The Municipal Bond Insurance Association, or MBIA (MBI), released 2008 fourth-quarter and full-year results yesterday producing a shrug from investors.
The company reported a sharply narrower loss than had been reported in the comparable 2007 period. Net premiums underwritten by MBIA in the fourth quarter also increased by 10 %, and the company reported experiencing fewer losses as well.
Monoline insurers such as MBIA have had devastating losses in the last 18 months, as risky financial instrument delinquencies soared past the levels at which the insurers had underwritten their risks.
While MBIA losses improved from the previous year, they exceeded the consensus forecast from analysts. The fourth-quarter loss exceeded $5.34 per share, while analysts had expected a loss of $.076 per share.
MBIA has written no new policies since the first half of 2008. As issuers look elsewhere for credit enhancement of their issues, banks have stepped up to fill the gap. Banks which historically had enhanced less than 10% of the volume of insured or guaranteed issues are now capturing 50% of the volume.
Net premium income for the company increased from $892 million in 2007’s fourth quarter to $1.5 billion for the period in 2008. The increase was primarily attributable to MBIA’s reinsurance of the insurance portfolio of Financial Guarantee Insurance Company.
MBIA in 2008 reduced its exposure to four impaired multi-sector Collateralized Debt Obligations (CDO’s) by $2.7 billion in exchange for $558 million.
The bond rating agencies have lowered the debt of some of the monocline companies to junk status. MBIA still retains an investment grade rating, but no longer enjoys the status of the AAA ratings it once held. Now rated AA- to Baa1, issuers already holding investment grade ratings gain far less benefit from securing insurance than had been the case previously.
MBIA in February moved to separate the municipal bond insurance business from the other activities of the company. The new subsidiary, to be renamed National Public Finance Guarantee Corporation, will reinsure the entire portfolio of $554 billion in municipal bond insurance policies previously held by MBIA. It is hoped that the new company will attract sufficient capital to meet the AAA guidelines of the rating agencies.
The move has generated some concern that MBIA is moving capital away from the more risky portion of their portfolio. Short sellers are convinced that the aggregate exposure of MBIA to continued deterioration of the credit quality of its assets will in all likelihood render the company insolvent in the near future. It remains to be seen if they are right.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
