BAM Sees Volume Uptick Despite a Down Market

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Build America Mutual followed suit with the other two active municipal bond insurers, reporting both ups and downs in its first-quarter results.

The mutually owned company reached a new high in claims paying resources, while posting a loss in the first quarter under general accepted accounting principles and a statutory net loss of $8 million in the first quarter.

BAM insured $2.2 billion of municipal bonds, $2.1 billion of which were in the primary market during the first quarter of this year. The muni-only insurer reported in a press release on Monday that its claims paying resources rose to a new high of $607.1 million and total par outstanding reached $24.6 billion.

"It was a strong quarter for BAM as we advanced our mission to serve both our issuer members and investors with a growing universe of BAM-insured bonds and increasing claims-paying resources, which underlie BAM's financial strength," said Bob Cochran, BAM's chairman.

Cochran also told The Bond Buyer that demand for BAM's bond insurance continues to grow, which allowed the company to increase its par insured in the quarter compared with the same period in 2015, even as overall market volume declined.

"BAM's average new-issue transaction size grew by more than 10%, as institutional investors, in particular, utilized insurance more often on larger issues," he said.

White Mountains Insurance Group LTD., an insurance holding company that maintains a portfolio of insurance-related investments that gave the insurer its startup investment when it was founded in 2012, reported on May 2 that including policies written in the first quarter for municipal bond deals that will close in the second quarter, BAM guaranteed $2.6 billion.

"In addition, investors saw value in BAM's efforts to promote transparency and disclosure: The library of credit profiles grew to more than 2,700, and download activity rose 41%," Cochran said.

White Mountains reported $8 million of GAAP pre-tax loss related to BAM in the first quarter of 2016, compared to GAAP pre-tax loss of $9 million in the first quarter of last year, according to the release.

"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 $8 million in both the first quarter of 2016 and the first quarter of last year," said the White Mountains report.

As a mutual company, the model is different from other insurers, as a mutual company’s earnings don’t capture 50% of the money coming in the door, it flows directly into the capital base. The losses are on paper while the company’s capital keeps growing.

Cochran also said that BAM recorded the first refunding of an outstanding BAM insured bond, when Wilkes-Barre, Pa., refunded approximately $6 million.

"We were able to apply its Member Surplus Contribution from the original sale in 2013 as a credit against the premium on the new issue, which allowed it to save about 55% on the net cost of insurance for the new issue," Cochran said.

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