FINANCIAL GUARANTY INSURANCE INDUSTRY CONTINUED STRONG
FINANCIAL RESULTS IN THIRD QUARTER
NEW YORK, Dec. 30 /PRNewswire/ -- The Association of Financial Guaranty Insurors (AFGI) today announced that its members reported aggregate increases in capital, premiums, earnings, and other measures of financial strength during the third quarter of 1991.
John B. Caouette, chairman of AFGI and president and chief executive officer of Capital Markets Assurance Corporation, said, "1991 has been an excellent year for the financial guaranty insurance industry. The third quarter results continue an unbroken trend of increasing financial strength. Our strong capital base and consistent growth shows that this industry remains strong and healthy."
The market continued to show a healthy appetite for insured bonds, reflecting investor concern about the safety of their investments during times of economic uncertainty. Total par amount insured by the industry in the third quarter of 1991 increased 47 percent to $50.1 billion, compared to $34 billion in the same period last year. Of this, $42.5 billion represents par amount of insured municipal bonds, an increase of 47 percent from $29 billion last year; $7.6 billion represents par amount of corporate and asset backed securities, up 52 percent from $5 billion last year.
AFGI represents nine triple-A companies that insure or reinsure debt obligations such as municipal bonds and structured corporate obligations. Financial guaranty insurance provides investors with the assurance of timely payment of interest and principal in the event an insured bond defaults.
The industry's claims-paying resources continued to increase in the third quarter of 1991. Statutory qualified capital -- or the industry's capital base -- increased 17 percent to $3.5 billion as of Sept. 30, 1991, from $3 billion as of Sept. 30, 1990.
Investment income, derived primarily from investments representing capital surplus and contingency and unearned premium reserves, increased 17 percent to $350 million (pre-tax) from $299 million for the same period last year. The industry has an extremely conservative investment philosophy. As a result, the quality of the industry's investment portfolio is exceptionally high. The industry invested more than 99 percent of its investments in securities rated single-A or higher. Total investments at the end of the third quarter of 1991 were $6.1 billion, up 15 percent from $5.3 billion as of the same time last year.
Direct premiums written, representing all premiums which are collected and arise from policies issued by a company acting as a primary insuror, increased 30 percent to $537 million from $412 million for the same period last year.
Financial guaranty insurance premiums are usually paid in full by the issuer when insured securities come to market. Typically, these premiums are non-refundable and are placed in an unearned premium reserve. These premiums are earned as related risks expire over the life of the insured issue, up to 30 years or more for municipal bonds. This long and predictable earnings pattern is unique to the bond insurance industry and provides a major and visible source of future revenue and claims-paying ability. Unearned premium reserves increased 13 percent to $2.6 billion from $2.3 billion for the same period last year.
Net premiums earned represent the pro-rata portion of premiums in force applicable to the risk that has expired during the current period. Net premiums earned increased 31 percent to $255 million from $195 million for the same period last year.
Quality of Insured Portfolio
The industry's insured portfolio (the securities which the industry insures) continues to reflect high underwriting standards. More than 95 percent of the securities insured by the industry were investment grade before insurance was provided. Over 71 percent were single-A or higher prior to insurance. Net exposure in force (par value and interest insured) at the end of the third quarter of 1991 was $484 billion, an increase of 29 percent from $374 billion as of the same time last year.
Financial guaranty insurors are structured to write only one line of business, financial guarantees. Policies issued by insurors guarantee timely payment of principal and interest in accordance with the issuer's original payment schedule, often extending 30 years or more. As new business written outpaces the principal and interest retired each year, the amount of exposure in force, defined as the total amount of insured principal and interest payments outstanding, accumulates.
Losses incurred are the losses recorded to pay both the principal and interest for insured securities that have defaulted. Loss adjustment expenses are expenses incurred in connection with the adjustment and recording of insured claims. The industry's provision for losses incurred and loss adjustment expenses for the third quarter of 1991 was $27 million, up 69 percent from $16 million for the same period last year.
Underwriting expenses, a direct measure of the cost of operating the business, declined 5 percent to $171 million for the third quarter of 1991 from $179 million for the same period last year. Caouette said that this decline in the cost of operating these companies reflects continued good management of financial guaranty companies.
AFGI members operate solely in the area of financial guaranty insurance and have no exposure resulting from any other line of business. Each AFGI member carries a triple-A rating, or "claims-paying ability rating" from one or more of the major rating agencies. Insured bonds receive the triple-A claims-paying ability rating of the insurance company rather than the rating of the issuer.
Caouette said, "In the 20-year history of the bond insurance industry, no monoline financial guaranty insurance company has been downgraded, no insured issue has been downgraded, and no insured bond investor has failed to receive an insured bond payment." AFGI member firms are AMBAC Indemnity Corporation, Capital Guaranty Insurance Company, Capital Markets Assurance Corporation, Capital Reinsurance Company, Connie Lee Insurance Company, Enhance Reinsurance Company, Financial Guaranty Insurance Company, Financial Security Assurance Inc., and Municipal Bond Investors Assurance Corporation.
/CONTACT: Annette Bronkesh of Clark & Weinstock, 212-953-2550, for AFGI/ CO: Association of Financial Guaranty Insurors ST: New York IN: FIN SU: ERN FC-SM -- NY015 -- 5649 12/30/91 12:37 EST