Syncora Guarantee Inc. may resume paying claims by the end of the month after winning approval for a program to strip risky policies from its books, the New York Insurance Department said yesterday.

The NYID in April forced Syncora to freeze claims payments. The Bermuda-based insurer failed to pay eight claims totaling $61.7 million as of May.

Syncora failed to honor at least one claim from a municipality - Jefferson County, Ala.

The suspension was a consequence of the company's policyholders' deficit. The NYID requires bond insurers to maintain a policyholders' surplus - or assets in excess of liabilities - of $65 million.

At mid-year, the company's liabilities exceeded assets by around $4 billion.

Syncora planned to attack this deficit by freeing more than $6 billion reserved to pay claims on residential mortgage-backed securities and credit default swaps. Syncora's proposal entailed paying owners of RMBS and CDS insured by Syncora to swap their bonds for bonds that are identical except for being uninsured.

By jettisoning these high-risk policies from its insured book, Syncora would no longer have to reserve money to pay expected claims on them.

That would liberate reserves, thus adding money to assets and improving the policyholders' surplus.

On Friday, Syncora said if the plan proceeds, the company's balance sheet would incur about $2.41 billion in reductions to assets and $6.59 billion in reductions to liabilities.

The result would be a $4.18 billion boost to policyholders' surplus.

The NYID on Friday confirmed it expected Syncora to improve to a $180 million policyholders' surplus after the restructuring.

Hampton Finer, deputy superintendent of insurance in New York, said he anticipates the company will be able to close its deals by the end of the month. After that, the NYID would lift the suspension and the company could resume paying claims.

"We anticipate they will get it done and then be able to pay claims, including back claims," Finer said.

The NYID had allowed Syncora to use non-standard accounting techniques resulting in lighter reserves, and therefore a less-severe policyholders' deficit.

Syncora said its policyholders' deficit at the end of March would have been about $1 billion steeper under standard accounting procedures.

Finer said the NYID has not yet determined whether it will allow Syncora to continue using the non-standard methods.

He also said it might not matter: most of the company's loss assumptions have been dumped from the books anyway. Syncora might meet the $65 million minimum regardless of the accounting methods.

Syncora's stock, which trades on the pink sheets, jumped 52% to 38 cents, the highest close since June 18.

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