Ram Holdings Ltd. suffered a net loss of $40.4 million for the third quarter of 2008, mainly due to exposure to deteriorating residential mortgage-backed securities.

The bond reinsurer, which made a $14.7 million net loss during the same period last year, endured a loss and loss adjustment expenses of $50 million primarily as a result of drop in the performance of the mortgage investments, $5 million in realised losses on investments and an out of period accounting adjustment of $5.3 million.

Ram Re entered into a commutation agreement with Syncora Guaranty Re, transferring all business from Ram Re back to XLFA for $94.4 million, including the repayment of unearned premiums, net of ceding commissions of $8.6 million, $16.1 million for estimated loss reserves on residential mortgage-backed securities and $69.7 million for unrealised losses on collateralised debt obligations of asset-backed securities.

The impact of the XLFA commutation was to reduce gross written premiums by $11.4 million and loss and loss adjustment expenses by $15.5 million, increase net earned premiums by $1.1 million, net charge in fair value of credit derivatives by $26 million and acquisition expenses by $300,000, resulting in an overall gain of $42.3 million.

Ram CEO Vernon Endo said: "Our results continue to be negatively impacted by the ongoing deterioration in the US residential mortgage market. Net premiums written in the third quarter amounted to $2.7 million, 90 percent below the $26.2 million of net premiums written for the same period last year.

"We have increased total related reserves by $34.5 million during the quarter in response, before giving effect to the XLFA commutation.

"We remain cautious given the recent unprecedented economic developments and hopeful based on the US Government's strong response."

Net unrealised gains on credit derivatives totalled $66.3 million for this year's third quarter compared to $28.4 million in unrealised losses in the third quarter of 2007.