Defunct bond insurer Syncora Guarantee reported positive net income for the first three quarters of the year, but said near-term insolvency is still a concern if its insured portfolio tumbles.
The insurer’s net income in the nine-month period was $25.7 million, according to a quarterly statement released last week, which said net premiums earned from its existing portfolio were $41.2 million. Its surplus to policyholders was $120.8 million compared with $181.8 million a year ago.
The statutory minimum surplus is $55.8 million, according to its regulator, the New York Insurance Department (NYID).
Syncora, previously named XL Capital Assurance, was one of the triple-A-rated municipal bond insurers before the financial crisis. Heavy exposure to mortgage-related products and credit-default swaps left the company with junk ratings and caused it to stop writing policies more than two years ago.
Because of its limited surplus and liquidity, insolvency in the near term remains a possibility if Syncora’s insured obligations see adverse developments, according to the financial statement.
The clearest risks exist in its insured portfolio of residential mortgage-backed securities, where its exposure totals $2.14 billion. Its net-case reserves for unpaid losses in the portfolio is $130.7 million, or 6% of the total.
“The company cannot provide any assurance that were it to experience further adverse loss development, the NYID would not take regulatory action, which may include commencement of rehabilitation or liquidation proceedings,” the statement said.
Syncora’s insured public finance portfolio included $38.4 billion of wrapped bonds at the end of the third quarter, which represents 63% of its total insured exposure.
Syncora Capital Assurance, a subsidiary formed in the holding company’s June 2009 restructuring, reinsures $48 billion of public finance bonds. The subsidiary’s total insured exposure, consisting of reinsurance and direct guarantees of credit-default swaps originally written by Syncora Guarantee, is $78.5 billion of debt.
The NYID banned Syncora in April 2009 from paying insurance claims so the insurer could initiate a major restructuring to clean up its balance sheet. The ban was lifted in June and Syncora began paying claims in July.
As of Nov. 8, it had paid $904.5 million of accrued claims. Syncora has unpaid claims of $128.5 million, which will be paid over a six-month period ending Jan. 21, 2011.