MBIA Forms Separate Muni Bond Insurance Business

MBIA Inc. said Wednesday it will separate its municipal bond insurance business from the riskier operations that sent the company's finances into turmoil.

MBIA, which came under pressure in 2008 because it had insured mortgage-backed securities that later soured, is hoping the split will help generate new confidence in its municipal insurance business and increase liquidity for that struggling market. More liquidity should help deals to be completed, while also lowering borrowing costs for municipalities looking to raise funds for new projects. In turn, that can reduce the burden on taxpayers paying for the projects.

"Anything that can help bring credit enhancement to the market will be helpful," said Richard Tortora, president of Capital Markets Advisors, which provides bond advisory services for municipalities in the Northeast.

Tortora said there is essentially one bond insurer that is now actively writing muni bond business, Assured Guaranty Ltd. FSA Holdings is also writing business, but it is being acquired by Assured Guaranty in a deal expected to close during the current quarter.

MBIA has found it hard to generate new business as long as it still was insuring the risky investments like mortgage-backed securities that helped cause the credit crisis last year. The company's actions should should help weaker-rated or small deals be completed that might have otherwise been overlooked with fewer options to provide insurance, Tortora said.

Eric Dinallo, the superintendent of New York's state insurance department, said the move opens the way for lower interest rates as well — an issue that Dinallo said was keeping many municipalities out of the bond market. The New York State Insurance Department provided assistance in completing the transformation.

"Because of competition and the huge increase in capacity, I'm hoping there will be a big improvement in pricing," Dinallo said in an interview with The Associated Press. MBIA was one of the market's largest bond insurers before the entire industry ran into trouble a year and a half ago and insurance volume tumbled.