Build America Mutual, after surviving a credit watch that forced a smaller rival out of writing new municipal bond insurance, reported an increase in claims-paying resources the second quarter even as its statutory comprehensive income fell.

BAM's claims-paying resources increased by $13.7 million, or 36% from a year earlier, according to BAM's second quarter financial report. The company said growth in CPR par outstanding occurred despite a temporary disruption in primary-market origination activity starting June 6th, when S&P Global Ratings placed BAM on CreditWatch. The rating agency affirmed BAM’s AA rating on June 26th and BAM has since resumed active bidding on municipal market new issues.

At the same time rival National Public FInance Guarantee Corp. was dealt a two-notch downgrade by S&P, prompting the muni unit of MBIA Inc. to curtail new business and shed 29 employees, including the entire new business team.

Seán McCarthy

“The affirmation kept BAM's ratings at the highest level S&P assigns to any active bond insurer, and was a positive resolution to the CreditWatch process,” said Seán McCarthy, BAM’s chief executive officer. “Investors and underwriters were outspoken in their support for BAM’s mutual structure and municipal-only insured portfolio during the CreditWatch period, and that support has allowed us to resume our role as a market utility serving issuers, underwriters and investors who are seeking to improve their bonds’ credit quality and market access.”

The par amount of bonds wrapped by BAM rose 7% to $37.6 billion, second behind that of Assured Guaranty Ltd. BAM's statutory comprehensive Income was $1.4 million in the quarter, versus $2.3 million in the same period of 2016.

“BAM recorded a strong quarter in our financial results and continued to build our financial strength with steady growth in capital,“ said McCarthy. “BAM insured more than 200 new-issue transactions, and strong investor demand for our guaranty allowed us to post our 11th consecutive quarter of growth in claims-paying resources.”

On Aug. 4, White Mountains Insurance Group LTD., the insurance holding company that lent the municipal bond insurer its startup investment in 2012, reported $12 million and $24 million of GAAP pre-tax loss related to BAM in the second quarter and first six months of 2017, compared with $9 million and $17 million in the same periods of 2016.

The increase in the pre-tax loss was primarily driven by lower realized and unrealized investment gains on BAM’s fixed income portfolio in the quarter and first half of 2017, compared with the second quarter and first six months of 2016. 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 consolidates BAM’s results in its GAAP financial statements, and its results are attributed to non-controlling interests.

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