New Rules, Capital, Sought For Bond Insurers: Dinallo

New York's insurance regulator announced today that the state is implementing a three-point plan for the bond insurance market that was buffeted last week by rating agency actions.

State Insurance Superintendent Eric Dinallo said the goal is to attract more capital, stabilize the market and strengthen its regulation.

His statement came in the wake increasing bad news for three bond insurers last week. Fitch Ratings issued a financial strength downgrade of Ambac Assurance to "double-A" from "triple-A." Prior to that, Moody's Investors Service said it is reviewing the ratings of MBIA Insurance Corporation. Standard & Poor's Ratings Services has suspended its ratings on public finance and corporate transactions insured by ACA Financial Guaranty Corp. that do not have a public rating from S&P.

Mr. Dinallo said his department is monitoring the major bond insurance companies and working with them and other firms to help stabilize the market, "continue protecting policyholders, assist in the continued availability of bond insurance and seek private sector solutions."

His department, he said, confers daily with federal regulators, the National Association of Insurance Commissioners and other state insurance regulators.

He noted that in an effort to secure more capital and increase capacity especially for municipal issuers, he had already acted by inviting Berkshire Hathaway to open a new bond insurance company in New York and had moved "quickly" to approve a capital-raising plan that MBIA embarked on.

Mr. Dinallo said that discussions are underway by his department with other unnamed parties about possible future capital investments.

Further, he said his department is talking with insurers, banks, financial advisors, credit rating agencies, other regulators and government officials, and other stakeholders about developing measures to help stabilize the market.

The department is also drafting new regulations that would redefine the future activities of bond insurers, "since it is clearly time to develop new rules for the road," he said.

"As we demonstrated with the invitation to Berkshire Hathaway, the department has a proactive approach to dealing with market problems, and we will continue to implement measures we believe are appropriate in response to the current issues facing the bond insurance market," Mr. Dinallo promised.

The superintendent said he sees his primary responsibility as protecting policyholders and safeguarding the solvency of insurance companies so they can pay any claims.

"Additionally, we work to ensure that consumers, businesses and governments have access to the insurance products they need from a healthy, competitive market. Our activities in the bond insurance market are aimed at achieving those goals," said Mr. Dinallo.