MBIA Inc., parent of MBIA Insurance Corp., yesterday withdrew from the Association of Financial Guaranty Insurers, saying it no longer shared the trade association's view of what is best for the bond insurance industry.
"It has become clear that MBIA and the other members of AFGI no longer share a common vision for the industry," said newly hired chief executive officer Joseph " Jay" Brown, in a statement. "It is up to us to shape our future in a way that we believe is most responsive to the markets, our policyholders and our owners, and we must do so without the constraints of participation in an industry association that does not always share our views."
Currently, Financial Security Assurance Inc., one of only two triple-A bond insurers whose ratings are not under pressure, holds the rotating chairmanship of AFGI.
Brown said earlier this week that under his watch MBIA will look to separate its business lines between guaranteeing municipal credits and structured credits. The bond insurers' triple-A ratings have been jeopardized in recent months by the falling values of the structured finance credits that they guarantee, while the muni credits remain stable.
Brown also said in the release that MBIA disagrees with AFGI's position on having the financial guarantors insure credit default swaps and the ability of insurers to write domestic reinsurance policies with "foreign affiliates" without paying corporate taxes.
AFGI spokesperson Bob Mackin did not return calls seeking comment. But,
BERKSHIRE HATHAWAY
In bond insurance other news yesterday, Berkshire Hathaway Assurance Corp. can now claim gilt-edged, triple-A ratings on its secondary market insurance, Moody's Investors Service said.
Moody's issued a report stating it has started assigning Aaa ratings to bonds trading in the secondary market that have a Berkshire Hathaway Assurance wrap, based in large part on a contingent payment insurance policy provided those bonds by National Indemnity Co. NICO is an insurance company rated Aaa for insurance financial strength by Moody's and a subsidiary owned by Berkshire Hathaway Inc., the report said.
"We are right now rating everything based on that insurance policy from NICO that stands behind the insurance policy from BHAC," Moody's analyst JoAnn Hempel said.
Hempel said Berkshire Hathaway asked Moody's to issue a rating, eager to do further business in the municipal market without a primary market rating for the bond insurer. In seeking a way to get a triple-A rating, Berkshire Hathaway worked out the structure in which NICO supports Berkshire Hathaway policies.
With secondary market insurance, bonds are placed into a custody account, which then issues a custodial receipt. It is this receipt that is then assigned a financial guaranty insurance policy by BHAC, and held by the investor.
Berkshire Hathaway Assurance, the bond insurer set up in late December by Warren Buffett, made its first foray into the municipal market in early January, insuring more than $10 million of general obligation bonds issued by New York City in the secondary market for Goldman, Sachs & Co., who paid a premium of 24 basis points. The bonds mature in 2019 with a 5% coupon and are callable at par in 2017.
Since then, Buffett's bond insurer has wrapped many other series of bonds. Included among them are New York City GO 5s of 2023, Metropolitan Transportation Authority, N.Y., 5.125s of 2022, California GO 5s of 2037, Florida Keys Aqueduct Authority 5s of 2037, New York Transitional Finanace Authority 5s of 2027 and 5s of 2029, and San Lorenzo Unified School District 4.75s of 2037, among others.
Berkshire Hathaway is the single largest holder of Moody's Corp. stock, with 48 million shares, or 19% of the total stock oustanding.
