the new generation in triple-a financial guaranty
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The New Generation in Triple-A Financial Guaranty
Page 2
Who CIFG is…
• A group of financial guaranty companies rated Aaa/AAA/AAA with experienced industry professionals in each business line
• Insurance companies with claims-paying resources well in excess of the rating agencies’ Triple-A levels
• Monoline insurers- CIFG capital is segregated to support both present and future bondholder
obligations
- CIFG ability and willingness to pay have received top ratings from Moody’s, Standard & Poor’s (S&P) and Fitch
• A member of an international group with a long and distinguished heritage in financial services
Page 3
Overview: Progress to Date
CIFG is a group of Triple-A rated monoline financial
guarantors
• Capital: CIFG possesses well over $500 million in claims paying resources
• Business Progress: CIFG has insured over $8 billion in exposures since
inception. Market conditions have allowed better than expected pricing
• Licensing: CIFG is licensed in the European Community and in more than
half of all US states. Remaining US licenses are expected during 2004
Page 4
Overview: CIFG Claims Paying Resources
CIFG is well capitalized
• The S&P Margin of Safety compares simulated depression losses with claims-paying resources based on actual and projected
portfolios. S&P calculates Margins of Safety for each of CIFG’s primary insurance companies: CDC IXIS Financial Guaranty
North America (CIFG NA) and CDC IXIS Financial Guaranty Europe (CIFG Europe)
• At year-end 2002, CIFG NA’s Margin of Safety was 2.0-2.1 and CIFG Europe’s was 1.5-1.6
• This ratio will likely fall as the portfolio grows; it reflects, however, management’s conservative approach to the business
Page 5
Overview: CIFG Claims Paying Resources- cont’d
CIFG is well capitalized: June 30, 2003, Capital Pro Forma for Capital Issuance of Oct ‘03
As of June 30, 2003 $ Mil.Statutory Capital $382.1
Unearned Premium Reserves $39.4
PV Annual Premiums $45.6
Total Claims Paying Resources, Before New Capital $467.1
Capital Issuance (October 2003) $114.7
Total Claims Paying Resources, After New Capital $581.8
Page 6
CIFG Financial Snapshot
CIFG’s key financials show its progress
$ Mil. Nine months ended Twelve Months Ended September 30, 2003 December 31, 2002
New Business:• Gross Par Written $5,939 $2,352
as of as of September 30, 2003 December 31, 2002
Portfolio:• Gross Par Outstanding $7,999 $2,375
Page 7
Portfolio
CIFG grows with a high quality risk portfolio
September 30, 2003
$7,999 million of gross par outstanding
AAA66%
BBB11%
A16%
AA7%
Page 8
Portfolio- cont’d
The risk portfolio is well diversified among business linesSeptember 30, 2003
$7,999 million of gross par outstandingEurope
Infrastructure 7%
US Structured Finance 42%Europe
Structured Finance 19%
US Public Finance 31%
Europe Public Finance 1%
Page 9
Licensing Expansion
CIFG has made major progress in U.S. licensing
• CIFG NA is currently licensed in over half of the states in the US 1.
• Licensing is anticipated in 40 states by the 4th quarter, 2003
• Remaining licenses expected during 2004
(1) Please refer to Appendix for a listing of US states in which CIFG NA is admitted
Page 10
Corporate Structure and Capitalization CDC IXIS (Parent Company)
CIFG is a member of a major European financial group with a long and distinguished heritage
• CIFG is an independent subsidiary of CDC IXIS, a major European bank
• CDC IXIS comprises commercial and investment banking activities originally part
of Caisse des Depots (CDC) a 185-year old French financial institution entrusted
with various public responsibilities for the benefit of French citizens
• In 2001, CDC IXIS was created by CDC. Later that same year, a portion of its
ownership interest was shifted to a joint venture between CDC and CNCE, the
association of French mutual savings banks, called EULIA
Page 11
Corporate Structure and Capitalization CDC IXIS (Parent Company)– cont’d
Discussion of CIFG’s membership in a substantial financial group- cont’d
• In late 2003, CDC and CNCE announced that they had renegotiated their
respective ownership shares: By the end of July 2004 CNCE will own 100% of
CDC IXIS; CDC will in turn own 35% of CNCE and be its strategic
shareholder
• This new entity will be the third largest bank in France, with over €19 billion of
capital
Page 12
Corporate Structure and Capitalization- cont’d
CIFG Holding
CIFG Services
CDC IXIS Financial Guaranty French Reinsurance CompanyInvested capital $500 million
CIFG EuropeMonoline incorporated in France
Invested capital €32 million
CAPITAL SUPPORT
REINSURANCE
CAPITAL SUPPORT
The structure of CIFG
CIFG NAMonoline incorporated in the U.S.
