Bermuda-based financial guarantor Ram Holdings Ltd. yesterday announced it had agreed to pay $156.5 million to walk away from its reinsurance of $10.6 billion worth of assets insured by MBIA.

The commutation agreement covers some asset sectors that have become frequently described as "toxic" including complex structured investment vehicles, backed by pools of mortgages and other assets.

As a result of the deal, Ram has reduced its exposure to asset-backed securities collateralised debt obligations by 64 percent and its 2005-2008 vintage US residential mortgage-backed securities (RMBS) by more than 27 percent.

"This commutation represents another milestone in Ram's efforts to restructure its insured portfolio," Ram chief executive officer Vernon Endo said. The $156.5 million that Ram has agreed to pay to US bond insurance giant MBIA includes return of $51.5 million of unearned premium reserves and $61.3 million of estimated loss reserves and impairments, Ram said yesterday.

The $10.6 billion commuted portfolio includes $6.8 billion par of structured finance transactions and $3.8 billion of public finance transactions.

Ram posted a $40 million third-quarter loss, largely on the back of deteriorating values of RMBS. Yesterday the company said it believed it will be able to meet expected claims payments and operating expenses for the foreseeable future, barring further unexpected deterioration in the insured portfolio.

It added that the company's reinsurance subsidiary Ram Re still has access to $50 million from its Blue Water Trust committed preferred securities facility, should Ram require additional liquidity.