Syncora Guarantee Inc. on Tuesday reported its statutory surplus declined to $99.7 million in the fourth quarter of 2009, down from $181.8 million in the third quarter.
The decline was in line with a company statement on Jan. 20 that warned its surplus would see “a material decrease” in the quarter but that it wouldn’t breach the regulatory minimum of $65 million, as set by the New York Insurance Department.
Syncora has been undergoing major structural changes since April, when the NYID issued an order prohibiting the bond insurer from writing new business or paying any claims, only allowing the company to operate in order to bring about a restructuring.
The company, which posted a statutory deficit to shareholders of $2.6 billion in 2008, entered into a master transformation agreement with a multitude of parties last July in order to push its capital levels back into regulatory compliance. The transaction involved commuting the riskiest assets from its books, thereby freeing up capital it had reserved for paying claims.
Before the agreement, for instance, Syncora insured around $50 billion of residential mortgage-backed securities and various forms of collateralized debt obligations. The restructuring reduced that exposure to $5.5 billion.
As part of the restructuring, the NYID has allowed Syncora to use accounting standards that “de-recognize,” or free up, about $5.8 billion of reserves for unpaid losses, as well as nearly $300 million of contingency reserves on terminated policies.
Standard accounting practices from the National Association of Insurance Commissioners would include those reserves as incurred losses. Under that measure, the insurer ended 2009 with a deficit of $3.5 billion, according to its year-end financial statement.
The restructuring also forced most of Syncora’s public finance portfolio to be sold to and reinsured by a newly created and wholly owned subsidiary called Syncora Capital Assurance Inc.
At the end of last quarter, Syncora Capital held an insured public finance portfolio totaling $48.2 billion, while Syncora Guarantee’s exposure to public finance was $2.2 billion. As of year-end, the new subsidiary held a statutory surplus of $221.9 million.
Though Syncora Guarantee is back in line with regulatory compliance standards, it said if it were required to resume paying claims, it would have to take actions that would expose it to significant risks and uncertainties.
“If the company is not able to satisfy its anticipated liquidity needs through these actions or otherwise, the company will likely be unable to pay its obligations as they come due or otherwise maintain regulatorily required liquidity levels,” the statement said.
Company stock fell 5%, or $0.02, to $0.38 yesterday.
