Market participants yesterday generally agreed there is room for another municipal bond reinsurer, although the company that last week announced its intention to fill that need still has a long road to travel.
Officials at Municipal Insurers Reserve Corp. -- or MuniRe, as the new company will be called -- said yesterday they hope to have the monoline reinsurer up and running by the end of the year. But they stressed they are still early in the process of gathering the capital required, securing needed licenses, and convincing a rating agency they are worthy of a triple-A.
Still, most market participants say they would welcome a new source of capacity, and even MuniRe's potential competitors said there is room for new entrants.
"There's always a need on the primary side for a new reinsurer," said Daniel Gross, president of Enhance Reinsurance Co., referring to numerous issues on which capacity has reached its limits. "So any new player obviously has some start on the names where the rest of the industry is filled up."
But Mr. Gross, whose company is one of the two major monoline reinsurers with whom MuniRe will compete, said making inroads with other issues would be trickier.
"It's very rare to find an issue that needs to be done that can't be done between us, Capital Re, and the others," he said, referring to Enhance's current major competitor, Capital Reinsurance Co., and a handful of foreign multiline companies that reinsure a small amount of municipal debt.
Other insurance officials, noting the boom in refundings and record-breaking insured new-issue volume, said another reinsurer would probably not be seen as a threat to any established names and would be an asset to the primary insurers.
"We welcome new participants and new capital to the industry," said Robert P. Cochran, president and chief executive officer of Financial Security Assurance. "We think the industry is poised for substantial expansion over the next decade, and access to reinsurance will help facilitate that growth."
James Ferry, MuniRe's chief executive officer and a former board member and senior vice president at AMBAC Indemnity Corp., said the process is still so preliminary that it would be premature to discuss the organization's strategy or outlook on the reinsurance market.
But, he said, he and about six other insurance industry veterans decided to spearhead MuniRe to fill a market need. "There seems to be a need for additional capital in the business," Mr. Ferry said.
Both Enhance and Capital Re are doing an excellent job of helping the primary insurers increase their market flexibility, he said, adding, "If we were able to imitate them, we'd be very fortunate."
MuniRe officials are now trying to raise the $75 million in capital New York State requires of new insurers. But the company's goals will have to be even higher than that in order to meet rating agency standards, explained Thomas Oechsler, general counsel for the company.
In order to win a AAA rating from Standard & Poor's Corp., MuniRe will have to raise at least $100 million, Mr. Oechsler said.
Richard Smith, a senior vice president at Standard & Poor's, said the amount reflects a determination of how big a reinsurance portfolio must be to diversify adequately against default risk. Both Enhance and Capital Re have AAA ratings from Standard & Poor's.
Moody's Investors Service last week awarded Capital Re an Aaa, the first time a reinsurer has earned that rating from Moody's. Enhance is far along in Moody's rating process, as well, but MuniRe will not immediately seek a rating from Moody's, Mr. Oechsler said.
MuniRe will also limit its business to municipal bonds and will not venture into asset-backed or corporate issues, he said, explaining that the company sees enough opportunity on constrained municipal credits that existing insurers and reinsurers can no longer cover because of capital requirements.
In addition to Mr. Ferry and Mr. Oechsler, MuniRe's founders include Eugenia T. Burzynski, a co-founder of Connie Lee Insurance Co., who will be head of underwriting. Ms. Burzynski held a similar position at Connie Lee.
Michael H. Lobb, a co-founder of Financial Guaranty Insurance Co., will be the chief financial officer, and Patricia A. Doyle, president of a Boston-based consulting firm, will be in charge of reinsurance marketing. Lawrence L. Singer, a vice president at Fairmount Capital Advisors in Philadelphia, was instrumental in pulling the group together and will head up strategic planning and corporate development, according to Mr. Oechsler.
Thirteen people are listed as participants on MuniRe's legal notices, but seven will not have an active role and are included to meet minimum New York requirements for a new company, Mr. Oechsler said.