Invested capital $100 million
REINSURANCE
Page 13
Corporate Structure and Capitalization (cont’d)
Minnie LauAnalyst
Professional Team – Business Units
Rita DugganManaging Director
Harold Cornwall
Associate
Richard Zogheb
Director
Violet DiamantDirector
Joe Keepers
Director
Zhengyuan Lu
Director
Victor MahoneyManaging Director
Rémi CharrierDirector
Pascale VialaDirector
Bill HoganDirector
Michael BartschVice President
Michael UhouseDirector
Olivier de DuveDirector
European Infrastructure and Public Finance
Charles GundyEuropean Structured
Finance
Patrick DaguetDirector
Alan DouglasDirector
Tom CollimoreInvestor
Development
Pat McCormick
Director
Leigh SchafferAss’t. Vice President
Steven KleinGlobal Single Risk
and Marketing
Jonathan Sloan
Associate
Michel RouziouxManaging Director
European Operationsand Reinsurance
Jacques RolfoCEO
Jeremy ReifsnyderGlobal Structured
Finance
Walid Ben KhecibAnalyst
US Structured FinanceUS Public Finance
Page 14
Professional Team – Corporate Functions
Michael Freed
General Counsel,CIFG Holding Marc de Bréchard
Financial Engineering and Systems
Chuck WebsterChief Risk Officer
Jim O’KeefeCFO
DirectorSystems
Patrick AhteckVice President
Julien BramelVice President
Paul KwiatkowskiSurveillance
Joseph SpivackDirector
John GarrityController - US
Stan CotekPlanning/Analysis
François ColinetController - Europe
Kathleen CullyGeneral Counsel,
CIFG NA
Lisa HellerVice President
Feng LiVice PresidentHélène Lepeu
Senior Accountant
Jayce FoxDirector
Jacques RolfoCEO
Edward NapoliAss’t General Counsel
Tom StruppeckHead of Actuarial
Studies
Page 15
Corporate Strategy: US Public Finance
Public Finance has targeted traditional, capacity-constrained, and other opportunities
• Initial activity was in the secondary market to take advantage of
pricing and competitive dynamics and in the New York primary
market where CIFG NA was first licensed .
• CIFG has shifted focus to new issue (negotiated and competitive)
markets across the country as licenses are approved in each state
Page 16
Representative Transactions: US Public Finance
Typical examples of CIFG transactions•Primary market insurance for
-New York City GO ($45 million Series 2002E and $50 million Series 2003B)-NYS Dormitory Authority (State University) ($50 million Series 2002)-NYS ESDC $100 million of Auction Rate Securities for refunding (Series 2002B)-NYS Dormitory Authority (City University) ($50 million Series 2003)-Long Island Power Authority (LIPA) ($100 million Series 2003)-NYS Dormitory Authority (NYSDA Pool) ($27 million Series 2003)
•Active Secondary insurance for New York and non-New York names-Over $360 million of bonds insured in over 90 trades
•Representative secondary market names include-New York City, Port Authority of NY and NJ-Puerto Rico GO and related credits-California GO, appropriation credits and DWR-Province of Quebec/Hydro Quebec
Page 17
Portfolio Distribution: US Public Finance
Toll Roads10%
City/county GO's10%
State tax backed5%
State GO & Appropriations
32%
Education4%
Local tax backed3%
Utility Systems15%
Public Power14%
Higher Ed2%
Airports5%
CIFG US Public Finance
September 30, 2003
$2,456 million
Page 18
Corporate Strategy: US Structured Finance
Focus has been on low risk (AAA or higher attachment points) transactions with sizable premiums
• The Collateralized Debt Obligation (CDO) market and insured Enhanced
Equipment Trust Certificates (EETCs) have provided numerous such opportunities
due to investor and guarantor capacity constraints
• Continued portfolio diversification
» Commercial Mortgage Backed Securities (CMBS)
» Residential Mortgage Backed Securities (RMBS)
» Credit card transactions
» Auto loan transactions
» Future flow transactions
Page 19
Investors/Counterparties: US Structured Finance
Investors and counterparties have included:
Bank of America Bear Stearns
BNP Paribas Citigroup
CSFB Deutsche Bank
Goldman Sachs HSBC
JP Morgan Chase Lehman Brothers
Merrill Lynch Morgan Stanley
Royal Bank of Scotland UBS
Page 20
Representative Transactions: US Structured Finance
Examples of US structured finance transactions closed in 2003 include:- CDOs
» Investment grade CDOs » Multi-sector (ABS) CDOs
- Consumer Assets» Auto loans » Home equity lines of credit (HELOCs)» Rental cars» Sub prime Residential Mortgage Backed Securities (RMBS)
- Insured Aircraft Transactions» Insured EETC for major European airline » Insured aircraft lease portfolio
Page 21
Portfolio Distribution: US Structured Finance
US Structured Finance
September 30, 2003
$ 3,348 million
CDO Investment
Grade31%
Other4%
Insured EETC23%
CDO Asset Backed
42%
Page 22
Corporate Strategy: Europe
There are two sub sectors for the European business
• Infrastructure/Public Finance- Direct government issues
- Infrastructure financing
- Private Finance Initiative (PFI)
• Structured Finance- Collateralized Debt Obligations (CDOs)
