(BestWire Services Via Acquire Media NewsEdge) Bond insurer CIFG and its principal shareholders have completed a settlement commuting $12 billion in exposures to collateralized debt obligations, which also will see rival Assured Guaranty Corp. take over CIFG’s $13 billion U.S. public finance and infrastructure book of business in a novated reinsurance transaction.
CIFG also announced that, following culmination of the deal, Chairman and Chief Executive Officer John Pizzarelli would be stepping down from his post, succeeded by management consultant Lawrence P. English.
First announced in September, with a memorandum of understanding reached with 75% of the affected asset-backed securities CDO and commercial real estate CDO counterparties, the deal includes the transfer of $85 million of CIFG North America’s unearned premium reserves and ultimately, the novation of the reinsured policies to Assured, which has been appointed exclusive agent to provide all administrative and other services with respect to the CIFG North America’s entire U.S. public finance portfolio.
Until novated, all covered policies will remain direct guarantee obligations of CIFG NA, and Assured said it has agreed to work with CIFG to get written agreements from the holders of each covered policy to transfer that policy to Assured. Under the deal, Assured will process all claims for losses from the portfolio as well as for providing surveillance, risk management and other administrative functions for this portfolio.
“We are pleased to close this transaction, which provides CIFG NA’s policyholders with the financial strength and protection of Assured,” Assured CEO Dominic Frederico said in a statement.
The portfolio does not include any below investment grade credits, credit default swaps or any credits for which a loss reserve had been established by CIFG NA, Assured said.
Under an agreement reached with principal shareholders Banque Populaire Group and Caisse d’Epargne Group, CIFG commuted roughly $12 billion in exposures to asset-backed securities CDOs and commercial real estate CDOs, receiving cash and equity considerations. The deal, which the company said “substantially reduces CIFG’s exposure to problematic derivatives,” also cancels the principal shareholders’ controlling interest in the firm.
“The derivative counterparty settlement, as well as our final agreement with Assured…both significantly enhance CIFG’s financial rating and enable the release of significant amounts of capital on account of the commutation. This transaction also increases the company’s claims-paying resources, better enabling the company to honor its remaining obligations to policyholders,” Pizzarelli said in a statement, while also thanking New York State Insurance Superintendent Eric Dinallo for helping to broker the deal.
Pizzarelli, who previously spent more than 20 years as head of global public finance with rival MBIA Inc., became CIFG’s chief in December 2007, during a period when U.S. housing market turbulence had begun to take a toll on insurers who had guaranteed structured products tied to the subprime mortgage market.
“He inherited an enormously complex and difficult situation and oversaw the negotiations, which have resulted in a global agreement, which is the best possible outcome for all parties concerned,” CIFG Board Member Allan Chapin said.
CIFG has tapped English, former Cigna Health Care president and current chief executive of turnaround management firm Lawrence P. English Inc., to serve as Pizzarelli’s replacement.
(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)
Copyright 2009 A.M. Best Company, Inc.
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