Ambac Financial Group Inc (AMBC) 2006 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Ambac Financial Group, Inc. fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Sean Leonard, Chief Financial Officer of Ambac Financial Group, Inc. Thank you. Mr. Leonard, you may begin.

Thank you and welcome to Ambac's fourth quarter conference call. I'm Sean Leonard, Chief Financial Officer at Ambac. With me today are Robert Eisman, Controller, and Peter Polian, Investor Relations.

This call is also being broadcast on the Web. Our earnings press release, quarterly operating supplement and a short slide presentation that summarizes the quarter's results are on our website.

First quarter 2007 earnings will be released on April 25, 2007 at 6 AM with a conference call at 11 AM. During this conference call, we may make statements that would be regarded as forward-looking statements. These statements are based on management's current expectations. I refer you to our press release for factors that could change actual results.

Now let's turn to highlights for the fourth quarter. Net income was $202.7 million or $1.88 per diluted share. That's down 1% on a per diluted share basis from the fourth quarter of 2005. While Ambac reports net income in accordance with generally accepted accounting principles or GAAP, research analysts make certain adjustments to net income to calculate their reported estimates. Therefore, to enhance investors' understanding of our financial results, we continue to provide information on the items that analysts adjust out of GAAP net income to arrive at their current estimates. Those items are net after-tax gains and losses from investment securities and marked-to-market gains and losses on credit, total return, and nontrading derivative contracts.

In the fourth quarter of 2006, net after-tax gains amounted to $3.6 million or $0.04 per diluted share. This compares to net gains of $13.2 million or $0.12 per diluted share impacting the fourth quarter of 2005. In the caption Other Items, we include the fourth quarter 2006 write-off of previously deferred expenses related to the issuance of debentures that were redeemed last October. The charge amounted to $3.9 million after-tax or $0.04 per share. There were no similar items in the comparable prior period.

So while net income per diluted share was down 1% for the quarter, earnings after the adjustments just mentioned, or operating earnings, were up 6% on a per diluted share basis. Some analysts also back out the after-tax effect of accelerated premiums earned on obligations that had been refunded and other accelerated premiums. Total after-tax accelerated premiums amounted to 18.1 million or $0.17 per diluted share in the fourth quarter of 2006, which compares to $20.3 million or $0.19 per diluted share in the fourth quarter of '05. On this basis, earnings were up 8%.

Turning to credit enhancement production, or CEP -- CEP, which represents gross upfront premiums plus the present value of estimated installment premiums on insurance policies and structured credit derivatives issued or assumed in the period came in at $314.5 million, down 21% from $395.8 million in the comparable prior period.

Now let me take you through some of the details of our production by segment. Public finance CEP was $84.0 million, down 45% from the fourth quarter of 2005. Overall market issuance was up about 24% relative to the comparable prior quarter, a strong quarterly showing for the municipal market with overall issuance for the year down only about 6% from the record level of 2005.

Total market penetration, which is the percentage of bonds issued during the period with financial guarantee insurance, was approximately 46%, down from about 50% in the fourth quarter of 2005. Our business production did not benefit from the high level of issuance in the quarter in comparison to last year's quarter, as the mix of issuance and very competitive pricing within this segment combined to suppress our production. Also note that the fourth quarter 2005 production included three very large transactions and a significant amount of health-care business which was not replicated in the fourth quarter of 2006.

Structured finance CEP was $97.1 million, down 32% from the fourth quarter of 2005. The quarter was highlighted by one commercial asset-backed transaction of significant size and a wide variety of transactions across the diverse span of asset classes and sectors. The comparable prior quarter's production includes two very large transactions that represented almost 40% of the total production for that quarter.

International CEP in the fourth quarter came in at $133.4 million, up 35% from fourth quarter 2005. This quarter's international production was impacted by a large structured finance transaction and strong writings in the investor-owned utility sector. We are pleased with the strong demand for our product globally as we close deals in several countries including a future flow transaction in Turkey and our first Mexican mortgage-backed security deal. Ambac remains very optimistic about our long-term opportunities in the international markets.

Turning to premiums earned -- debt premiums and other credit enhancement fees earned excluding refundings increased [$100 million to] $191.3 million, up 5% from the fourth quarter of 2005. Public finance earned premium excluding accelerations grew 2%. Public finance earnings have been impacted by very competitive pricing in the segment, the mix of business written, and the high level of refundings in the book over the past two years. Structured finance earned premiums grew 7%.

