• The Star Staff

Gov't bond insurer raises claims payment percentages

By The Star Staff

The company that insures bonds from the Puerto Rico Highways and Transportation Authority (HTA) and the Puerto Rico Convention Center District Authority has increased certain insurance costs.

Financial Guaranty Insurance Co. (FGIC) said earlier this week it will pay increased aggregate cash amounts related to the policies covering some of the authorities’ bonds.

The FGIC says its 2013 rehabilitation plan defines the timing and amount of payments from FGIC on account of its policies covering the bonds. Consistent with the rehabilitation plan, FGIC recently announced that the New York State Department of Financial Services approved an increase in FGIC’s claims payment percentage to 44.5 percent from 43.5 percent.

“Accordingly, FGIC will pay increased aggregate cash amounts related to the FGIC Policies,” several filings sent to the markets this week state.

In the Electronic Municipal Market Access filing, the HTA said FGIC announced an increase to 44.5 percent from 43.5 percent on its claims payment percentage as approved by the New York State Department of Financial Services. The expected distribution date is Nov. 16, according to the filing.

Separately, the Convention Center District Authority also announced the same upward adjustment in FGIC’s claims payment percentage, and the notice filed, by trustee Bank of New York Mellon, indicates that the expected distribution date is also Nov. 16.

In further compliance with the plan, the Puerto Rico Fiscal Agency and Financial Advisory Authority understands that FGIC will transfer to the island’s fiscal agent the DPO, or days payable outstanding, Accretion Payment Amount, the statement says.

Bond insurance, also known as “financial guaranty insurance,” is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security. It is a form of “credit enhancement” that generally results in the rating of the insured security being the higher of the claims-paying rating of the insurer or the rating the bond would have without insurance.

The insurer is paid a premium by the issuer or owner of the security to be insured. The premium may be paid as a lump sum or in installments. The premium charged for insurance on a bond is a measure of the perceived risk of failure of the issuer. It can also be a function of the interest savings realized by an issuer from employing bond insurance or the increased value of the security realized by an owner who purchased bond insurance.