Monolines

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This post was written by David Schlecker and Andrea Pincus.

3rd Quarter Financials Lead to Action By NYS Superintendent of Insurance and ISDA

On November 24, 2009, Financial Guaranty Insurance Company (“FGIC”), a New York- domiciled monoline financial guaranty insurer, was ordered by New York’s Superintendent of Insurance to cease writing any new policies and to suspend payment of all claims. The Superintendent’s order follows FGIC’s Quarterly Statement for the third quarter of 2009, in which FGIC reported that as of September 30, 2009, it suffered an impairment of its required minimum surplus to policyholders of $932,234,577.

FGIC presented the Insurance Department with a proposed “Surplus Restoration Plan” intended to remediate its exposure to certain residential mortgage-backed securities (“RMBS”) and collateralized debt obligations of asset-backed securities (“ABS CDOs”). Under the plan, FGIC proposes to take the following steps:Continue Reading Bond Insurer FGIC Ordered To Stop Writing Policies and To Cease Paying Claims; ISDA Announces FGIC ‘Failure to Pay’ Credit Event

Felix Salmon reads the tea leaves left by Warren Buffet and concludes that the already disastrous monoline situation is unlikely to improve any time soon. Money quote:

Given all these reasons to buy bonds rather than insure them, I do wonder what’s going to happen to the monoline market. Historically, it’s been a license to print money — but it might be a very long time before it re-emerges.

Remember, when Buffett’s Berkshire Hathaway Assurance Corp. rode in to rescue the imploding monoline municipal bond insurance market at the request of the NY Insurance Department?  Now, after little more than a year in the business, Buffett wants out.Continue Reading The Future of Monolines?