N.Y. Orders Financial Guaranty Insurance Co. to Stop Paying Claims Following Impaired Surplus

New York insurance regulators have ordered Financial Guaranty Insurance Co. to stop paying all claims after the bond insurer reported a surplus to policyholders deficit of $865.8 million and an impairment of its required minimum surplus to policyholders of $932.2 million at Sept. 30.The New York Insurance Department, headed by Superintendent James J. Wrynn, also ordered FGIC to not write any new policies so the insurer can move forward with its proposed comprehensive "surplus restoration plan." The order took effect Nov. 24.FGIC must provide a final plan of the surplus restoration plan to Wrynn by Jan. 5, 2010. If he doesn't receive it by that day, he will seek an order to rehabilitate or liquidate the company, the Nov. 24 order said.FGIC reported the figures in its third-quarter 2009 quarterly statement it filed with the regulator."We believe it would be imprudent and inequitable to allow payments of claims at 100% of value to certain policyholders while the company attempts a more equitable and voluntary settlement with all policyholders, having recently acknowledged that it currently does not have enough assets to pay estimated claims," the department said in a statement.Andy Mais, a spokesman for the department, declined to comment.According to the order, FGIC wrote to the department on Nov. 23, seeking approval for its surplus restoration plan to eliminate the impairment to its surplus.It proposed to start a tender offer to acquire or exchange some residential mortgage-backed securities it guaranteed in the primary market; continue to pursue commutations with holders of insured collateralized debt obligations of asset-backed securities, and terminate or restructure its exposure related to some other obligations for which it established statutory loss reserves, the order said.The actions are intended to remediate the company's RMBS, ABS, CDO and other exposures, remove its capital impairment and return it to compliance with the minimum surplus to policyholders requirement.The department also said FGIC has until March 25, or a later date the superintendent deems appropriate, to take the steps needed to remove the impairment of its capital and return to compliance with its minimum surplus to policyholders requirement. However, Wrynn may still seek rehabilitation or liquidation of the company before that date.Attempts to speak with FGIC, a unit of FGIC Corp., weren't successful. In a statement about the order, FGIC said that, without a successful restructuring, its board may ask the insurance department to seek court appointment of a rehabilitator or liquidator for the company.FGIC said it's a monoline financial guaranty insurer that previously issued financial guarantees covering financial payments on public finance, structured finance and other securities and obligations.FGIC is not rated by A.M. Best Co.(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)