The agreement provides reinsurance for Syncora’s municipal bond business by a newly-formed, well-capitalized subsidiary, Syncora Capital Assurance Inc. The restructuring also includes a $1.2 billion commutation payment to policyholders who entered into credit default swaps on collateralized debt obligations on asset backed securities. Finally, the deal reduces SGI’s mortgage-backed security liabilities through a voluntary tender process that offered upfront cash payments to policyholders in exchange for their insurance claims. Nearly 70% of the tender offers were accepted.
Completion of the Syncora restructuring means that substantially all New York domestic municipal bond insurance policies have been stabilized as a result of the Insurance Department’s efforts since it announced a three-point plan to do so in late 2007. The plan called for alleviating problems facing bond insurers, attracting new capital into the market and developing new regulations.
The Insurance Department helped develop individual solutions to stabilize each of the major bond insurers, including Syncora, MBIA, FGIC, FSA and CIFG, and to attract new capital into the market with the licensing of Berkshire Hathaway Assurance Corporation and Municipal and Infrastructure Assurance Corporation.
In addition, the Department has issued an industry advisory, known as a Circular Letter, to bond insurers and has proposed state legislative action. The September 2008 advisory called on insurers to institute a series of “best practices,” including expanded reporting requirements and written underwriting policies. The Department also has urged the Legislature to approve increased minimum capital and reserve requirements, as well as a number of other reform measures.