Two key industry veterans left BondModel Co. last week, throwing into question whether the firm will be ready to start new business this quarter as planned.
John Pizzarelli, the chief operating officer hired last October, and Steven Citron, the chief risk officer hired in late January, both left the company for undisclosed reasons.
“I have resigned from BondModel to pursue other interests in the municipal bond insurance industry,” Pizzarelli said in a statement. “I wish BondModel well in their future endeavors.”
Citron was unavailable to comment. BondModel did not return calls for comment.
BondModel is a New York-based insurer founded by former public finance executives from Goldman, Sachs & Co., including George H. Butcher, chief executive officer, and Bradley W. Wendt, president.
Executives from the company told The Bond Buyer in January that it planned to begin writing insurance in the second quarter of this year, pending reception of high grades from rating agencies and regulatory approval from the New York Insurance Department.
At the time, BondModel was staffed by eight senior professionals and had plans to hire another 12 senior individuals before the first quarter ended.
Pizzarelli was formerly the head of global public finance at bond insurers MBIA Inc. and CIFG, and Citron was former chief risk officer at MBIA’s newly created subsidiary, National Public Finance Guaranty Corp.
The outlook for MIAC Assurance Corp., another start-up, is also uncertain.
Richard Kolman, vice chairman, was unavailable for additional comment yesterday, but in January said the company was finalizing capitalization plans to begin writing insurance by the end of the first quarter. He also said the company has been rated by two of the three rating agencies, but those ratings have yet to be disclosed.
Recent market developments aren’t making the path easy for either firm.
Assured Guaranty Ltd., the one guarantor still writing insurance through its subsidiaries, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., guaranteed less than 4% of new issuance last month, compared to 8.7% last year, according to Thomson Reuters.
“It’s a very difficult time to enter the bond insurance business,” said Justin Hoogendoorn, managing director of strategic analytics at BMO Capital Markets. “Is it possible? Yes, but insurance is going to be more of a niche in the future, as far as percentage of the market, than what it was in the past.”
In addition, with Moody’s Investors Service and Fitch Ratings each moving to global ratings scales this quarter, many municipalities can expect their ratings to be recalibrated upwards to match the new scales.
That could further diminish the incentive for municipalities to pay for insurance, which traditionally lowers borrowing costs by giving the wrapped bonds a higher rating based on the insurer’s financial strength.
Hoogendoorn said, however, that while such upgrades will make it more difficult for the insurers, there will always be some demand for the product.
“There are so many issuers with so little issuance that getting someone to support the entire deal, from a credit perspective, just makes sense,” he said. “But, you have to trust that the monoline is going to be around in the future, and right now the market just doesn’t have faith in that.”
