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FINANCIAL GUARANTORS INSURED
HIGHER VOLUME IN 2006
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Report Twelfth Consecutive Year of Revenue and Profit Growth
NEW YORK, May 14, 2007 - The member firms of the Association of Financial Guaranty Insurers (AFGI) insured $574 billion of public sector bonds and asset-backed securities in 2006, an increase of 6% over that of 2005. Premium levels were up slightly over the prior year, and aggregated revenues, net income and qualified statutory capital of AFGI member firms exceeded the highs set in 2005.
AFGI's eleven member companies are highly rated insurers and reinsurers of municipal bonds and structured asset-backed securities. Investors receive an unconditional and irrevocable guarantee of scheduled principal and interest payments on insured securities. Issuers of insured securities achieve reduced borrowing costs and broader market distribution.
Commenting on the 2006 aggregated financial results, Séan W. McCarthy, Chair of AFGI and President and Chief Operating Officer of Financial Security Assurance, said: "Despite a challenging environment characterized by narrow credit spreads and abundance of liquidity in most asset classes, the Financial Guaranty Industry achieved respectable growth in earnings and direct premiums. As U.S. municipal volume declined in 2006, the industry increased its writings in the global asset-backed and international public infrastructure sectors. This is not surprising after four consecutive high-volume years in the U.S. municipal market and given the continued expansion of asset-backed classes and their growth into new geographic areas.
"Most important, however, the industry's aggregate statutory capital continued to grow, as we provided economic value to an increasing number of issuers and investors around the world," he added.
"It is also noteworthy that in aggregate, the industry's exposure to the subprime mortgage sector continues to be well protected with weighted average ratings for all the insured portfolios of the primary companies in the A to Triple-A rating categories."
Following are highlights of 2006 aggregated financial results:
Record total par insured, consisting of domestic and international public sector bonds and asset-backed securities (ABS): $574.1 billion, up 6% over 2005's record.
Record level of insured ABS: $341.5 billion, an increase of 23%. Both international and domestic insured ABS reached new highs.
Public sector par insured decreased to second highest level: $232.7 billion in 2006, compared to $262.9 billion in 2005, a decline of 11%. Non-U.S. public sector bonds (part of the total) reached a record $33.2 billion. Insured U.S. municipal bonds totaled $199.4 billion, compared to $248.0 billion the prior year. The lower insured volume resulted from declines in municipal bond issuance and insured penetration (49% penetration, compared to 56% in 2005).
Direct premiums written: $3.8 billion, up a modest 2%. Tight credit spreads, investor liquidity and low perceived credit risk in some sectors continued to impact growth in this area.
Record net income: $2.25 billion, up 8%, marking the twelfth consecutive year of profit growth.
Record revenues: $4.2 billion, up 9%. AFGI member firm revenues consist predominantly of net premiums earned and net investment gain.
Growth in qualified statutory capital: $22.1 billion, up 7%. Qualified statutory capital, an important measure of the insurers' financial strength, comprises policyholders' surplus and contingency reserves.
Unearned premium reserves: $12.3 billion, up 7%. Bond insurance premiums are often collected in full when securities are insured, and then booked as revenue proportionately over the life of the bond. This accounting treatment of unearned premium reserves contributes to a consistent and predictable earnings pattern unique to the bond insurance industry.
About AFGI
AFGI is the trade association representing the eleven insurers and reinsurers of municipal bonds and asset-backed securities. AFGI member companies are ACA Financial Guaranty Corporation, Ambac Assurance Corporation, Assured Guaranty Corp., BluePoint Re Limited, CIFG Assurance North America, Inc., Financial Guaranty Insurance Company, Financial Security Assurance Inc., MBIA Insurance Corporation, Radian Asset Assurance Inc., RAM Reinsurance Company Ltd. and XL Capital Assurance Inc.
All AFGI member firms operate under the strict risk-based capital provisions of Article 69 of the New York Insurance Law. To safeguard the rating of the insured obligations and to protect the interests of insured bond investors, AFGI firms subscribe to a "zero loss" or "remote loss" underwriting standard. Securities insured by AFGI members receive the unconditional guarantee of scheduled principal and interest payments to holders of these obligations. In the 36-year history of the financial guaranty industry, no member company has ever failed to fulfill its payment obligations to insured bond investors when due.
Posted: May 2007
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