit enhancement rather than
credit substitution. The Company insures only those securities that, in its judgment, are of
investment grade quality at the time of underwriting. The Company has established and maintains
its own underwriting standards that are based on those aspects of credit that the Company deems
important for the particular category of obligations considered for insurance.Credit criteria include economic and social trends, debt management, financial management and
legal and administrative factors, the adequacy of anticipated cash flows, including the
historical and expected performance of assets pledged to secure payment of securities under
varying economic scenarios, and underlying levels of protection, such as insurance or
over-collateralization.In connection with underwriting new issues, the Company sometimes requires, as a condition to
insuring an issue, that collateral be pledged or, in some instances, that a third-party guaranty
be provided for the term of the issue by a party of acceptable credit quality obligated to make
payment prior to any payment by the Company. The types and extent of collateral varies, but may
include residential and commercial mortgages, corporate and/or government debt and consumer
receivables.As of December 31, 2007, the Companys total outstanding principal insured was $313,949,268, net
of reinsurance of $43,478,699. The Companys insured portfolio as of December 31, 2007 was
broadly diversified by geographic and bond market sector, with no single obligor representing
more than 1% of the Companys principal insured outstanding, net of reinsurance. The insured
portfolio includes exposure executed in the form of credit derivatives. The principal written in
the form of credit derivatives was $35,614,330 at December 31, 2007. Total outstanding principal
insured does not reflect any amounts relating to commitment agreements.
 47




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##### 



(Dollars in thousands, except per share amounts)
 19. Financial Instruments (continued)
  Net PrincipalOutstandingMunicipal:Tax-supported
    
    $
    135,969,517Utility revenue
    
    
    35,141,684Transportation
    
    
    23,409,842Education
    
    
    10,739,032Health Care
    
    
    7,562,002Investor-owned utilities
    
    
    5,591,324Housing
    
    
    1,911,198Other
    
    
    1,751,151Total Municipal
    
    
    222,075,750Non-municipalAsset-Backed
    
    
    16,533,851Mortgage-Backed
    
    
    29,614,582Other Structured Finance
    
    
    93,875Pooled Debt Obligations
    
    
    24,406,069Total Non-Municipal
    
    
    70,648,377International
    
    
    21,225,141Total
    
    $
    313,949,268
 48




---



##### 



(Dollars in thousands, except per share amounts)
 19. Financial Instruments (continued)
  Ceded PrincipalOutstandingReinsurer:Radian Asset Assurance Inc.
    
    $
    9,564,232RAM Reinsurance Company Ltd.
    
    
    7,379,569Assured Guaranty Re Ltd.
    
    
    7,275,619BluePoint RE.
    
    
    5,752,860Assured Guaranty Corp
    
    
    4,984,281Other
    
    
    8,522,138Total
    
    $
    43,478,699
  TotalRecoverableReinsurer:Radian Asset Assurance Inc.
    
    $
    65,078RAM Reinsurance Company Ltd.
    
    
    39,471Assured Guaranty Re Ltd.
    
    
    38,044BluePoint RE.
    
    
    17,654Total
    
    $
    160,247
  49




---



##### 



(Dollars in thousands, except per share amounts)
 19. Financial Instruments (continued)
  Net PrincipalOutstandingCalifornia
    
    $
    37,477,126New York
    
    
    22,275,797Florida
    
    
    16,910,078Texas
    
    
    13,047,209Pennsylvania
    
    
    12,741,172Illinois
    
    
    12,270,735New Jersey
    
    
    10,032,445Michigan
    
    
    8,619,975Washington
    
    
    7,071,760Ohio
    
    
    6,589,090All other states
    
    
    75,040,363Mortgage- and asset-backed
    
    
    70,648,377International
    
    
    21,225,141Total
    
    $
    313,949,268
 50




---



##### 



(Dollars in thousands, except per share amounts)
 20. Commitments and Contingencies
 Lease Obligations
  Operating LeaseCommitmentAmountYear:2008
    
    $
    5,0252009
    
    
    6,1652010
    
    
    6,1742011
    
    
    6,1542012
    
    
    6,2532013 and thereafter
    
    
    46,294Total minimum future rental payments
    
    $
    76,065
  Operating LeaseCommitmentAmountYear ending December 31:2008
    
    $
    1,3912009
    
    
    265Total
    
    
    1,656Less interest
    
    
    94Present value of minimum lease payments
    
    $
    1,562
 51




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##### 



(Dollars in thousands, except per share amounts)
 21. Comprehensive Income
  Year ended December 31, 2007Before
    
    
    
    
    
    
    Net ofTax
    
    
    
    
    
    
    TaxAmount
    
    
    Tax
    
    
    AmountUnrealized holding gains arising during the year
    
    $
    34,438
    
    
    $
    (12,053
    )
    
    $
    22,385Reclassification of gains realized in net income
    
    
    (872
    )
    
    
    305
    
    
    
    (567
    )Unrealized gains on investments
    
    
    33,566
    
    
    
    (11,748
    )
    
    
    21,818Foreign currency translation adjustment
    
    
    12,149
    
    
    
    (4,252
    )
    
    
    7,897Total other comprehensive income
    
    $
    45,715
    
    
    $
    (16,000
    )
    
    $
    29,715
 Year Ended December 31, 2006Before
    
    
    
    
    
    
    Net ofTax
    
    
    
    
    
    
    TaxAmount
    
    
    Tax
    
    
    AmountUnrealized holding gains arising during the year
    
    $
    18,583
    
    
    $
    (6,504
    )
    
    $
    12,079Reclassification of gains realized in net income
    
    
    (274
    )
    
