(Adds comment from Ambac in paragraph 6)
By Dena Aubin
NEW YORK, July 14 Most bond insurers are headed
for liquidation or run-off as losses from troubled assets
linger, an analyst at independent research firm CreditSights
said on Tuesday.
While some insurers, such as MBIA (MBI.N) and Ambac
ABK.N, are stronger than others, "we think the traditional
market leaders' franchises have been permanently impaired,"
insurance analyst Rob Haines said in a Webcast presentation.
In a run-off, an insurer stops writing new business, but
continues to pay out on existing liabilities.
For anyone holding bond insurance, "basically what you have
is a very expensive keepsake," especially for structured
product holders, Haines said.
Barring a significant rebound in the subprime mortgage
market, Ambac could easily become insolvent over time, Haines
Ambac spokesman Peter Poillon said the company tends not to
comment on outside views of its financial strength, but said
the company's claims-paying resources amounted to almost $12
billion as of March 31.
MBIA Insurance Corp could run out of capital by 2012, he
said, adding that there were significant caveats to that
conclusion since it was based on average trends in the absence
of deal-level information on the company's exposures.
"Exposure to troubled assets remains extremely high," with
losses from collateralized debt obligations, residential and
other types of structured products expected to remain elevated
over the next five years, Haines said.
"We do believe that we have adequate capital to meet all of
our obligations," MBIA spokesman Kevin Brown said. While losses
on mortgage-linked debt have been higher than anyone expected,
MBIA has the potential for recovering fairly large amounts from
lawsuits it has launched, he added.
MBIA has taken legal action against mortgage lender
Countrywide, now controlled by Bank of America (BAC.N), and
GMAC's mortgage unit Residential Capital, accusing the
companies of making false representations on mortgage-linked
debt that MBIA insured.
DEMAND SEEN FOR MUNI BOND INSURANCE
Brown also said he believes there will be demand for MBIA's
new municipal-only bond insurer National Public Finance
Guaranty Corp, a unit created to reposition the company to
write new business.
Once the two dominant bond insurers, MBIA and Ambac lost
market share after devastating forays into structured financial
products triggered massive paper losses.
In the municipal area, a normalized market may not return
for some time, Haines said. The amount of municipal debt with
insurance has declined to about 18 percent after hovering
around 50 percent for many years, with many forces behind the
trend, including rating downgrades of traditional insurers, he
Still, a market continues to exist for insured munis,
Haines said. Assured Guaranty (AGO.N) will dominate that
market, but there is room for at least two competitors, he
added. The possibility of a federal backstop for munis was an
unlikely scenario at this time, he also said.
Municipal and Infrastructure Assurance Corp or MIAC, a New
York-based insurer formed by Australia's Macquarie Group Ltd
(MQG.AX) and Chicago hedge fund Citadel Investment Group, was
one insurer that merits attention going forward, Haines said.
"We do think they will be able to capture market share,
given they have a legacy-clean balance sheet," he said.
The company, which plans to concentrate on municipal
securities and infrastructure projects, is awaiting ratings.
Another relative newcomer to muni insurance, Berkshire
Hathaway Assurance Corp, "will not be a long-term competitor in
this market," Haines said. The new insurer is a unit of
Berkshire Hathaway Inc (BRKa.N).
(Additional reporting by Karen Pierog in Chicago; Editing by