Excellent recent production in asset classes such as commercial, ABS, auto securitizations and CTOs has offset the negative growth trends caused by lower MDS writings and high prepayment activity in this segment. International [on] premiums grew 5% as strong production in recent quarters has overcome the negative impact of recent runoff and early terminations in the international book.

Our deferred earnings representing future earnings on premiums already collected in the future value of installment stands at $6.1 billion. These deferred earnings will be recognized as earned premium and other credit enhancement fees in the future over the life of the related exposures.

Now onto investment income. Investment income was $110.5 million, up 14% primarily due to growth in the portfolio driven by strong operating cash flow and the $200 million capital contribution from the parent that was received in late December of 2005. Yields improved only slightly quarter-on-quarter. As a result of new interpretive guidance recently issued by the Financial Accounting Standards Board, Ambac no longer consolidates three Variable Interest Entities that had resulted from issuing certain financial guarantee policies to these entities in previous years. As such, all impacted accounts, primarily investment income and interest expense, have been adjusted accordingly.

Now on to losses and loss adjustment expense. Loss provisioning amounted to $9.6 million in the quarter compared to $15.6 million in the fourth quarter of 2005. Now let me provide you some details in the loss activity. Total net loss reserves at December 31, 2006 amounted to $215.1 million, down from $274.3 million at September 30, 2006. Total loss reserves include case basis reserves and Active Credit Reserves or ACR. Case reserves of 42.5 million at December 31 are down 84.2 million for September 30, primarily due to the resolution of health-care transactions during the quarter.

In the quarter, the hospital was sold, the bonds were redeemed, and Ambac paid bondholders a shortfall as promised via our guarantee. Case reserves were reduced by the amount of the payment and excess reserves on this transactions were released. Total claim payments made during the quarter amounted to $68.8 million. ACR of $172.6 million at December 31 are up $25 million from September 30, driven primarily by additional reserves set up for certain public finance transactions, most notably within the transportation sector.

Our Hurricane Katrina reserve estimate currently stands at $50.1 million, down slightly from $50.5 million at September 30. We made no Katrina-related payments during 2006.

Our latest communication with the Financial Accounting Standards Board regarding their financial guarantee project indicates an exposure draft is expected in February of this year. Until the FASB releases a final standard, expected sometime later this year, it would be premature to estimate the impact on Ambac's financial position and results of operations. Our financial filings with the SEC discussed the FASB's project and the potential for future changes to loss reserving, premium revenue recognition, and expense accounting.

Turning to operating expenses -- gross financial guarantee underwriting and operating expenses for the fourth quarter of 2006 amounted to $47.2 million. That's up 24% from $38.1 million in the fourth quarter 2005. The increase is primarily due to increased stock compensation expenses including the impacts from 2007, stock compensation accrual for retirement eligible employees, and cash bonus accrual adjustments in 2006.

Also note that during the fourth quarter, Ambac performed an [internal] study of expense deferrals. As a result, the fourth quarter deferral percentage was adjusted downwards from 54% to 48% resulting in an increase in net financial guarantee underwriting and operating expenses of approximately $2 million in the fourth quarter relative to prior quarters. Ambac will use the new deferral rate going forward until a new time study is performed.

Our Financial Services segment is comprised of the investment agreement business and derivative products business. Financial Services net revenues [excluding] realized and unrealized gains and losses were $12.7 million. That's up 11% from the comparable prior period, primarily due to higher marked-to-market gains included within derivative products revenues during the current quarter.

Our return on equity was 13.3% for the quarter; on an operating basis, return on equity was 13.7%. During the fourth quarter, we bought back about 700,000 shares for a total of approximately $59 million.

Ambac will continue to optimize our capital structure and maintain a level of capital that is consistent with the AAA rated company while seeking to maximize shareholder value. So in summary, Ambac finished up the year in sound fashion. Our financial results in business production were solid notwithstanding very difficult market conditions across the spectrum of business segments. As credit spreads widen, Ambac with its strong franchise and superior balance sheet is well positioned to take advantage of opportunities in any and all of the markets in which we serve.

Now, that concludes my prepared remarks. I would now like to open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS). Ken Zerbe, Morgan Stanley.

Yesterday, we heard that the outlook for municipal deals was improving, specifically that certain companies were seeing more of the complex higher return yields coming to market, but your press releases seems to indicate the exact opposite of that. Can you address the difference there?

