Municipal Bond Forum
Insurers’ Financial Strength
Q
Is there a correlation between the stock prices of bond insurers and their ability to pay claims? Ambac’s stock price is below $2.00 per share. Does this in any way jeopardize its ability to pay claims?
A
James A. Klotz responds:
A company’s stock price is determined by various factors, including the perception of its profitability. In the case of Ambac or MBIA, for example, neither company’s stock price affects their ability to meet their financial commitments.
The financial strength ratings on Ambac, MBIA, and the other bond insurers reflects their ability to pay claims on their insurance policies and other financial guaranty obligations. Those ratings have been lowered over the last year or so, reflecting their exposures to securities that are backed by mortgages. The resources available to pay claims for each insurer are shared by their exposure to both municipal bond policies and any financial guaranties outstanding.
Both Ambac (Baa1/A) and MBIA (Baa1/AA) still have financial strength and Standard & Poor’s believe that, despite both insurers’ exposures to mortgage related securities, they still can be expected to meet any claims they are presented with.
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