MBIA Withdraws From AFGI

Citing differences of opinion over the direction bond insurers should be taking, MBIA Inc. said it has withdrawn from membership in the Association of Financial Guaranty Insurers (AFGI).

“It has become clear that MBIA and the other members of AFGI no longer share a common vision for the industry,” Jay Brown, chairman and chief executive officer of the Armonk, N.Y.-based carrier, said in a statement.

“For one thing, we believe that the industry must over time separate its business of insuring municipal bonds from the often riskier business of guaranteeing other types of securities, such as those linked to mortgages,” he noted. “Additionally, we disagree with AFGI's positions on the appropriateness of monoline financial guarantors insuring credit default swaps and the ability of U.S. financial guarantors to reinsure U.S. domestic financial guarantee insurance transactions with foreign affiliates without paying U.S. corporate tax rates.”

He said that “our association with AFGI has been long-standing and productive, and we greatly appreciate the hard work of the AFGI staff and representatives in Albany and Washington, for whom we have tremendous respect.”

However, Mr. Brown added, “now 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.”

MBIA said it has been associated with AFGI since the trade association's formation in 1986. AFGI, based in Albany, N.Y., is the trade association of the insurers and reinsurers of municipal bonds and asset-backed securities.

Mr. Brown rejoined MBIA this week after the resignation of Gary C. Dunton from the chairman and CEO posts.

Responding to the news, Sean W. McCarthy, chairman of AFGI, as well as president and chief operating officer of Financial Security Assurance Holdings Ltd., said his “members are surprised at the withdrawal of MBIA from AFGI.”

He noted that “AFGI has not taken a position on member firms' organizational structures, lines of business, or execution formats, such as credit default swaps (CDS) or policy forms. Further, all of the financial guarantee products offered by industry members, including insured CDS, are permitted under applicable insurance law and regulation.”

He said that “AFGI remains committed to supporting the industry and its members, who offer credit-enhanced products in the municipal and asset-backed markets.”