BAM Reports Increased Claims-Paying Resources

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Build America Mutual reported a jump in claims-paying resources in the fourth quarter and a statutory loss for 2016 that was little changed from the previous year.

The second largest bond insurer in terms of both number of deals and par amount insured said positive cash flow from gross written premiums and member surplus contributions drove a 7% increase in total claims-paying resources to $643.7 million in the final three months of the year. The $14.7 million fourth quarter increase in claims-paying resources is the largest quarterly increase since the company was founded in 2012. BAM insured $11.3 billion par in 2016 and gross par outstanding rose to $33.1 billion, according to a year-end report filed Friday.

"Our goals are to serve increasing numbers of member-issuers while also growing claims-paying resources to protect investors," Sean McCarthy, chief executive officer of BAM, said in a press release. "We achieved record performance on both of those fronts in 2016, and look forward to continuing our growth as infrastructure investment moves to center stage in the market in 2017."

BAM said that its improved claims paying resources were driven by a nearly 40% increase in gross written premiums and member surplus contributions, which totaled $77 million in 2016, up from $56 million in 2015. BAM's statutory loss for the year was $33 million.

Under the accounting rules for mutual insurers, the member surplus contributions, which represent roughly half of the premiums BAM collects, flow directly to the company's capital base. BAM's statutory loss, which does not include any positive impact from that cash flow, was $33 million for the year. Qualified statutory capital, which reflects the benefit of the $38 million of member surplus contributions, increased to $454.2 million.

Earlier in the month, White Mountains Insurance Group LTD., the insurance holding company that lent the municipal bond insurer its startup investment in 2012, reported $19 million and $49 million of GAAP pre-tax losses related to BAM in the quarter and year ended Dec. 31, 2016. That compared with GAAP pre-tax losses of $14 million and $47 million in the quarter and year ended Dec. 31, 2015.

BAM's affairs are managed on a statutory accounting basis, and it does not report stand-alone GAAP financial results. BAM's statutory net loss was $9 million for the quarter and $33 million for the year ended Dec. 31, 2016, compared with $8 million and $32 million loss in the quarter and year ended Dec. 31, 2015. As a mutual insurance company that is owned by its members, BAM's results do not affect White Mountains' book value per share or adjusted book value per share. However, White Mountains is required to consolidate BAM's results in its GAAP financial statements and its results are attributed to non-controlling interests.

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