Money 431: Property-Liability Insurance .

Uploaded on:
Finance 431: Property-Liability Insurance. Lecture : Financial Guaranty Insurance. Overview. Financial Guaranty Insurance Sub-Prime Crisis The Effect on Financial Guaranty Insurers Other Effects on the Insurance Industry. Financial Guaranty Insurance.
Slide 1

Fund 431: Property-Liability Insurance Lecture : Financial Guaranty Insurance

Slide 2

Overview Financial Guaranty Insurance Sub-Prime Crisis The Effect on Financial Guaranty Insurers Other Effects on the Insurance Industry

Slide 3

Financial Guaranty Insurance Definition: Insurance on a security or other security which ensures that intrigue and key will be ponied up all required funds in case of default. Default – when the backer of the bond or security does not pay the key and enthusiasm for the bond or security. Otherwise called Bond Insurance

Slide 4

Financial Strength Financial quality is key because of the safety net providers commitment to pay the foremost and intrigue if default happens. Rating Agencies AAA, Aaa appraisals from S&P, Fitch, and Moody\'s are required all together for budgetary assurance insurance agencies to have the capacity to keep composing scope and remain in business. High appraisals for the money related certification organizations prompts high evaluations for securities and securities guaranteed by these organizations. Claims-Paying Ability Reinsurance

Slide 5

Products of Financial Guaranty Insurance Asset-Backed Securities Municipal Bonds International Securities Includes securities from resource upheld markets and base fund markets from around the globe.

Slide 6

Asset-Backed Securities The blend of comparative resources and their money streams to frame securities that have premium installments and a central. Cases: Mortgage Backed Securities (MBSs) Student Loan Securities Credit Card Receivable Securities Car Loan Securities Collateralized Debt Obligations (CDOs) The blend of a few resource sponsored securities.

Slide 7

Municipal Bonds A security issued by states, urban areas, nearby governments, or open organizations. Securities subsidize open undertakings, and they finance private activities the length of they serve open needs. Intrigue pay from financing of open ventures is expense excluded from government charges, and additionally state and neighborhood charges for most activities in many states. Cases of tasks: Schools Highways and streets Utilities

Slide 8

Who Benefits from Insurance? Resource Backed Issuers Higher evaluations on bonds and securities take into account bring down intrigue installments and along these lines bring down acquiring expenses to guarantors. City Issuers Higher appraisals prompts a diminishing in financing costs. Little metropolitan guarantors get appraisals of bond back up plan as opposed to filing for costly organization evaluations. Helps attractiveness of lesser known guarantors: neighborhood town organization. Citizens Tax-excluded includes on civil securities spares a ton of cash for citizens. Speculators Guaranteed to get intrigue installments and essential in case of the guarantor defaulting.

Slide 9

Industry Association of Financial Guaranty Insurers (AFGI) Most budgetary surety guarantors are individuals Members: ACA Financial Guaranty Corp. Ambac Assurance Corporation Assured Guaranty Corp. BluePoint Re Limited CIFG Financial Guaranty Insurance Company Financial Security Assurance PMI Guaranty Co. Radian Asset Assurance Inc. Slam Reinsurance Company XL Capital Assurance Monoline Industry

Slide 10

Which money related surety protection items have tax exempt premium wage? A) Asset-Backed Securities B) International Securities C) Mortgage Backed Securities Municipal Bonds None of the above

Slide 11

Student Loans would fall under which monetary assurance protection item? Resource Backed Securities Mortgage-Backed Securities Municipal Bonds International Securities None of the above

Slide 12

Sub-Prime Market Sub-prime advances Sub-prime home Loans or home loans given to borrowers with low FICO assessments. These credits or home loans have higher intrigue installments because of the expanded danger of the borrowers defaulting.

Slide 13

Sub-Prime Crisis Housing market starts to blast in 2002 because of low loan costs. Resource sponsored securities on home loans are made otherwise called contract supported securities (MBSs). At first with typical home loans. As lodging blast proceeds after 2002, new resource sponsored securities are made, however these new securities included sub-prime home loans. Some of these securities with not very many sub-prime home loans packaged together with other typical home loans could win AAA evaluations.

Slide 14

Sub-Prime Crisis Other securities with numerous sub-prime home loans packaged with other typical home loans were still ready to get venture review evaluations of An or higher. This was a direct result of the MBSs being a heap of numerous sub-prime home loans, the rating organizations figured the shot of the dominant part of sub-prime home loans defaulting was little because of the blasting lodging market. Also, monetary surety insurance agencies protected huge numbers of these MBSs, which prompted higher appraisals.

Slide 15

Sub-Prime Crisis The lodging market kept on blasting and this prompted taking off benefits for all gatherings included including speculators, specialists, banks, rating organizations, and security back up plans. Due to the MBSs being so lucrative, CDOs started to show up. These bundled medium to low evaluated MBSs, which included for the most part sub-prime home loans, together to shape CDOs that could get AAA appraisals for similar reason alternate MBSs could get AAA evaluations in any case.