Yes. In the fourth quarter, the difference is, at least from Ambac's perspective, with what we saw the fourth quarter was a -- in comparison to fourth quarter 2005, was a slowdown in both the health-care and the military housing sectors, some of the housing sectors. Typically in the housing sector, that's characterized by larger transactions with longer leadtimes. So those particular transactions can be lumpy from time to time and, perhaps, that's what you may have heard yesterday.

From Ambac's perspective in the fourth quarter, we did not have such success in closing transactions in the fourth quarter of 2006. Also, what happened in fourth quarter 2005, as I mentioned, we had a couple of large transactions that drove up some of the numbers in fourth quarter '05. Largely, when you look at the insured penetration and the level of issuance year to year, it's kind of consistent when you look at overall the decline and insurable paper went down about 21%. I think we were down 26%, so I would say what would cause jumps in those numbers would be to close higher premium type transactions that would generate CEP and largely the health-care and the real states, particularly military housing. The other thing that could happen also in 2007 would be certain project finance deals domestically that there seems to be a reasonable pipeline, if you will, of projects that are being considered out in the marketplace.

So you would say on average that maybe we are seeing some modest improvement in the outlook there in municipal side?

Yes, I think the -- on the project side, I think there has been, my understanding is there's a number of projects being considered there. I know we still see a good level of activity in the housing side, particularly in the military housing, so I would say that even though Ambac didn't close transactions in that area in the fourth quarter, we are seeing some pretty good activity there.

And then the second question I had was has anything changed with respect to the international growth outlook? Because we've seen some -- I think you posted some good numbers, but is the growth sustainable and why would you think so?

Yes, I think international is still characterized as we've talked before in this quarter we've seen it again as we closed four large transactions which represented over 70% of the CEP, so it's still characterized by large transactions and they -- indicated by certain cases, longer leadtimes, so you will see a lumpiness. I will say though that we have had some success in closing deals to date starting off the year, so we are still very optimistic on that sector and being able to expand our franchise globally. So I would say that's still an area that is an area that we're targeting very intently.

I guess on the margin, is it sort of the same lumpy growth or is there something that's -- or is it improving a little bit?

I would say it's the -- would be characterized by the same lumpy growth as I indicated, the performance in the fourth quarter; we're fortunate to have closed the transactions, but it still kind of indicates the lumpiness of the level of CEP compared to the number of transactions.

Geoffrey Dunn, Keefe, Bruyette & Woods.

I guess in the first quarter of '06, you saw an acceleration of options vesting with regard to people over 55 and retiring. Is that something that's periodic quarter to quarter or should we expect another surge in the first quarter of '07?

No, what we did there was -- and you're right, there was, when the options were granted, the accounting practice in the past went through upon the grant was, especially for those folks over 55, was ineligible upon retirement for full vesting, was to expense them at the time of grant rather than over a period of time for folks that were not so eligible.

Upon the issuance of a new accounting standard, this FAS 123R, we were able to elect at that particular time, to start accruing for our anticipated grant in January of this year, but we accrued in 2006 for that grant, and we have adjusted our accruals appropriately to the end of the year to reflect our view of where those numbers are coming out, so you will not have that big lump coming through in the first quarter of 2007.

And then with respect to FASB, specifically what they're looking at on the premium recognition front, I think there's some voices in the market trying to make that a negative, but at the end of the day, whatever changes may or may not happen, is it just optics or is there a potential economic impact on your business?

No, it's a method of allocating revenues in particular accounting periods, so one could argue that obviously when we receive cash up front on a public finance transaction, it's just simply how to allocate those deferred earnings to future periods over the life of the particular bond that we're guaranteeing. So that is just an earnings allocation methodology. That's the same thing on the installment side, so fundamentally from an adjusted book value measure, if one were to look at that, it would just simply be reallocation between book and the adjustments to get to adjusted book value.

If some sort of change was to happen that makes the recognition more pushed out, do you think financing energy companies in general would be able to provide adjustments so that people could look at it on a traditional basis or what are you thinking if you have to deal with that?

We haven't gotten to that point. We would certainly welcome thoughts from the users of our financial statements, certainly the folks on this call we would welcome ideas there, but we could provide what we would think would be appropriate to help in analyzing our operations for a particular period of time; so if that includes another page in our supplement to address some things that need to be addressed to help understand our results, we would certainly be welcome to that type of approach.

From the standpoint of the overall industry and my role as the Financial Affairs Chairman for the industry group, we can certainly work to harmonize, if you will, if there's anything that's needed amongst and across the industry. So we would certainly welcome comments on that regard. It might be a bit premature to think about that until we see the final wording of the standard and have the appropriate due process periods to make comments and meet with the FASB. I think [we'd] probably have an opportunity to speak with them through what they call a roundtable process, which is actually go up there and discuss these issues in front of them. So we would certainly welcome any comments there, but probably a bit premature at this time.

