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NEW FITCH STUDY EXAMINES BOND INSURERS' PORTFOLIOS -- FITCH FINANCIAL WIRE --

 NEW YORK, Feb. 5 /PRNewswire/ -- A new Fitch report, "Bond Insurers' Asset Quality," which is being published next week, examines and compares key aspects of the financial guarantors' investment portfolios. Fitch analysis reveals differences in the composition, credit quality, liquidity, market risk, and yields of the insurers' portfolios.
 Given greater flexibility under statutory regulations in managing their portfolios, some of the more established insurers appear to have a slightly higher tolerance for risk, ranking at or near the bottom of many key measures of safety and liquidity. CapMAC has the most conservative composition and maintains the highest degree of liquidity. Capital Re has the highest average credit quality, although more than half of its portfolio is invested in insured municipal bonds, producing "double jeopardy". With the shortest average maturity, CapMAC is also the least susceptible to interest rate risk. Over the last five years, Connie Lee has averaged the highest nominal investment yields. However, FGIC has produced the highest returns on a tax-adjusted basis. Fitch considers returns in conjunction with the investment portfolio's composition, credit quality, and average maturity, as well as the company's tax and capital gains strategies.
 Bond insurers have more than $7 billion of invested assets, which produce 60 percent of their total revenues, including capital gains. These assets are an important resource, generating investment income to pay claims and expenses, provide dividends, and increase the capital base, which forms the cushion protecting insured bondholders. However, with nearly 70 percent of the insurers' portfolios invested in municipal bonds, economic adversity resulting in insured defaults could deteriorate asset quality and weaken the revenue base. The insurers' high quality, diversified investments temper this risk. Since asset quality plays such a critical role in a bond insurer's financial strength, it is one of the five major areas that Fitch analyzes in assessing a bond insurers' claims-paying ability.
 Going forward, lower municipal new issue volume, resulting from fewer refundings, may prompt increased price competition among the bond insurers. Thus, investment portfolios will be an area to watch, especially as pressures to generate higher returns could result in a loosening of the reins on traditional conservative strategies. Also, as investment portfolios grow, some insurers will bring management of their investments in-house and solicit portfolios from other entities outside the industry. These actions will produce cost savings through economies of scale and enable insurers to diversify their business activities by generating fees. The bond insurers also will be able to leverage their extensive fixed income analytical expertise.
 -0- 2/5/92
 /CONTACT: Brady N. Tournillon, 212-908-0519, David Litvack, 212-908-0593, or Mark H.S. Cohen, 212-908-0512, all of Fitch/


CO: Fitch Investors Services ST: New York IN: INS SU: ECO

TS -- NY019 -- 3466 02/05/93 10:52 EST
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Publication:PR Newswire
Date:Feb 5, 1993
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