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Daily Insurance Industry News
Monday 20th of May 2019
February 4, 2008

Banks rescue bond assurers

by Gill Montia

Story link: Banks rescue bond assurers

Bond assurers, companies that guarantee the interest and certain other payments on the securities that they underwrite, are facing huge claims resulting from the US sub-prime mortgage crisis.

Claims on mortgage bonds are expected rise sharply during 2008, as a result of the level of defaults on the home loans that make up the investments assured.

As a result, there have been growing concerns that bond assurers will be unable to honour the level of claims they will receive.

This has adversely affected trading in the guaranteed securities market, reducing the value of mortgage bonds that have already experienced huge declines.

Companies operating in the bond assurance market need the top AAA credit rating to attract new underwriting business but earlier this year, Ambac and Financial Guaranty and Security Capital Assurance both lost their top rating.

Some analysts are of the option that firms with a below top credit rating will not survive and a consortium of banks is now developing a £7.6 billion rescue package to help restore confidence in the market.

Royal Bank of Scotland and Barclays, Citigroup, Société Générale and UBS are all working with the New York Insurance Department to provide assistance.

Ambac is likely to top the list of recipients because of its failure to raise $1 billion of new funds in January.

 

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