Bond insurer FGIC Corp said on Wednesday that its exposure to mortgage losses exceeded legal risk limits and it may raise loss reserves due to litigation related to stricken German bank IKB.
FGIC, the parent of bond insurer Financial Guaranty Insurance Co, earlier this month filed a lawsuit accusing German state-owned IKB of fraud in providing incomplete information on $1.9 billion of debt that FGIC agreed to insure.
FGIC in a statement also said it has a substantially reduced capital and surplus position through December 31. As a result, insured exposures exceeded risk limits required by New York state insurance law, the New York-based company said.
"This is a bombshell," said Rob Haines, senior insurance analyst at CreditSights in New York. "They are actually in violation of New York insurance law. If they don't remediate this, the state has the ability to take control of the company."
Haines estimated that FGIC would need to raise about $2 billion to stabilise the company. A spokesman for New York Insurance Superintendent Eric Dinallo said they were reviewing the new FGIC information and declined to comment.
FGIC in notes to its consolidated financial statements said it plans to submit a plan to the New York superintendent to reduce its risk. FGIC also said it has voluntarily ceased writing new business to preserve capital.
Comments
Comments are closed.