Bond Insurers

Syncora To Start Payments

Syncora Guarantee Inc. on Wednesday will begin paying insurance claims on regularly scheduled payment dates following the approval of its remediation plan by its regulator.

Stock of Syncora’s parent company shot up nearly 15 cents on the news, or 153%, to close at 24 cents Tuesday.

The approved remediation plan should allow Syncora to maintain a statutory surplus as it pays insurance claims that accrued during a 14-month suspension period initiated by the New York Insurance Department. Syncora didn’t say how many claims were outstanding, nor would a spokesman elaborate. Accrued claims totaled $725.9 million at the end of March, according to the ­company’s first-quarter earnings filing.

“Current claims will be paid in full on their regularly scheduled payment dates as they occur on or after July 21, 2010,” a company press release said.

Michael Moriarty, the NYID’s deputy superintendent of property and capital markets, wrote in an e-mail that he was “pleased” an agreement was reached in which “all remaining claims” will be paid.

Syncora, previously named XL Capital Assurance, was one of the leading municipal bond insurers before the financial crisis. Its deep exposure to structured finance products caused the credit rating agencies to slash its gilt-edged ratings in early 2008. By the end of that year the company had a policyholders’ deficit of $2.6 billion.

The NYID ordered the insurer to stop paying claims in April 2009 to give it time to undergo a massive restructuring. The master transaction agreement, as it was called, involved paying its counterparties to tear up its riskiest exposures and free up capital reserved for paying claims.

The reorganization was successful enough for the insurer to post a policyholders’ surplus in excess of the $65 million regulatory minimum for the third and fourth quarters of 2009, as well as the first quarter of this year.

Second-quarter results have yet to be released, but Syncora on Tuesday offered a preliminary estimate that its statutory surplus would be in line with the $104.1 million it reported for the period ending March 31.

The restructuring was completed in April. At that time, Syncora said “significant short-term liquidity and surplus issues” would prevent it from beginning to pay accrued claims.

Nevertheless, the NYID in mid-June lifted the suspension on paying claims and asked the insurer to come up with a remediation plan so it could begin making payments.

Syncora responded by repurchasing some of its guaranteed exposures to free up additional capital. It also “monetized,” or turned into money, some of its illiquid assets, by selling uninsured cash-flow certificates.

Syncora said the efforts will be “sufficient to meet its minimum statutory policyholder surplus requirements and address previously announced short and medium term liquidity issues.”

The scheduled claims beginning Wednesday will be paid over a six-month period, according to Syncora. Up to 20% of the accrued claims will be paid on the first payment date occurring on or after Wednesday. Another 40% will be paid each succeeding payment date. All accrued claims should be paid in full before January 21, 2011.

A source indicated that the unpaid claims do not include sewer warrants issued by Jefferson County, Ala., which first defaulted on $46 million worth of Syncora-backed debt in June 2009.

Syncora has “come to an agreement with the liquidity banks funding that offering,” Moriarty said of the Jefferson County deal. “While there may be adverse development in that, and in other insured exposures, the reserve for base case modeled losses and a level of stress case modeled losses should enable Syncora to pay all remaining claims.”

Michael Corbally, spokesman for ­Syncora, said company policy does not allow him to elaborate beyond press releases at this time. However, he reiterated in an e-mail that the insurer settled a portion of its exposure to the sewer warrants earlier this year and confirmed that it “still continues to have significant exposure to the county.”


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