Losses Continue For Bond Insurers

Two bond insurers reported first-quarter losses, with one of the companies, Ambac Financial Group, saying that it may have to liquidate pursuant to Chapter 7 if its reorganization plans are not successful.

New York-based Ambac says its first-quarter net loss increased to $819 million, compared to a 2010 first-quarter loss of $690 million.

Armonk, N.Y.-based MBIA reports a net loss of $1.14 billion for the 2011 first quarter, an improvement compared to a $1.5 billion net loss for the same period last year.

For Ambac, the company says its results “reflect an increase in loss and loss expense, lower net premiums earned, and lower net investment income and realized gains.”

The company, which is in Chapter 11 bankruptcy reorganization, says it has more than $1.7 billion in unpaid claims that have been presented to a segregated account set up by its Wisconsin-based subsidiary, Ambac Assurance Corp.

MBIA says its narrower first-quarter loss is the result of a steady decline in loss severity in its structured-finance obligations.

CEO Jay Brown and Chuck Chaplin, president and chief financial officer, speaking during an analyst's conference call, say that the quarter did not produce anything of special note.

“We see declining loss payments and declining volatility in our RMBS (residential mortgage-backed securities) related exposures, and there is an ever-increasing recognition of the liability of sponsors who placed ineligible mortgages and securitizations that we wrap,” says Chaplin.

The company is embroiled in a bitter dispute with a number of banks over the placement of mortgages that MBIA contends should never have been insured by the company. The company has sued the banks for return of payments made under the policies, which could result in hundreds of millions of dollars returned to MBIA.

At the same time, the banks are challenging the split of the company into two divisions: National Public Finance Guarantee Corp., responsible for coverage of public-finance bonds; and MBIA Insurance Corp., responsible for covering the structured-finance instruments.