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Sector Snap: Bond Insurers fall

Shares of bond insurers fell Friday after the New York State Insurance Department said Financial Guaranty Insurance Co. may split into two companies - a scenario that could be adverse to some investors, according to an analyst.
/ Source: The Associated Press

Shares of bond insurers fell Friday after the New York State Insurance Department said Financial Guaranty Insurance Co. may split into two companies - a scenario that could be adverse to some investors, according to an analyst.

A split would separate FGIC's municipal bond business from its insurance covering riskier financial instruments. The move may help the insurer's municipal business recover its "AAA" financial strength rating. However, the rating of its structured bond portfolio could fall more, Citi Investment Research analyst Heather Hunt said in a note to clients Friday.

Thursday, credit-rating agency Moody's cut FGIC's financial strength rating to A3" from "AAA" following downgrades from Standard and Poor's and Fitch Ratings.

Fitch has also downgraded Ambac Financial Group Inc. and Security Capital Assurance Ltd., while S&P has downgraded SCA. Moody's also lowered its ratings for SCA.

Bond insurers essentially need a "AAA" rating to book new business.

"Ambac and MBIA are still awaiting verdicts from the ratings agencies," Hunt wrote. "A split-up of their portfolios would be adverse for structured bond investors _ including banks, insurance companies and asset managers."

Banks and life insurers that own structured bonds could incur higher capital charges, she said.

Separately, Ambac said Friday it named David Wallis to the newly created position of chief risk officer as part of a reorganization of risk management oversight. He was previously in charge of portfolio risk management. Ambac shares fell 44 cents, or 4.2 percent, to $10.09 in afternoon trading.

MBIA shares fell 65 cents, or 5.2 percent, to $11.97 and SCA shares fell 9 cents, or 5.4 percent, to $1.59.

Shares of Assured Guaranty Ltd., which has managed to avoid the problems hurting its competitors, fell 67 cents, or 2.9 percent, to $22.60.