Slide 16

Sub-Prime Crisis Since the home loans were being swung into ABSs, this permitted the home loan moneylenders to exchange a significant part of the default hazard to the speculation showcase. With home loan banks not conveying a great deal of the default chance, they started to modify their advances to get considerably more individuals to buy houses. These new advances included even lower financing costs for the first or second year of home loans, or they included intrigue just home loan advances, in which borrowers would not need to pay the bigger principals until a couple of years passed.

Slide 17

Sub-Prime Crisis Many home purchasers who couldn\'t typically manage the cost of houses obtained from these new home loan advances keeping in mind the end goal to buy a home. The sanity of obtaining houses with the more current home loan advance arrangements was that the lodging business sector would keep on booming. In this situation the obtained homes would increment in esteem significantly enough to have the capacity to renegotiate the home at a benefit, and accordingly have the capacity to bear the cost of the higher future installments of the home loan. These new home loans were for the most part sub-prime home loans and they were being made into MBSs and CDOs also.

Slide 18

Sub-Prime Crisis With these diverse resource sponsored securities exchanging available, and benefits taking off for the principle players in these exchanges, the vast majority imagined that the lodging business sector would keep on booming. Be that as it may, this was not the situation. By the center of 2006 home deals slowed down and the estimation of houses quit climbing. By 2007 numerous homes\' qualities started to drop. With lodging values diminishing, numerous new sub-prime property holders could no longer manage the cost of their homes by renegotiating, and this drove a number of these mortgage holders to default on their home loans.

Slide 19

Sub-Prime Crisis Now the lodging market started to flounder considerably more, and this prompted much more defaults for property holders who did not have any desire to put resources into a home that was losing esteem. With property holders defaulting on their home loans, all these MBSs and CDOs in view of accepting home loan installments from sub-prime home loans defaulted also. With the ABSs defaulting the venture showcase that managed these ABSs and every one of the players included started to lose a ton of cash. These late occasions keep on hurting the lodging market. Lodging costs proceed to drop, and individuals who need to at present purchase houses who require credits are experiencing difficulty discovering great arrangements. This all prompts significantly more defaults on home loans today bringing on considerably more defaults on ABSs, which thus is creating additional misfortunes to the speculation advertise, subsequently the sub-prime emergency.

Slide 20

Sub-Prime Crisis

Slide 21

Sub-Prime Crisis

Slide 22

Sub-Prime Crisis

Slide 23

In your sentiment who is most to blame for the sub-prime emergency? A) Mortgage Lenders B) Investors C) Home purchasers D) Rating Agencies E) Bond Insurers

Slide 24

Impact on Financial Guaranty Insurance Companies Financial Losses Rating Cuts Little to no new business Companies asking to not be evaluated by certain rating organizations AFGI loses a part New money related assurance insurance agency New security protection advertise pioneers Potential control changes

Slide 25

Financial Losses Two market driving organizations had enormous misfortunes every reporting multibillion dollar final quarter net misfortunes. MBIA Insurance Corp. Net misfortunes of $2.3 billion. $3.4 billion record because of sub-prime credits emergency. Anticipated misfortunes from sub-prime emergency add up to $11.6 billion. Ambac Assurance Corporation Net misfortunes of $3.2556 billion. $5.21 billion record because of sub-prime credits emergency. ACA had second from last quarter misfortunes of $1 billion. PMI Group reported a final quarter loss of $236 million because of its U.S. contract protection operations. Different organizations endured or will endure noteworthy misfortunes too, this can be seen from rating cuts.

Slide 26

Rating Cuts ACA Financial Guaranty Corp. S&P slices rating from A to CCC Ambac Assurance Corporation Rating slices by Fitch from AAA to AA with viewpoint negative. S&P and Moody\'s remain AAA/Aaa with viewpoint negative. Guaranteed Guaranty Corp. Fitch, S&P, and Moody\'s all remain AAA/Aaa with stable standpoint. CIFG Fitch slices rating from AAA to AA-to A-with standpoint negative. S&P slices rating from AAA to A+ with standpoint negative. Grumpy\'s slices rating from Aaa to A1 with viewpoint stable. MBIA Insurance Corp. Fitch slices evaluations from AAA to AA with negative viewpoint. Touchy\'s and S&P remain Aaa/AAA with negative standpoint.

Slide 27

Rating Cuts Financial Guaranty Insurance Company Fitch slices evaluations from AAA to AA to BBB with viewpoint negative. S&P slices appraisals from AAA to AA to A to BB with viewpoint negative. Ill humored\'s slices appraisals from Aaa to A3 to Baa3, rating still under survey for further dow

View more...