FGIC plans new bond insurer

Financial Guaranty Insurance Co., the embattled bond insurer, wants to split itself into two companies, according to published reports. The company placed a request with the New York State Insurance Department to open a new bond insurance unit, according to MarketWatch. It would move its muni bond insurance operations into that new entity, and maintain its structured finance business — which insures riskier debt — within the current company. Worries that the downgraded FGIC, along with its fellow insurers, could have an even larger impact on the capital markets have encouraged regulators, such as New York insurance superintendent Eric Dinallo, to step up. Yesterday, Mr. Dinallo and New York governor Eliot Spitzer testified before Congress on the factors and implications behind the muni bond insurer crisis. “Every institution involved should be taking a hard look at what happened and instituting reforms,” said Mr. Spitzer in his testimony. “That includes the private sector firms that underestimated the risks they were taking, and the government regulators that took no action.” Meanwhile, Mr. Dinallo outlined his three-point plan to help the insurers, which included bringing in fresh capital to troubled insurers, working with all involved parties, and improving on regulations to keep the carriers from taking on inappropriate risk.