Syncora Holdings expects to report a third-quarter net loss of $1.3 billion, up from a net loss of $89.9 million in the third quarter of last year, it said in a filing with Securities and Exchange Commission (SEC) this morning.
The announcement came in a notice in which Syncora said it would be late in filing its full 10-Q for the third quarter. The company said in a press release it expects to file its quarterly statement on or before Nov. 17, but will not hold a customary conference call with investors.
The SEC filing also said that due to significant adverse loss development, bond insurer subsidiary Syncora Guarantee may not be able to maintain a positive statutory surplus or compliance with the $65 million minimum statutory surplus required by the state of New York, as of Sept. 30. This could lead the New York Insurance Department to intervene, the filing said. The company will not know its statutory capital levels until it finalizes its financial statements for the quarter.
Syncora in July agreed to deals with Merrill Lynch and former parent XL Capital that helped it avoid insolvency. New York insurance superintendent Eric Dinallo said at the time of the deals that the department had already sent in staffers to prepare for the companys rehabilitation because it feared Syncora would not meet its deadline to come up with a solution for the capital shortfall.
Syncora attributed its expected losses primarily to the net change in the fair value of credit derivatives during the period, losses and loss adjustment expenses on mortgage-related exposures, and realized net losses on investments primarily due to other than temporary charges during the period. It did not break down the extent of those losses for the third quarter, but it expects to have reserves for unpaid losses and loss-adjustment expenses of $800 million and derivative liabilities of approximately $2.5 billion as of Sept. 30.
During its second-quarter earnings conference call, acting chief executive officer and general counsel Susan Comparato said commuting $52.9 billion in credit-default swap exposures was the companys primary objective in the near term. It has set aside $820 million and 46% of its own stock for possible settlements with 17 counterparties.
An already extended deadline for these counterparty discussions has expired, Syncora said in a recent SEC filing. The company continues to negotiate with counterparties, but can make no guarantees it will reach a deal or get another extension, the filing said.