In international public finance, originations grew 26.7% in par insured in 2006, while PV premiums grew at a higher rate, 71.4%, because of longer average lives. Originations were strongest in the United Kingdom and Australia, but FSA also guaranteed public finance transactions in Western and Central Europe, Asia and the Americas. In 2005, international public finance originations grew 173.0% in par insured and 45.3% in PV premiums. FSA insured infrastructure transactions in the United Kingdom, Australia, Canada, Western Europe and Asia. Expanding use of public-private partnership financings has helped drive growth in this sector.
PV NIM originations increased 30.1% in 2006 and 25.6% in 2005, reflecting the general growth trend of the FP Segment.
During 2005, the Company charged $25.4 million to loss expense, consisting of $20.4 million for originations of new business and $5.0 million related to accretion on the reserve for in-force business. The non-specific reserve increased $16.4 million in 2005, primarily due to loss expense of $25.4 million, partially
Management believes that a material adverse change to the loss estimate in its public finance risk sectors, excluding the health care category, would not occur under any reasonably possible scenario. While the Company has not experienced a loss in the health care sector, the potential severity of health care losses is comparatively high. Hospital facilities are single-purpose assets and a failing health care issuer is likely to be liquidated or acquired. If there is collateral associated with a health care credit, it is generally in the form of a hospital facility, the value of which is primarily driven by the community’s need for that facility. The more hospitals competing in a community, the more fragile the value of the hospital collateral
The table below reconciles Total NIM with FP Segment NIM and FP spread portfolio NIM:
As of December 31, 2004, the Company owned 34.1% of SPS Holding Corp. (“SPS”), formerly Fairbanks Capital Holding Corp., and the Company’s interest in SPS had a book value of $49.6 million. In the third quarter of 2004, the Company determined that its $7.6 million of goodwill associated with its investment in SPS was impaired as a result of challenges encountered by SPS in acquiring new business. The Company’s equity in earnings from SPS was a pre-tax gain of $1.2 million in 2005 and a pre-tax loss of $7.1 million in 2004.
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2006, 2005 and 2004
I Condensed Financial Statements of Financial Security Assurance Holdings Ltd. as of December 31, 2006 and 2005 and for the Years Ended December 31, 2006, 2005 and 2004
The amortized cost and fair value of bonds in the General Investment Portfolio at December 31, 2006, by contractual maturity, are shown below. Actual maturities could differ from contractual maturities because borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.
The Company pledges and receives collateral related to certain business lines or transactions. The following is a description of those arrangements by transaction type.
The credit quality of bonds within the refinanced asset portfolio at December 31, 2006 was as follows:
At December 31, 2006 and 2005, there were no securities in an unrealized loss position for a continuous 12-month period or longer. In 2006, the Company determined that there were three securities considered other-than-temporarily impaired, and a $2.5 million impairment charge was recorded in the consolidated statements of operations and comprehensive income. In 2005, the Company determined that there were six securities considered other-than-temporarily impaired, and a $4.5 million impairment charge was recorded in the consolidated statements of operations and comprehensive income.
The Company limits its exposure to losses from writing financial guarantees by underwriting investment-grade obligations, diversifying its portfolio and maintaining rigorous collateral requirements on asset-backed obligations, as well as through reinsurance. The net par outstanding of insured obligations in the asset-backed insured portfolio includes the following amounts by type of collateral:
(1) Excludes intercompany insurance of $16,558 million in 2006 and $13,463 million in 2005 relating to FSA-insured GICs issued by the GIC Affiliates.
The Dexia restricted stock component is a fixed plan, where the Company purchases Dexia shares and establishes a prepaid expense for the amount paid, which is amortized over 2.5-year and 3.5-year vesting periods. In 2006 and 2005, FSA purchased shares to economically defease its liability for $4.6 million and $4.4 million, respectively. These amounts are being amortized to expense over the employees’ vesting periods. For the years ended December 31, 2006 and 2005, the after-tax amounts amortized into income were $1.9 million and $0.9 million, respectively.
· surplus notes are recognized as surplus rather than as a liability unless approved for repayment; and