Tamara Kravec, Banc of America Securities.

If you could update us on your excess capital position and where you stand with that?

Sure. During the quarter, as we mentioned, we did have some buyback activity approximately 59,700,000 shares. Largely that was in result to -- we did pick up some gains, continued gains, on some investments and national century bonds. We did have some favorable development related to case reserves, decided to use some of that money and additional monies that we had at the parent company to buy back the stock that we had bought back.

Overall, though, I would say at this particular time, Ambac feels pretty comfortable with its capital position considering the different constituents that are involved with our particular institution, including equity holders and fixed-income holders and rating agencies. So at this particular time, we feel that the cushion that we would have above minimum thresholds is an appropriate one.

And on the refundings, they seem to pick up again this quarter and I know it's difficult to really forecast this or look at it with any real grain of certainty, but I guess we should expect the pace to continue to decline in '07, but do you have a -- was there any unusual in this quarter or any sense of the lumpiness here?

I wouldn't say anything terribly unusual. We did have our -- from third party sources, our refundings didn't go down quite as much as reported sources, so as a component, the public finance is still the largest component of the refunding line, but we did have one particular transaction of roughly around $2.5 million, a transaction that was paid off in full and there was an additional premium related to that of approximately $2.5 million. So other than that, there were not any large or unusual refundings during the quarter.

Darin Arita, Deutsche Bank.

Sean, can you talk about how you are thinking about Ambac's capital structure in 2007, given that the debt to capital ratio is quite conservative here and excess capital has increased?

Yes, we continue to look at and actively think about ways to optimize our balance sheet, particularly with some views taken recently and some market transactions of some of our competitors in the market relating to certain types of securities issued out in the market to optimize balance sheet structure between debt, hybrid type securities and equities. So, Ambac certainly keeps looking at those. Underlying that is a very favorable market, tight credit spreads that are hurting us on the business would help in the debt capital markets of issuing securities, so those types of things are certainly things that we are looking at to potentially do in 2007.

I guess if you are thinking about issuing those securities, is that because you are trying to raise more capital to put to use or is it for something else?

I think in those particular transactions, at this particular point in time, would be more of a balance sheet optimization than it would be for capital raising purposes.

Can you talk about what is happening in financial services and whether we should see earnings growing there?

Yes, we continue to view that business as a supplemental business. We do value the products that are issued out of there, we do not have large growth plans there. Our view on the investment agreement business, particularly in the interest rate swap business, is to be complementary. In the investment agreement business we're looking at -- largely the strategy there is to issue GIKs to our customer base and structured transactions typically taking variable-rate liabilities, typically with limited ability to draw funds and investing on a variable-rate basis on the asset side really as a spread business, as a stable spread business. We will continue to look at opportunities and actively pursue those in that business under the auspices of the fact that it's a supplementary business to the core business. So we would expect some growth there, but I would not characterize that as a growth segment.

Mike Grasher, Piper Jaffray.

Just thinking about all of the discussion going on there in the marketplace with regard to the mortgage market, any change over the last several months or even the quarter in terms of the opportunity or the spreads in the MBS marketplace?

No, we still think those -- that market is a particularly difficult market. There are opportunities, however, that arise that we're able to transact some business, but largely, I haven't seen large improvements there in sequential orders, even throughout the year for that matter, in that sector as opening up.

So your pipeline then is pretty much unchanged, you would say or characterize it?

I think that's probably a fair characterization. We do see opportunities, but as a fundamental, the marketplace is still a difficult marketplace to operate within.

I noticed a modest change in the below investment grade for this classification. Can you share with us any more background in terms of what may be happening there?

Nothing fundamental there. Largely what we've seen in the below investment grade credits relating to this particular sector is an underlying sub-prime asset class, if you will, and those particular vintages are seasoned vintages, so we're seeing some of that. We're not seeing anything from recent vintages. We have a fairly robust process to screen those types of issues and we really have not seen any particular growth there. We did have one item that was reclassified into that particular area, so nothing that I would characterize as being new for the quarter.

One final question. You mentioned the exposure on Katrina. What is exactly remaining there? Is that some hospital exposure or health-care exposures?

No. No hospital or health-care exposure. No utility exposure. It's largely public finance exposures and largely general obligation type bonds that are issued out of that area.

