DESPITE QUESTIONS, RATING AGENCIES
SAY
MBIA STILL SOLID
Recent regulatory inquiries into certain transactions undertaken
by MBIA, the municipal bond industry's leading insurer, are unlikely
to have any lasting effect on its credit rating or financial strength.
Commenting on subpoenas relating to MBIA's handling of insurance
losses and use of re-insurance, both Moody's and Standard &
Poor's issued reports this week restating their "Aaa"
and "AAA" ratings while indicating the financial impact
of transactions in question are limited in nature. Simultaneously,
The Bond Buyer, a leading trade publication, reported that MBIA
insured bonds continue to trade at "AAA" levels, reflecting
continued investor confidence in the insurer's financial strength.
Since November 2004, both the Securities and Exchange Commission
and New York attorney general's office expressed concern to MBIA
regarding its purchase of default protection for itself, accounting
for advisory fees and loss reserves, and the company's relationship
with Channel Reinsurance, Ltd., of which MBIA owns 17%. Some of
these inquiries resulted from MBIA's treatment of insurance losses
resulting from the 1998 bond default of the Allegheny Health, Education,
and Research Foundation (AHERF).
In response to regulatory questions, MBIA and the rating agencies
note the following: advisory fees account for no more than 3% of
total insurance revenues; loss reserves are recorded when a loss
is incurred for a specific case; and MBIA's ownership position in
Channel Re is the third smallest of that company's four investors.
Further, MBIA holds just two seats on Channel's 12-member board.
S&P specifically notes that MBIA's financial strength rating
is based on the insurer's financial statements prepared under Statutory
Accounting Principles. More important, MBIA and other bond insurers
must meet S&P's "Capital Adequacy" criteria under
which it is hypothesized that the bond insurer incurs a substantial
level of insured losses in a depression-like scenario. Claims paying
resources must be sufficient to meet an unrealistically high level
of defaults under this and similarly projected cases before the
rating agencies assign their "AAA" financial strength
ratings to insurers like MBIA.
Finally, although we cannot be certain as to the depth or ultimate
outcome of the current investigations, we are familiar with, and
confident in, the continued level of rating agency review of both
MBIA's capital strength and insured portfolio. While MBIA's business
practices may be questioned, and some changed, it is unlikely to
affect the company's ratings and claims paying ability.
ANALYST CERTIFICATION
SEC Regulation AC
I, Jay H. Abrams, hereby certify that the views expressed in this
research report accurately reflect my personal views about the subject
securities and issuers. I also certify that no part of my compensation
was, is, or will be, directly or indirectly, related to the specific
recommendations or view expressed in this report.
04/08/05
About Dr. Abrams
|
