Financial Guaranty Insurance Co. has swung into high gear in an effort to "reinvent" itself, redeploying employees into task forces to examine possible new business ventures, market sources say.
Diversification has been an ongoing theme among all the major bond insurers in recent years. Expansion into areas like structured finance, international markets, guaranteed investment contracts, and money management have been explored by FGIC and its major competitors, AMBAC Indemnity Corp. and Municipal Bond Investors Assurance Corp. In addition, AMBAC recently unveiled a municipal swaps subsidiary, while FGIC offers short-term liquidity for variable-rate debt.
But FGIC's current efforts appear to go beyond the scope of what is being done at the other insurers, and could ultimately lead the firm into businesses less closely related to bond insurance, according to several sources who follow the industry.
"There are some major changes pending" at FGIC, said an industry analyst who spoke on the condition of anonymity. "They are re-evaluating the core business and their relationship with GE Capital." GE Capital Co. owns 99% of FGIC.
As the only major bond insurer without public stockholders. FGIC has an ownership structure that is unique in the insurance industry. And in recent months FGIC officials, led by president and chief executive officer Ann C. Stern, have touted FGIC's relationship with GE Capital as a way the firm can differentiate itself in an industry that is becoming increasingly homogeneous.
With its triple-A ratings and abundant funds, GE Capital makes it possible for FGIC to diversify without extra risk at the insurance company's level. Industry sources speculate that this will permit the firm to move into areas beyond the reach of other insurers.
"They are trying to distinguish themselves from MBIA and AMBAC by their link to GE Capital," said one rating agency analyst, who also asked not to be identified. "They are doing everything they can to develop new products that exploit that relationship in a way MBIA and AMBAC can't duplicate."
As part of that effort, market sources report there has been a major "shake-up" in the firm's surveillance group and that individuals in other departments have been put on temporary assignment.
"It's inappropriate to characterize what we're doing as a shake-up," said Mark H.S. Cohen, who recently joined the insurer as managing director of strategic planning and business development. "But yes, certain individuals have been temporarily assigned to get involved in new ideas [and] to examine whether they would be an avenue the company wants to follow.''
For example, Steven J. Allard, a director in the utilities and transportation group, is working on "special assignment for an undetermined length of time," according to Allard's voice mail message. Kathleen M. Evers is now running the utilities group, the message says.
Cohen said the initiative is being driven by the maturation of the insurance industry's core market, tax-exempt bonds, but declined to specify what new lines of business are being pursued.
"This is probably the most challenging time for the industry, and a very opportune time to [see] what are the skills we have that we can use to develop new products and businesses," Cohen said.
One source familiar with the developments said GE Capital is so concerned about future growth in the bond insurance business that FGIC needs to act now to avoid forced staff cuts down the road.
"'Reinvention' could be a euphemism for layoffs," one source said. "FGIC is the most understaffed of the big three [insurers], but GE Capital still feels they have too many people serving the bond insurance business."
FGIC officials deny that layoffs are in the works or that a rift exists between FGIC and GE Capital on the future of the company.
"The view on bond insurance at FGIC and GE Capital is totally aligned," Cohen said. "The people at GE Capital and FGIC recognize that a good strategy is to continue our commitment to the core business of bond insurance and see what other things FGIC can involve itself in a prudent way that will increase shareholder value."
While FGIC officials have reaffirmed the company's commitment to the tax-exempt market, the firm's appetite for the current low-premium environment has not been robust.
FGIC's share of the insured municipal market has been steadily dwindling, falling to 22.3% in the first nine months of the year compared with 25.4% in the same period last year. And FGIC's 49.3% decline in overall activity in the first three quarters of the year out-stripped the 42.2% drop in insured volume.
