oldlures1

Future Gloomy for Ambac, MBIA - Berkshire Likely to Emerge as New Bond Insurance Leader

On a different front, in light of Ambac's recent downgrade to CC and talks of possible regulatory intervention, I wonder what the possibility is that National could reinsure ABK's muni portfolio, like they did with FGIC? That'd be sweet!
I'm long MBI.

Future Gloomy for Ambac, MBIA - Berkshire Likely to Emerge as New Bond Insurance Leader

U338129 - Good point, but for arugment's sake, I'd offer that Moody's downgrade of BRK is irrelevant. As an aside, they only dropped BRK's rating after catching flack about the conflict of interest, so perhaps they're just attempting to save face.
Ultimately, you're probably right, there's no conflict of interest, but sometimes there only need be the perception of such.

Future Gloomy for Ambac, MBIA - Berkshire Likely to Emerge as New Bond Insurance Leader

Anybody know if BRK is still the largest shareholder of Moody's, the company that started the downgrade run on ABK and MBI? It screams conflict-of-interest, but I've heard little chatter on this matter since this time last year.

Berkshire Hathaway Credit Risk, Index Puts Are Overblown Worries

This just makes me all giddy inside. I've got one word for you: "karma"

MBIA and Ambac: Edge of the Cliff, Ratings-Wise

Vittello -- good argument, and well-made.

MBIA and Ambac: Edge of the Cliff, Ratings-Wise

Crashof2008 - You're absolutely correct, MBI's new originations fell significantly this year. But in light of the bad press and mkt environments, does that really surprise you? I think what's important is that they're still writing new business...despite that challenging obstacles.

I also agree that many states aren't, at the moment, utilizing the monolines to credit enhance new debt issues, but I suspect you and I disagree as to why. It's not that the states don't want insurance per se, but it's simply too expensive at the moment. The lack of muni defaults has provided for a stable underlying/spur rating, but bond insurance premiums charged by the few players exploiting mkt conditions are exorbitant. As such, the minimal rate differential of AAA vs AA isn't enought to substantiate today's high premiums for credit ehancement. It's easy math and an easy decision, so the states are foregoing bond ins for now. But make no mistake, bond insurance is here to stay, and once the dust settles, and competitions returns to the mkt, premiums will drop, the economics of the deals will work and states will get insurance.

On the topic of muni defaults, I'd offer that you may see a increase in muni defaults. Over the past five yrs, many municipalities obligated themselves to many new projects, and the inherent funding obligations, based on tax revenue...revenue that is now falling. Keep watching the radar. If this happens, it'll reinforce the need/desire for monoline insurance.

Again, bond insurance is here to stay. After all, if it's such a flawed business model, why is everyone rushing to start their own bond insurer?

I'm not sure what you mean by "default" in terms of the monolines, but if you're opining as to their future insolvency, then I would disagee on that count as well, as their financial fundamentals (not media headlines) don't support this popular perception. In fact, based on the numbers, insolvency is highly unlikely.

I'm also not sure what you mean by "offshore". MBI has a number of subsidiaries domiciled outside of the US for the purpose of writing international coverage, which seems logical given the nature of the business. If by "offshore" you're referring to their one Bermuda subsidiary, CapMAC Asia Ltd., then I would offer that it's "accounting", as well as that of the other "offshore" subs, is incorporated and disclosed in the company's financials/10-K. With that said, Channel Re, a Bermuda-based reinsurer, has garnered some headlines where MBI is concerned. MBI is a 17% owner in Channel Re, but it is not a "subsidiary" of MBI, technically speaking, hence the reason MBI can't provide details of it. Unfortunately, that's not what you read in the headlines, let alone hear it in Bill Ackman's rhetoric. If Channel Re is a subsidiary of MBI, then Moody's is a subsidiary of Berkshire Hathaway (a 20% owner).

MBIA and Ambac: Edge of the Cliff, Ratings-Wise

The ultimate question is why are MBI and ABK losing their AAA rating? Is it because of financial fundamentals, such as captial adequacy, impairment points of sr (& super sr) tranches, claims paid (ie. true loss), and the like. Of is it based on broad-based industry observations, vague innuendos about what might be happening in the insured portfolios and predictions about waining future business (i.e. franchise value)?

With regard to my last point, I'd like to point out that MBI was the 3rd largest originator of bond insurance this year. But if you listen to the headlines, and follow the rating agency dictum, they're not writing any new business, at least not now...not that they're now downgraded.

I liken MBI and ABK to boxers; they're in the ring, fighting the fight, because that's what they do. This is tough fight, and they're taking some blows, but if left to fight a fair fight, they'll finish the bout a winner. Unfortunately, there are forces at work to ensure that they don't finish the fight. So ask yourself, who would want that, and why?

Policyholders are going to be paid; they were never in danger, and MBI and ABK's reputations were fine, that is, until they were trashed in the headlines. So why downgrade them? Why effectively take them out of the fight?

Did someone say there are new entries to the market? How interesting.