Financial guaranty insurance is a form of credit enhancement that unconditionally and irrevocably guarantees payment, when due, of the principal of and interest on third party payment obligations. Financial guaranty insurance is principally offered as a credit enhancement to municipal bonds, to corporate credits and to asset-backed securities. Insurance can be provided on all or a portion of an issue of securities at the time of original issuance or to holders of all or a portion of an issue of uninsured obligations at any time following issuance. Financial guaranty insurers seek to minimize the risk inherent in the liabilities they guarantee by maintaining diverse portfolios, thereby spreading risk with respect to a number of criteria, including issue size, type of bond, type of collateral and geographic area. Various techniques such as reinsurance and single risk limits are also employed to maintain diversity of insured portfolios.

The Association of Financial Guaranty Insurors estimates that in 2002, U.S. municipal issuers saved approximately $2.8 billion in borrowing costs because of lower interest rates resulting from the use of bond insurance.

One of the most important benefits to investors in insured financial obligations is that the risk of loss associated with an issuer\\\\\\\'s default is significantly mitigated. An additional benefit is the price stability that the guaranty or insurance creates in volatile or distressed situations.

The Company originates, structures and manages collateralized debt obligations, which are comprised of portfolios of investment grade corporate credits or asset-backed securities. The Company’s various subsidiaries receive fees for providing warehousing, structuring, placement and asset management services. In addition, through its insurance subsidiary, the Company uses credit enhancement to participate in the first loss layer, or equity tranche, of each CDO for which the Company receives risk-based premium revenue. This integrated approach to the structured finance market increases the Company’s economic return by generating fee-based revenue to complement the Company’s risk-based revenue. The Company’s proprietary CDO business is a natural extension of the Company’s financial guaranty insurance business, using the same expertise in credit analysis and quantitative risk assessment to assume exposure to credit risk. In the Company’s proprietary CDO business, the Company’s exposure is limited to the amount of the first loss layer, or equity tranche. The Company’s ability to actively manage the underlying portfolio helps to mitigate losses as they develop.

In addition, the Company provides customized solutions in the form of insurance products and structured credit derivatives. The Company’s customized solutions business leverages the Company’s expertise in credit analysis and quantitative risk assessment. The majority of the Company’s customized insurance products are structured to limit the Company’s maximum policy exposure while addressing the regulatory, accounting or capital requirements of financial institutions. Customized solutions that the Company currently provides primarily include the credit enhancement of super-senior tranches of CDOs in the structured finance market, certain capital relief products and structured participation in the insurance markets.

Net premiums written for the nine months ended September 30, 2003 were $36.3 million compared with $22.1 million for the nine months ended September 30, 2002, an increase of $14.2 million.

Premiums earned for the nine months ended September 30, 2003 were $16.0 million compared with $9.7 million for the nine months ended September 30, 2002, an increase of $6.3 million.

Net realized gains for the nine months ended September 30, 2003 were $3.6 million compared with $3.1 million for the nine months ended September 30, 2002, an increase of $0.5 million