Heather Hunt, Citigroup.

I just wanted to go back quickly on the excess capital position. You said that you're pretty comfortable with your capital, and you're pushing it above the minimum threshold at an appropriate level. Does that mean that you are still inclined to continue share repurchase or not?

We obviously look at this as an ongoing process, so we'll be making those decisions throughout the year and continue to make them as we see what our opportunities are, the status of our credit portfolios, and other opportunities that we have to employ our capital. When we see, and as we generate the capital and our views are such that we view to have excess amount, and again, our excess views are not to the bare bone minimum of the rating agencies to include some cushion, obviously, for -- to protect our franchise and not have situations that would be difficult for us, so we like to keep a nice healthy cushion above minimum levels. When we do see true excess however, we will -- and I think we've proven over time that we'll go out and purchase the stock.

I guess my sense was last quarter you had ramped up your -- sort of the authorization so that you could continue to buy back stock and I guess at the time that was just to sort of replenish the supply since you'd used some of it -- replenish the authorization since you'd used some of it, but I think the market kind of took it as a little bit more of a bias toward it, but it sounds like it's more opportunistic depending on what's going on in the market and what your underwriting opportunities are.

Yes, I would characterize it that way. We wanted to be prepared to be in a situation. That's why we had -- and we mentioned in last quarter's conference call the reasons for doing that was more to be in a situation and prepared for opportunities as they arose to act upon share repurchases.

Sort of as a segueway to market opportunities, the first half of 2006, you had a very strong year. Can you kind of characterize what your pipeline is going into 2007 relative to where you were going into the first half of 2006? Do you feel more confident or do you feel like it's --?

Yes, we can -- just from a general level, and I think there are certain areas that we're seeing more activity than others. It's kind of difficult to kind of forecast what's going to happen going into the year, but I think we do see quite a bit of robust activity in certain areas. I mentioned a couple previously -- military housing, we're seeing some pretty good activity there. International, we're still very hopeful there. We've had a couple of good weeks of closing some transactions there. So I would characterize it as being I would say consistent with where we were last year.

That's pretty good though, considering [there was] such a strong first half. And then just kind of one quick follow, with respect to credit spreads, obviously they've been very tight, very difficult to really underwrite. Is there kind of a trigger at which you suddenly [deals] that you've not been writing that you've been kind of passing on suddenly become a lot more attractive and just can you take sort of a general market outlook and when you think that might happen? I mean, some of the rating agencies have been saying they look for spread widening in the second half of the year. You have a position on that?

No, we don't have an official position. That's a difficult one to try to predict what may happen with broad credit spreads. I will say, however, though, obviously we continue to be involved with those markets that when spreads do turn, such as mortgage (indiscernible) is the most obvious example; public finance and certain aspects would obviously be immediate. Those kind of transactions that are characterized by volume transactions, perhaps large part transactions, would be very beneficial. So we constantly, we are heavily involved in those markets, but can't really predict for you when that's going to turn. I wish I could.

Four million dollar question.

I wish I could.

(OPERATOR INSTRUCTIONS). Gary Ransom, Fox-Pitt Kelton, Inc.

Most of my questions have been answered, but I just wanted to ask one more on the trend and credit. A lot of the banks that have been reporting in the fourth quarter have seen worsening credit, and I realize this is well below where you might be dealing with, but does that send you any signals? Do you read anything into that?

Well, it's something that -- obviously we follow those types of reports, and look closely to see how those reports might impact our portfolio. What I will say is the level, at least the reports I've seen, have been largely in the sub-prime class. Our writings in that particular element of the mortgage-backed market have declined over the recent years, so that's been relatively helpful. But nonetheless, we do look at those reports and specifically, when we try to risk rank our portfolio from a surveillance perspective, we consider that and look for those types of trends, obviously trying to identify those early, feed that back to the underwriting process if necessary, but those are things that we specifically look for in the surveillance function.

Al Copersino, Madoff Investment Securities.

I have what might be a difficult question to answer, I guess, it does request you to make a comparison between your business production and MBI's. I'm wondering if you would be willing to give your opinion on which of a couple of different factors could have explained that difference. Is it simply a function of Ambac and MBI focusing on different sectors, different asset classes? Is it, alternatively, is it something more along the lines of perhaps some of the U.S. businesses becoming a bit lumpier in the way that the international business is? Perhaps you reject that. Maybe you don't think the U.S. business is overall becoming lumpier, but I'm curious if you would give your thoughts on those factors or others that come to mind.

