Thursday, 21 February 2008

The troubled bond insurer MBIA replaced its chief executive on Tuesday with its retired chairman, who said he would consider splitting up the company’s insurance business to restore confidence.
Gary C. Dunton, who took over as chief executive in 2004, resigned on Saturday, the company said. He was succeeded by Joseph W. Brown Jr., who preceded Mr. Dunton as chief executive and chairman. The move comes as New York insurance regulators have increased pressure on MBIA and two other bond insurers, the Financial Guaranty Insurance Company and the Ambac Financial Group, to draw up plans that would preserve their top credit ratings.
In a telephone interview, Mr. Brown said the company would no longer write guarantees using credit default swaps, a tradable insurance contract. And he said he was open to dividing MBIA’s insurance business into two parts: one for municipal bonds and another for mortgage-related securities.
“We are open to any beneficial ideas for all policy holders and shareholders,” he said. “Over the long term, the market has spoken — it doesn’t really matter what I say — that maybe these businesses shouldn’t be co-resonant as they have been.”
Under Mr. Dunton, MBIA had been more adamant that it did not need to make any substantive changes to its business, which he had said was fundamentally healthy but was suffering mostly because investors had lost confidence in it. Mr. Brown said he generally agrees with that assessment, but added that the company needs to do more to restore investors’ trust.
“We are not going anywhere. We are going to be here for a long time,” Mr. Brown, 58, said. “Our business has been bruised, there is no question about it.”
The New York insurance superintendent, Eric R. Dinallo, welcomed Mr. Brown’s appointment. In recent weeks, Mr. Dinallo has urged MBIA to consider a split of its insurance business or other structural changes that would persuade ratings agencies like Standard & Poor’s and Moody’s Investors Service to affirm the company’s triple-A rating — a seal of approval that the company needs to be able to write new insurance policies.
Wall Street banks and the guarantors have been meeting at the urging of Mr. Dinallo. On Friday, Financial Guaranty informed regulators that it wanted to pursue split of its insurance business. A group of bankers, lawyers and Ambac officials are also negotiating a breakup plan.
Insurance regulators have broken up companies under their supervision in the past when cataclysmic losses in one segment of the business threatened to overwhelm other healthier divisions. In the case of the bond guarantors, the split would isolate mortgage-related securities that are starting to experience higher-than-expected default rates from the far safer municipal bond business, where losses are expected to be minimal.
Shares of MBIA were down 1.4 percent, to $12.07, at 1 p.m. Ambac was down 1.8 percent, to $10.04.



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