Build America Mutual reported a jump in claims-paying resources and statutory comprehensive income in the first quarter as well as a smaller statutory loss than in the past.

The second largest bond insurer in terms of both number of deals and par amount insured reported record results for growth in claims paying resources, statutory comprehensive income, pricing, and total premiums in the first three months of 2017. The results were driven by high investor demand for BAM’s insured municipal bonds, which offset a broad decline in new issue municipal bond volume. Par outstanding rose 7% to $35.2 billion.

Bob Cochran

“BAM had an excellent quarter. While rising interest rates reduced refunding activity, market volatility drove rising demand for our guaranty,” said Bob Cochran, chairman of BAM. “Demand was broad based: In the primary market, retail investor demand prompted underwriters to use BAM insurance on portions of larger transactions that would otherwise have sold without a guaranty. In the secondary market, institutional investor uncertainty about liquidity for unenhanced bonds helped drive our extremely strong results.”

The company reported statutory comprehensive income of $3.9 million in the quarter, versus a loss of $1.5 million in the same period last year. BAM’s statutory net loss was $5.6 million, a 32% decline from $8.2 million in the first quarter of 2016, and was offset by $9.5 million in member surplus contributions.

“BAM has built a distinctive franchise in the financial guaranty industry, with an unmatched commitment to the core US municipal market,” said Manning Rountree, chief executive officer of White Mountains Insurance Group, which provided BAM’s formation capital in 2012. “We believe BAM’s long-term future is bright, and we approach our investments in BAM with patience and perspective.”

BAM said that its claims paying resources rose by $18.5 million to $662 million, more than three times the $5.7 million increase recorded during the same period in 2016. This was BAM’s 10th straight quarter of growth in CPR.

BAM also insured $338 million in secondary market transactions during the period, a 313% increase in the secondary activity compared with a year earlier and recorded no loss reserves during the period. It has never realized a loss in its insured portfolio in its history.

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 affairs are managed on a statutory accounting basis, and it does not report stand-alone GAAP financial results. 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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