Yes, I believe largely, both Ambac and MBIA are in the same sectors and asset classes. However, your second point regarding the businesses, as I mentioned, we have seen recently, certainly over the last couple of years, is that particularly large production quarters are driven by large transactions, so it's the closing of those transactions is key to the level of production.

Ambac, for instance, had five transactions over $10 million in CEP and that was about 37% of our total production. I don't know the exact numbers from our competitors, but I know it seemed that they had a good public finance, domestic public finance, quarter and perhaps there was some closing of those types of transactions in the quarter for them. So, I think there is, as transactions get large and seek to use the capital markets, the debt capital markets, there are opportunities for the larger firms and the industry at large to participate in those transactions, and we are seeing that internationally and domestically, both in public finance and structured finance. So, largely I would think it would be caused by a closing of those types of transactions.

Rob Ryan, Merrill Lynch.

Were the transportation deals mentioned as troubled and therefore requiring increases in reserves -- were those new troubled credits or adverse development on previously established reserves? And any color you could give us on what's going on there, remaining exposure compared to reserve levels or whatever?

Yes. Those would be characterized as additional activity for those that already have been on our classified list, and those that have already been on our below investment grade list, so characterizes as existing credits that we're establishing additional ACR for them. Primarily, the reason for that is continued surveillance of those particular credits and the underlying attributes of the revenues that are used to support those particular bonds. So as there's additional information that comes to bear, at least in this quarter, we took the view of it was prudent to establish additional adverse development in that sector.

Was that largely on the operational performance of the related entities or anything that rating agencies did?

No, we obviously -- a part of that, we would be cognizant of what the rating agencies are doing, but we are making our own view regarding the performance of these particular transactions, so it's largely the operating performance in our views regarding that and prospects for turnaround of those poor operating performance levels.

And on the remaining Katrina reserve, about $50 million, are there any future milestones that you're looking at for your comfort to perhaps bring that level down? Any events of, for example, obviously some of the federal aid that occurred around the mid-2006 time helped you in your assessment of where that reserve should be. Anything coming up in 2007 of relevance in terms of timeframe?

Not that I'm aware of at this point. Obviously those bonds that you mentioned, the Goldstone bonds were specific and were used specifically for debt service. I think if there's obviously something like that, that would be beneficial. If there's paydowns of individual for whatever reason, if there are large paydowns to the par balances that we think are more troubled, obviously that would create additional amounts, but nothing sitting at this point that we are aware of.

So outside of those types of things that you just mentioned, I guess just general economic improvement would be over time, of course, not at a specific date, but over time might be the thing that could bring that reserve down, but it would probably be fairly gradual?

I think that's a good characterization. I think we're going to be looking at obviously these are, in certain cases, longer-term bonds, so we're going to be looking at short intermediate and long-term views as to what happens and that obviously, as that service continues to be paid and the prospects and rebuilding activities if they're very successful would -- might have a quicker impact, but largely it will be -- it will track the performance over a period of time unless there is unique events.

Amit Kumar, FAF Advisers.

I've got a quick question on public finance. On the -- I guess your market share in that was about 24% and I'm guessing the MBA was also in a similar range. What about the rest, 50%? What kind of environment did you see and what were the ROEs on some of those transactions? If you can help me understand that, that would be great. Thanks.

I think you can deduce from our operating supplements, we do provide some statistics that you can compare the CEP against the gross par written for the particular quarter. You can compare companies on that particular basis. Due to the fact that the comparison against fourth quarter last year is largely unfavorable, due to the fact of the fourth quarter having won large deals, fourth quarter of '05, that is, having large transactions, some of which were in the health-care sector and also closing some structured transactions in the housing area. Those largely carry larger premiums to par and largely carry favorable return on equities. So I would characterize the quarter -- if you are looking at those types of measures, you are going to see the numbers go down. I will comment, there has been -- we still believe we're hitting what we feel is adequate returns on the business we write, but I will say that there has been tremendous competitive pressure amongst the monoline's TV writing business in the particular sector, so as a comparison, I think that the pricing environment has gotten tougher.

Would you comment if those ROEs were more like 10% or maybe high single digit types or would you not be willing to comment on that?

We typically have not commented on a specific transaction return on equities and I prefer not to comment on that at this time.

I'm showing no further questions in queue at this time.

I think we should -- thank you very much everyone for attending Ambac's fourth quarter conference call. If there are any additional questions, please call myself, Pete, and we'll be happy to help. Thank you.

This does conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.