Q: AMBAC has begun a campaign to differentiate itself from the other companies. What themes are you stressing?

A: Where you can sit back and differentiate yourself is through ideas that you generate, how you deliver your product, how that product gets positioned. I think price is important in this business, and you can differentiate yourself through how you respond to customers, how you look at transactions.

Q: How do you think the market perceives AMBAC today, and how do you want to change that perception?

A: I think in the old AMBAC you had a little bit of a checkered past. You had the Baldwin United issue back in the early '80s and Citicorp taking it over until it went public back in July of 1991.

Our people like the fact that we have regional reps, but I'm not sure they were very happy with how responsive we were in all cases.

What we're trying to do in the new AMBAC is work with the regional reps and work with the underwriters more closely, having senior management involved in it, developing more of a team approach. In many companies, if it's something different, it just gets turned down. We take things that are different and we talk about them. That doesn't mean we can do them in all cases, but we sit and talk and we're willing to listen. And as a result, we've seen a number of different deals that we've been able to do.

And it's much more integrated from a client service standpoint and an underwriting standpoint, and this has helped dramatically the concept of teamwork. I think in the past it was more committee driven. The problem would be that the deal would be negotiated, go to senior credit committee, then you'd have to go back and take another avenue and renegotiate it again based on what came out of senior credit committee.

Now we get the seniors involved in the deal up front and very rarely do we have to go back now and say, "Let's renegotiate."

Q: Municipal Bond Investors Assurance Corp.'s advertising campaign is aimed partly at the retail customer. Yours seems different.

A: Ours is aimed at both retail and institutional, but primarily institutional at this point, based on how people buy, which is through investment bankers and financial advisers. Very few people are going to go to somebody and say, "I want this type of insurance." It's pretty much driven by the intermediary.

So we're trying to really get to the issuers, the financial advisers, and investment bankers to explain to them what we do. That's our customer base, to a large degree.

We may do something [aimed at the retail sector] in the future. It's a much more difficult process to do. It takes longer, and is much more expensive. longer,

Q. Another way the three largest insurers differentiate themselves is in new product ventures. What are AMBAC's focuses in that area?

A: We are always looking at new products. HCIA, which is Health Care Investment Analysts, has probably got the largest data bank and the most comprehensive information in the health-care business. That we look at as a complementary business because it helps us in underwriting our health-care business.

We have Acme, which is our investment management affiliate where we manage our own money as well as doing investment agreements. I think over time we will look to expand that business.

So we are not interested in going out and trying to do a whole host of new things. We are looking at some joint ventures, looking at some other opportunities.

Q:Another area that distinguishes AMBAC is that it has not yet made a major foray into structured finance like some of its competitors.

A: We're looking at structured finance transactions, primarily on the mortgage side. We are not going to go out and do something that we don't have the knowledge base for. We will look at things in structured finance and we will become more active in that business over time.

We've looked at a few deals, we've bid on a few deals, but we're not going to go out and develop a structured finance business when we don't have the knowledge base.

Q: But you've bid on some mortgage deals?

A: Yes, mortgage-type structures. We did not get it based on our pricing, but we did a bid and we will continue to do that. We will look at the structured finance area, but we don't want to go too far afield. I've just seen too many companies do that. I think it's a mistake.

Q. What about overseas? Europe and Japan are areas where some of the other companies are looking. What are you up to there?

A: Overseas we have pretty much taken a position that it's on the back burner. We have a few individuals in the company who have a pretty good background in overseas business and know the market overseas, so I think if we wanted to do something we could do it.

But in a lot of those markets to go in and to spend a lot of time and a lot of effort and resources trying to build up a business overseas, and take two to three to four years building something up overseas - it's then very easy for competition to come in and follow you in. That doesn't make a lot of sense to me. There's enough here in the U.S.

In the future will we do that? I really don't know. We have a pretty good knowledge base of Asia, a little bit less so in Europe. But in the organization we have some contacts that want to do something overseas. We could get established, but I just don't think it makes sense today for us.

Q: Capital Guarantee has filed its registration for an initial public offering, and Financial Security Assurance might do the same thing. How has public ownership worked for AMBAC?

A: For AMBAC it's not really been a problem. You're sitting back explaining to investors how you're going to operate. how you're going to function. It's a little bit different when you're dealing with a group of investors than if you're dealing with a parent corporation, in terms of what your responsibilities are, how you function.

But in terms of how it's affected how we operate, that's not really been a big difference.

Q: What are your thoughts about the changing business of reinsurance?

A: As premiums have come down a little bit, there's been more of a desire for the primary insurers to keep more of the premiums. More of the stuff s being done on a facultative, or case by case, basis. Reinsurers have shared in the boom, but not as much as the primary insurers.

We have looked at some of the treaties we have with some of the reinsurers overseas, and I think we've had to restructure that because of the downgrades that some of them have had.

We are still continuing naturally to work with the reinsurers in the U.S., the primary ones, and I think we'll continue to do that in the future. Keeping our portfolio diversified and keeping our leverage low is very important to us.

Q: How are the federal government's investigations of the municipal bond industry and the debate about the relative merits of competitive versus negotiated underwriting affecting the insurers?

A: I think people just jump on the bandwagon: I don't think it's as bad as it's let out to be. I just think this thing tends to get blown out of proportion.

Maybe some deals are done negotiated when they should be done competitive and I would not argue with that. But to say most deals or all deals should be done competitive, or the preponderance of them should be done competiuve, that's going to be very, inefficient in the marketplace. For people to make that statement, I think it's a little bit silly.

Q: Some official say they are willing to accept that inefficiency to avoid the appearance of conflicts of interest.

A: Anybody can say, "I'm willing to pay the extra costs and the inefficiencies because I don't want to take the political heat." That is not a good economic decision. That's a political decision.

I have no arguments with people making political decisions. Everybody has to protect their job. Everybody has to sit back and say, "Okay, what do I do to make sure that I keep the pressure off me?"

Now if they're willing to do that. I think they will end up paying more, and I think on some deals, some of the underwriters may have some problems trying to bid on them.

Q: and A:

Do municipal bond insurance companies have distinct personalities, or are the top financial guarantors all the same kind of company offering the same kind of product?

Executives at AMBAC Indemnity Corp., like their counterparts at Municipal Bond Investors Assurance Corp. and Financial Guaranty Insurance Co., have been dismayed to find that many investors do not differentiate among the top three bond insurers. After all, each has strong market share, triple-A ratings, and a history of sound underwriting.

And now each has mounted advertising and investor relations campaigns, of varying intensity, to make themselves stand out.

AMBAC's effort is a major $1.5 million advertising drive appearing in several national media outlets, including The Bond Buyer. The themes include client service, responsiveness, and teamwork.

AMBAC, which takes credit for writing the first municipal bond insurance policy in 1971, was a wholly owned subsidiary of Citibank from 1985 until February 1992, when the second phase of an initial public offering was completed. Today the company is 100% publicly owned.

Joseph E. Van Houten, an executive vice president, is head of the company's public finance and client services division. Van Houten recently spoke with the New York City bureau chief Steven Dickson about the company's new effort to distinguish itself from the pack, and about the climate for insurers in general.

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