MBIA reinsures troubled competitor's portfolio

MBIA Insurance Corp. will reinsure a $184 billion portfolio of bonds previously backed by the troubled Financial Guaranty Insurance Co.
NOV 25, 2009
New York-based MBIA Insurance Corp. will reinsure a $184 billion portfolio of bonds previously backed by the troubled Financial Guaranty Insurance Co., the firm announced yesterday. The insurance subsidiary of Armonk, N.Y.-based MBIA Inc. will be covering a portfolio of public finance bonds consisting exclusively of investment grade credits in the general obligation, water and sewer, tax-backed and transportation sectors. There are no credit default swap contracts or below-investment-grade credits in the portfolio. MBIA will pay FGIC a commission. Net of that, MBIA will get $741 million in upfront premiums. The deal was arranged by Eric R. Dinallo, New York’s insurance superintendent, who said in a conference call that this could “dramatically” reduce Financial Guaranty Insurance’s potential of becoming insolvent, The New York Times reported. Mr. Dinallo also said that the move gave MBIA a way to increase its muni bond practice. The regulator brokered the deal between the two companies as part of a larger plan to nurse the muni bond insurance industry back to health.

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