Monoline bond insurers, the actors (at least, the ones I've found):
ABK, Ambak, Mister "Financial Peace of Mind" -- the largest bond insurer; traded bonds AKT, AKF, GJW
MBI, MBIA, Mister "Wisdom in Action" -- the second largest bond insurer
FSA -- unlisted, one of the "big 4" monoline bond insurers, acquired by Belgian bank Dexia in 76; the most unlikely to be downgraded according to Fitch and Moody's stress pre-tests, said to be one of the few monolines which stuck to bond insurance and resisted the siren call of CDO insurance.
FGIC Guaranty -- unlisted, one of the "big 4" monoline bond insurers, owned by PMI (42%), GE and private capital.
CIFG -- unlisted, recent entry, the most likely to be downgraded according to Fitch and Moody's pre-tests, owned by French company Natixis SA which is in turn held by large French banks -- no to way to short stock here.
SCA, Security Capital -- new kid on the block, spun off from XL Capital last year (interesting timing for the spin-off, because XL retained a couple of dozen other specialty insurers). "SCA's core strength is in its structured finance business, and it is a leader in the insurance of new, innovative structures," wrote Bank of America analyst Tamara Kravec
AGO, Assured Guaranty -- has some exposure to subprime RMBS and CDOs of ABS; also mortgage insurance and title insurance; recently bought shares in other monoline insurers.
RDN, Radian -- mainly private mortgage insurance, but has also writes bond insurance
ACA, ACA Capital -- sells credit default protection; the first monoline insurer in real difficulty during this cycle
RAMR, RAM Holdings -- a small company that writes re-insurance to seven bond and structured finance insurers, backed by assets such as "residential mortgage loans" ... see note below
PRS, Primus Guaranty, with a traded longterm (2036) 7% senior bond PRD -- sells credit default protection, and recently began selling credit swaps against ABS rated BBB/Baa or higher. "Primus and Athilon were set up to provide protection against default on corporate credit and CDOs through derivatives that require no collateral, hence they can take on levels of risk exposure that are up to 30 or 40-times their capital base."
Channel Re -- unlisted, small re-insurer, captive re-insurer for MBIA, owned by MBIA together with several re-insurers -- see my subsequent post on MBIA manglement which will touch on this strange arrangement.
Assured Guaranty Re -- ??? (perhaps this is part of the Assured Guaranty, AGO, constellation), unlikely to be downgraded according to stress pre-tests
BluePoint Re -- unlisted, 100% owned by Wachovia
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RAM Re is a particularly interesting, or strange, company. It is a little company which sells re-insurance to all the monoline bond insurers. It takes on a small proportional part of the risk of their deals. I haven't personally tried to understand whether RAM tries to select the better deals or whether the other companies try to offload the worse deals on them -- but I've read that RAM just tries to take an equal slice of all the deals. RAM's assets are, if I remember correctly, managed by Ambak, so it is sort of a "virtual" company. Why does this company exist? -- I thought re-insurers should big solid companies that can absorb major risks.
You can look at RAM Re as a kind of index on the whole monoline bond insurer industry (with details to be verified). You could go long or short on RAMR depending on your view of the industry, or you could use RAMR to hedge a position on one of the other monolines.
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From what I picked up on the internet (especially information from Satyajit Das and Chris Wood), I have become very skeptical about the structured finance arrangements,
I learned about this particular sector from Pershing Capital / Ackman's "bagholder" attack on Ambac and MBIA. But I also came across SCA, which struck me as an equally good if not better short candidate. For a few months I have been short SCA (my favorite in this space), ABK, MBI, and PMI as a play on FGIC, but also at times, to a lesser exent, AGO and RAMR. I even got a small borrow on ACA several weeks ago (I've been watching ever since Barron's "ticking time bomb" attack ... when shares were finally available, I decided to go short in three steps over three days ... but the window of opportunity closed after one day).
I'm still thinking about what I would like to do now with these short positions while the rating agencies are redoing their stress tests.
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Also, other kinds of housing related insurers are interesting short candidates: mortgage insurers (PMI, RDN, MTG, don't forget the smallest TGIC); title insurers (FAF, FNF, LFG, STC); the tiny company ITIC does several things including writing title RE-insurance; ORI does some title and mortgage insurance; GNW does considerable mortgage insurance.
Alan |
