Bermuda-based Ram Holdings Ltd. yesterday said its bond reinsurance unit Ram Re paid out $94.4 million to cut its exposure to mortgage-linked bonds.

The payment allowed the company to rid itself of exposure to a $3.5 billion portfolio with XL Financial Assurance Ltd. (XLFA), an operating unit of another Bermuda-based financial guarantor, Security Capital Assurance Ltd. (SCA).

Ram CEO Vernon Endo said: "The commutations represent a milestone in Ram's efforts to reduce risk, which we believe will significantly improve RAM's future prospects.

"As a result of the XLFA commutation, we have reshaped our insurance portfolio by reducing our overall exposure to 2005 to 2007 vintage ABS CDOs (asset-backed security collateralised debt obligations) and US RMBS (residential mortgage-backed securities) by more than 55 percent and 15 percent, respectively."

Ram said XLFA had reported the portfolio it offloaded experienced substantial further deterioration in the second quarter.

Last month, Standard & Poor's downgraded Ram Re to AA from AAA and put a negative outlook on the ratings.

The reasons given included Ram Re's weakened capital adequacy position because of projected losses relating to its RMBS and ABS CDO business.

SCA itself was rescued from the brink of insolvency by its founder XL Capital, which said this week it would pay $1.78 million in cash, plus eight million shares, to eliminate its own exposure to the bond insurer.