February 26, 2008
Millea Holdings, Inc.
Notice concerning FY2007 3Q results and the "U.S. subprime loan related exposure & the influence from the turbulence in the global financial markets"
Millea Holdings announced FY2007 3Q results on Feb.22nd and discloses the information of "U.S. subprime loan related exposure & the influence from the turbulence in the global financial markets" on our English website right after the completion of its translation, which was released in Japanese on Feb.22nd. The following supplemental information are to disclose in order to fill in the gap between the said disclosure in Japanese and this information in English.
1. Risk exposure related to U.S. SPL
The risk exposure to U.S. SPL related assets is defined as the amount assuming 100% loss on U.S. SPL assets, and the exposure for CDO with U.S. SPL related assets is defined as the amount in excess of credit enhancement of CDO assuming 100% loss on U.S. SPL assets.
2. Recognition of evaluation losses:
Impairment loss : a reduction in the current value by 30% or more from the book value, which was accounted on the profit and loss statement (P/L) of this third quarter results
Unrealized loss : a reduction in the current value which was smaller than the evaluation value and not booked on the P/L
3. Impairment losses on the entire investments in SIVs including Vetra
The impairment loss of Tokio Marine & Nichido related to the investment in Vetra (approximately 5.8 billion yen) is eliminated in the consolidation adjustments because both companies are consolidated subsidiaries of Millea Holdings. Meanwhile, the losses arising from Vetra's investments in ABSs which were recorded in Vetra's non-consolidated financial statements were reflected in the consolidated P/L (approximately 0.7 billion yen) and in the consolidated balance sheet (B/S) (approximately 4.2 billion yen).
4. Therefore, the total influence of investment in SIVs to the third quarter consolidated results is approximately 3.5 bn yen on consolidated P/L ( the total of approximately 0.7 bn yen for Vetra and approximately 2.8 bn yen for the others ) and approximately 4.2 bn yen on the consolidated B/S.
5. Underwriting of reinsurances for financial guarantee insurances
Financial Security Assurance ("FSA") is the only monoline insurer from which Tokio Marine & Nichido accepts financial guaranty reinsurances. No facultative reinsurance from other monoline insurers is underwritten and there is no risk retention on financial guaranty insurances primarily underwritten by Millea Group companies. Like other reinsurances, financial guaranty reinsurances cover losses incurred by primary insurer i.e. FSA in the event of default of the insured risks (such as U.S. municipal bonds) guaranteed by FSA. As such, downgrades of FSA will not trigger Tokio Marine & Nichido to pay claim payments under the reinsurances by its nature of the business.
6. Credit ratings of Monoline insurers and Stress test by S&P
FSA is the only company which is rated AAA with the outlook of "stable" from all of the major rating agencies. As shown in the analysis report "Updated Results of Bond Insurance Stress Test for Revised Assumption" released on January 17, 2008 by Standard & Poor's, the paramount reason why FSA can keep the best corporate rating is that both the current par outstandings of U.S. RMBS exposure and CDO net par insured with RMBS exposure which are of particular concern appear to be significantly smaller than those of other monoline insurers. This explains, at the same time, high credibility of the portfolio of reinsurances ceded to Tokio Marine & Nichido.