MBIA Inc. announced yesterday that MBIA Insurance Corporation (“MBIA”), its financial guaranty insurance company subsidiary, had completed a reinsurance transaction with Financial Guaranty Insurance Company (“FGIC”) whereby MBIA will reinsure FGIC's risks that consist entirely of U.S. public finance bonds with total net par outstanding of about $166 billion. MBIA announced that it had received upfront net premiums of approximately $639 million in connection with the transaction. Pursuant to New York Insurance Department (the “NY Department”) requirements , MBIA will place the upfront premium funds in a trust, with release of the funds to MBIA upon the earlier of MBIA’s removal from ratings review with its current ratings or nine months from the closing date of the transaction. The trust funds will be released as the premium is earned and can be used to pay claims under the reinsurance agreement.
In a press release announcing the agreement, MBIA states that the reinsured portfolio consists “exclusively of investment grade credits, primarily in the general obligation, water and sewer, tax-backed and transportation sectors” and does not contain “any credit default swap contracts, below investment grade credits or other credits inconsistent with MBIA’s credit underwriting standards.” The reinsurance is being provided on a “cut-through” basis, which may allow FGIC’s policyholders to submit claims directly to MBIA.
The agreement was previously approved by the NY Department on September 29. Michael Moriarty, Deputy Superintendent of the NY Department stated with regard to the transaction that “the reinsurance transaction is in the best interest of the people of the state of New York and will help stabilize the monoline insurance industry.”