    
    96
    
    
    
    (178
    )Unrealized gains on investments
    
    
    18,309
    
    
    
    (6,408
    )
    
    
    11,901Foreign currency translation adjustment
    
    
    11,583
    
    
    
    (3,387
    )
    
    
    8,196Total other comprehensive income
    
    $
    29,892
    
    
    $
    (9,795
    )
    
    $
    20,097
 Year Ended December 31, 2005Before
    
    
    
    
    
    
    Net ofTax
    
    
    
    
    
    
    TaxAmount
    
    
    Tax
    
    
    AmountUnrealized holding losses arising during the
year
    
    $
    (36,050
    )
    
    $
    12,566
    
    
    $
    (23,484
    )Reclassification of gains realized in net income
    
    
    (101
    )
    
    
    35
    
    
    
    (66
    )Unrealized losses on investments
    
    
    (36,151
    )
    
    
    12,601
    
    
    
    (23,550
    )Foreign currency translation adjustment
    
    
    (8,454
    )
    
    
    2,922
    
    
    
    (5,532
    )Total other comprehensive loss
    
    $
    (44,605
    )
    
    $
    15,523
    
    
    $
    (29,082
    )
 52




---



##### 



(Dollars in thousands, except per share amounts)
 22. Quarterly Financial Information (Unaudited)
 Three Months Ended
    
    Year EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    December 31,2007
    
    2007
    
    2007
    
    2007
    
    2007Gross direct and assumed
premiums written
    
    $
    103,175
    
    
    $
    124,976
    
    
    $
    122,268
    
    
    $
    100,849
    
    
    $
    451,268Net premiums written
    
    
    90,980
    
    
    
    93,394
    
    
    
    93,917
    
    
    
    69,070
    
    
    
    347,361Net premiums earned
    
    
    76,583
    
    
    
    80,593
    
    
    
    74,619
    
    
    
    73,490
    
    
    
    305,285Net investment income and net
realized gains
    
    
    37,400
    
    
    
    38,273
    
    
    
    39,795
    
    
    
    40,884
    
    
    
    156,352Interest income-investments held
by variable interest entity
    
    
    11,357
    
    
    
    8,755
    
    
    
    10,901
    
    
    
    10,678
    
    
    
    41,691Other income and net
mark-to-market gains (losses)
on credit derivative products
    
    
    874
    
    
    
    (15,385
    )
    
    
    (206,041
    )
    
    
    (1,715,424
    )
    
    
    (1,935,976
    )Total revenues
    
    
    126,475
    
    
    
    112,291
    
    
    
    (80,706
    )
    
    
    (1,589,836
    )
    
    
    (1,431,776
    )Losses and loss adjustment
expenses
    
    
    1,182
    
    
    
    (5,388
    )
    
    
    (2,031
    )
    
    
    1,233,012
    
    
    
    1,226,775Interest expense  debt held
by variable interest entity
    
    
    11,357
    
    
    
    8,755
    
    
    
    10,901
    
    
    
    10,678
    
    
    
    41,691Underwriting expenses
    
    
    28,387
    
    
    
    22,776
    
    
    
    23,586
    
    
    
    16,905
    
    
    
    91,654Income (loss) before taxes
    
    
    95,343
    
    
    
    89,677
    
    
    
    (108,945
    )
    
    
    (2,857,249
    )
    
    
    (2,781,174
    )Net income (loss)
    
    
    70,361
    
    
    
    73,105
    
    
    
    (61,536
    )
    
    
    (1,886,293
    )
    
    
    (1,804,363
    )
 Three Months Ended
    
    Year EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    December 31,2006
    
    2006
    
    2006
    
    2006
    
    2006Gross direct and assumed
premiums written
    
    $
    89,281
    
    
    $
    163,260
    
    
    $
    85,030
    
    
    $
    103,660
    
    
    $
    441,231Net premiums written
    
    
    82,585
    
    
    
    134,373
    
    
    
    66,590
    
    
    
    83,266
    
    
    
    366,814Net premiums earned
    
    
    59,464
    
    
    
    71,845
    
    
    
    62,738
    
    
    
    72,410
    
    
    
    266,457Net investment income and net
realized gains
    
    
    32,319
    
    
    
    34,038
    
    
    
    35,803
    
    
    
    36,315
    
    
    
    138,475Interest income-investments held
by variable interest entity
    
    
    4,937
    
    
    
    9,658
    
    
    
    10,033
    
    
    
    11,265
    
    
    
    35,893Other income and net
mark-to-market gains (losses)
on credit derivative products
    
    
    308
    
    
    
    (48
    )
    
    
    1,596
    
    
    
    740
    
    
    
    2,596Total revenues
    
    
    97,028
    
    
    
    115,493
    
    
    
    110,170
    
    
    
    120,730
    
    
    
    443,421Losses and loss adjustment
expenses
    
    
    (1,933
    )
    
    
    (265
    )
    
    
    520
    
    
    
    (7,022
    )
    
    
    (8,700
    )Interest expense  debt held
by variable interest entity
    
    
    4,937
    
    
    
    9,658
    
    
    
    10,033
    
    
    
    11,265
    
    
    
    35,893Income before taxes
    
    
    77,573
    
    
    
    90,732
    
    
    
    85,119
    
    
    
    99,432
    
    
    
    352,856Net income
    
    
    58,711
    
    
    
    67,211
    
    
    
    63,563
    
    
    
    74,353
    
    
    
    263,838
 53




---



##### 



(Dollars in thousands, except per share amounts)
 23. Subsequent Events
    54