The office of New York insurance superintendent James Wrynn has ordered embattled bond insurer Financial Guaranty Insurance Co. to halt claims payments.
Mr. Wrynn’s office has found that the bond insurer’s asset levels fall short of the aggregate amount of its liabilities, according to regulatory documents and the FGIC’s announcements.
In its third-quarter report, filed with the New York Insurance Department, the FGIC reported an $865.8 million deficit in its surplus to policyholders and a $932.2 million impairment of its required minimum surplus to policyholders, according to regulatory documents posted on the FGIC’s website.
“It’s not that they’re unable to pay claims but that they reported themselves in an insolvent condition, which means liabilities exceed assets,” said Michael Moriarty, deputy superintendent at the department. “We’re watching other insurers closely, but the FGIC is the only one that’s in an insolvent state.”
The FGIC did not immediately return calls for comment.
On Monday, the FGIC proposed that it try to rid itself of some liabilities. One approach: canceling its guarantees on some securities, including collateralized debt obligations comprising asset-backed securities.
The FGIC also proposed the possibility of restructuring its exposure to other structured securities in an attempt to get back to the minimum-policyholder-surplus requirements.
Mr. Wrynn ordered the FGIC to submit a final plan for improvement by Jan. 5 or else he will seize the company for rehabilitation or liquidation. The FGIC has until March 25 to comply with minimum-surplus requirements, according to the department.
The problems at the FGIC, whose owners include The PMI Group Inc., a mortgage insurer, and The
Blackstone Group LP, a private-equity firm, date back to early 2008. That’s when the company, along with fellow bond insurers MBIA Inc. and Ambac Financial Group Inc. were downgraded due to their exposure to mortgage-linked securities. As the major insurers lost their golden AAA ratings, so did the bonds that they insured — setting off fears among investors and regulators that there would be a massive muni bond fire sale.
This month, Standard & Poor’s cut Ambac’s rating to selective default. The insurer’s CFO, Sean Leonard, resigned yesterday.