- Asset-backed Securities (ABS)
- Residential Mortgage-Backed Securities (RMBS)
- Commercial Mortgage-Backed Securities (CMBS)
Page 23
Representative Transactions: Europe
CIFG Europe’s closed transactions include:- Public Finance
» City of Marseilles
- Infrastructure Finance
» Anglian Water
» Rome Airport
» Prado Tunnel, Marseilles
- Structured Finance
» Leveraged loan CLOs
» Multi-sector (ABS) CDOs
» Italian consumer finance securitization
Page 24
Portfolio Distribution: Europe
CIFG Europe Portfolio
September 30, 2003
$2,195 million
Infrastructure27%
Public Finance2%
CDOs64%
Other 7%
Page 25
Underwriting and Oversight
Risk management is autonomous, centralized and conservative
• Risk Management reports directly to CEO
• Centralized decision-making ensures consistent application of underwriting standards
• All transactions are underwritten to no-loss standard
• No Watch List items or downgrades to date
Page 26
Reinsurance
Reinsurance helps CIFG adjust the portfolio
• Facultative strategy
• Reinsurance functions as a risk management tool
• Reinsurers have been rated at least Double-A
Page 27
Rating Agency Perspectives
How the rating agencies determine that CIFG is Triple-A
• Moody’s Investor Services Aaa- In addition to its qualitative review of management expertise, risk
management, ownership and business plan, Moody’s utilizes a model that “estimates the entire potential loss distribution associated with the guarantor’s insured exposure”. The model assesses risk by credit quality, maturity, distribution across sectors and, importantly, risk concentrations
• Standard & Poor’s AAA- Along with its qualitative review, S&P employs a quantitative stress test
that subjects the company’s capital base to an unprecedented depression scenario and assesses the adequacy of that capital to pay assumed claims and continue its business
• Fitch Ratings AAA- Considers capitalization, ownership, business plan, management and
anticipated portfolio risk profile
Page 28
Liquidity
CIFG keeps a short duration, top-quality investment portfolio
• CIFG’s liquidity requirements are met by maintaining a short
duration investment portfolio
• The investment portfolio will be adjusted to reflect expected
liabilities as the insured portfolio grows and evolves
Page 29
Investment Portfolio Composition
June 30, 2003
S&P Rating: AAA/A-1
Average Duration: less than one year
US Treasury Notes20%
Municipal Bonds1%
Money Market67%
T Bills10%
Commercial Paper
2%
Page 30
Consolidated Balance Sheet: CIFG
Condensed Consolidated Balance SheetCondensed Consolidated Balance Sheet
French GAAP-unauditedFrench GAAP-unaudited
€ ‘000 December 31, 2002 (1)
Investments € 372,009 € 278,148Deferred acquisition costs 14,301 8,007
Intangible assets and goodwill 7,235 ---
Other 8,202 10,112
Assets Assets
Total assets € 401,747 € 296,267
Liabilities Liabilities
Deferred premium reserves € 33,347 € 15,169Losses and LAE reserves 548 131Other 10,841 14,819
Total liabilities 44,736 30,119
Shareholder’s equity 357,011 (2) 266,148
Total liabilities and shareholder’s equity € 401,747 € 296,267
(1) Derived from audited financial statements. (2) In October CIFG issued additional equity capital of €100 million
June 30,2003
Page 31
CIFG in conclusion
CIFG is an important addition to the financial guaranty industry
- Triple-A by Moody’s, Standard & Poor’s and Fitch
- Rigorous risk management culture
- Low-risk insured portfolio
- Experienced staff in all markets
- Strong, committed parent with long, distinguished history in
financial services
Page 32
Business Contacts
• Chief Executive Officer - Jacques Rolfo +1 212 909 3936 [email protected]
• Global Single Risk & Marketing- Steven Klein +1 212 909 3927 [email protected]
• Global Structured Finance- Jeremy Reifsnyder +1 212 909 3946 [email protected]
• European Infrastructure and Public Finance
- Alan Douglas + 44 207 648 6955 [email protected]• European Structured Finance
- Charles Gundy + 44 207 648 6954 [email protected]• Reinsurance
- Michel Rouzioux + 331 40 49 58 05 [email protected]• Investor Development
- Tom Collimore + 1 212 909 3952 [email protected]
Page 33
Websites
• Rating agency reports, financial statements and other materials are available at:
- www.cifg.com
• Information of other members of the group of companies is
available at: - www.caissedesdepots.fr Click on HTML Version/ News/
Group
- www.groupe.caisse-epargne.fr Click on Notre Groupe/ Site Institutionnel/ British Flag/ Press Room
- www.cdcixis.com click on English version/Media/Press Releases
Page 34
Appendix
Alabama Alaska Arkansas Colorado
Delaware District of Columbia Florida Georgia
Idaho Illinois Indiana Iowa
Kentucky Louisiana Michigan Montana
New Jersey New York North Dakota Oklahoma
Oregon Pennsylvania South Carolina South Dakota
Texas Utah Virginia Washington
West Virginia Wyoming
US Licenses (as of 11/19/2003)