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The New York State Insurance Department has facilitated and supervised a transformation of MBIA Insurance Corporation (MBIA Corp.) that effectively splits that company in two, dividing its assets and liabilities between two highly capitalized insurance companies, Superintendent Eric Dinallo announced today. Of the resulting companies, MBIA Corp. will focus on the international and structured finance market, while the second company, National Public Finance Guarantee Corporation (National), will cover only public finance policies, such as those on municipal bonds.

“This deal is fair to all policyholders—the bank counterparties and other policyholders of the structured financings and the owners and issuers of municipal bonds,” Dinallo said. “It should aid the municipal bond market in two ways. First, it will stabilize and hopefully increase the ratings and therefore the value of $537 billion in outstanding municipal bonds. Sixty percent of those bonds are owned by individuals, including many retirees. The improved insurance on their bonds will protect the value of their investments and should encourage them to continue investing in municipal bonds. Second, at a time when we want to increase spending on infrastructure as part of the stimulus plan, some municipalities and public authorities who need to raise money for building bridges or schools, housing or hospitals, have had to pay more to issue bonds, leaving less to spend on building, or put off development because they were unable to borrow.

“Municipalities and authorities have been searching for bond insurance in a marketplace where only one insurer is currently active. With the return of a solidly capitalized insurer with more than 30 years of experience, we hope this will help reinvigorate the municipal bond market and help public entities get easier, less costly access to credit. This transformation opens the way to attracting both private and public capital to this market. That is why we at the New York Insurance Department along with Director Michael T. McRaith and his dedicated staff at the Illinois Division of Insurance worked closely and diligently to effectuate this successful outcome.”

"As the public sector and private enterprise struggle with the dual needs for capital and financial certainty, the severance of the MBIA enterprise into two distinct operations will deliver both.  Assuring counter-party certainty should introduce some measure of much-needed confidence and stability.  At the same time, municipalities and other public finance agencies will benefit from the enhanced capital position of MBIA Illinois. We believe this outcome will support national and local economic stimulus plans and the infrastructure improvements that will bring jobs to communities around the country. Superintendent Dinallo and his superior regulatory team have again demonstrated the effective value of creative, forceful financial regulation," said Michael T. McRaith, Illinois' Director of Insurance and Acting Secretary of the Department of Financial and Professional Regulation.

National is currently domiciled in Illinois and called MBIA Insurance Corporation of Illinois (MBIA Illinois). It will be renamed and plans to redomesticate to New York during the second quarter of 2009. It will not have any exposure to structured finance nor any international exposure. Both MBIA Illinois and MBIA Corp. are member companies of MBIA, Inc.

Both MBIA Corp. and National will continue to pay all valid claims in a timely fashion, and both entities will have sufficient resources to meet policyholder claims as they come due. Consistent with New York State Insurance Law, the New York State Insurance Department only approved the transaction after deciding that both companies would have sufficient statutory capital to meet the letter and spirit of the Insurance Law. The review and study process lasted approximately one year.

MBIA Corp. will have $10.1 billion in claims paying resources to cover structured finance business with net par outstanding of $240 billion, and will retain the risk of the non-public finance policies including credit default swaps. It is expected to garner an investment grade rating.

National will receive a cash infusion of approximately $5 billion from MBIA Corp. Of this, $2.89 billion in premiums will be used to reinsure $537 billion in municipal bonds. That includes all bonds currently insured by MBIA Corp., as well as those bonds originally insured by the Financial Guaranty Insurance Company and currently reinsured by MBIA Corp. All policyholders will be able to make claims for payment directly to the municipal bond-only insurer in accordance with the applicable agreements.

MBIA Corp. will provide the remaining $2.09 billion to National as capital. National intends to manage for a high, stable rating, and plans to raise sufficient third-party capital to be capitalized in excess of historical AAA levels. Following this capital infusion, National will be in a position to insure new municipal bond issues and help thaw the frozen municipal credit markets.

“This is a private sector solution to a public sector concern,” Dinallo said. “It preserves MBIA’s promises to policyholders, while reducing costs and increasing opportunities for taxpayers. It will aid the federal stimulus efforts by providing access to the credit markets to fund shovel-ready infrastructure development, and it will help taxpayers by lowering the cost of that borrowing. At a time when the demands on the public purse have never been heavier, this plan accomplishes these goals solely with private capital.”

Amounts listed for outstanding coverage and claims paying ability are based on MBIA’s pro forma results dated September 30, 2008.


This transaction is part of the Insurance Department’s continuing implementation of its three-point plan for the bond insurance industry. The plan’s goals are to:

  1. Attract more capital and increase capacity to protect policyholders and ensure continued availability of bond insurance, especially for municipal issuers. To date, the Department has facilitated the addition of more than $11 billion in capital and two new insurers.
  2. Resolve the status of the distressed bond insurers, including preparing for receivership should that prove necessary. The Department is engaged with insurers, banks, financial advisors, credit rating agencies, other regulators and government officials, and other stakeholders in examining and developing measures to help stabilize the market.
  3. Develop stronger regulation for bond insurance. Since it was clearly time to develop new rules for the road, late last year the Department released written guidance that addresses how bond insurers should conduct their business activities.

Key Department actions include:

  • December 2007: Expediting the licensing of a new bond insurer by Berkshire Hathaway.
  • January 2008: Facilitating MBIA’s $2.6 billion capital raise.
  • March 2008: Facilitating the Ambac capital raise.
  • July 2008: Approving the transaction involving XL Capital Assurance, Inc. to help protect that bond insurance company’s policyholders by enhancing its solvency and providing funding for an equitable commutation of volatile structured security guarantees.
  • August 2008: Brokering a reinsurance deal between MBIA and FGIC involving the innovative use of “cut-through” reinsurance.
  • October 2008: Licensing Municipal and Infrastructure Assurance Corporation, a new financial guaranty insurer authorized to write financial guaranty insurance policies for municipal and infrastructure bonds.
  • November 2008: Assisting in the merger between Assured Guaranty and FSA.
  • January 2009: Approving the agreement to commute CIFG CDS and reinsure its municipal bonds.


Department of Financial Services


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