By Brian E. Clark
MADISON – Wall Street is wobbly, credit markets are imploding and two
firms with deep Wisconsin ties have been battered by problems in the
mortgage and the bond insurance arenas.
But neither MGIC Investment Corp., the Milwaukee-based mortgage
insurance company, nor New York-based Ambac, which was founded in
Milwaukee and sells financial guarantee insurance, are in danger of
failing, according to Sean Dilweg, the state’s insurance commissioner.
He said MGIC, which reported a $1.5 billion loss in the last quarter,
and Ambac, which is struggling to keep its triple-A rating, both have
adequate reserves and remain healthy companies. Shares of MGIC closed
Tuesday at $15, far below a 52-week high of $67.05, while Ambac’s stock
closed at $7.73, only a fraction of its 52-week high of $96.10.
“But both companies are very well capitalized and, as I see it, should
be able to weather the fallout from the subprime market,” he said.
Over the whole insurance sector, Dilweg said Wisconsin companies are
well off because of reforms dating from the savings and loan crisis of
“Our property and casualty and our life insurance companies are not
exposed to the subprime mortgage ‘meltdown,’” he said.
However, MGIC and Ambac, which is domiciled in Wisconsin, have suffered
major losses because of what they insure.
“Obviously, with mortgage insurance, MGIC has very publicly talked
about the challenges it faces as it navigates through this collapse,”
Dilweg said Ambac and other bond insurers will have a market in the
future. But he said the company got into trouble because it “was
wrapped around some very complicated credit debt obligations (CDO’s)
coming out of the subprime market.
“We are finding that as the market collapses and foreclosures occur,
the value of these are plummeting,” he said.
Ambac announced plans last week to sell $1.5 billion of equity to pump
money into its capital base and keep the triple-A rating for its
insurance unit. But investors were not impressed, and shares plunged
more than 15 percent to $9.05.
Dilweg said the subprime mess has caused student loans to become more expensive and difficult to get.
“As you peel back the onion, you start to see a lot of very complicated interaction…
“It’s the whole marketplace and I wish the federal regulators that
regulates banks would not have allowed these products to arise. But
they did, so the drive to insure them did as well.
He said MGIC is in a different area than Ambac and is “literally
dealing with homes that are being foreclosed.
“In a normal market, if you have a home that is foreclosed on your
block, and the market is healthy, it will be turned around and sold in
no time,” he said.
But these aren’t normal times and banks and mortgage insurers are
exposed to a great deal of risk, especially in states like California
and Florida, where foreclosed home are not being sold and remain on the
“But MGIC has more than $4 billion (in reserves) and they can weather
this,” he said. “Also, as the credit markets tighten, their role
becomes even more important as people refinance because normal loans
require mortgage insurance.”
Dilweg said his office is also concerned about how wealth will be
transferred from aging Baby Boomers to their offspring in coming years.
He called it one of the biggest issues facing his office in the coming
“We are entering the largest transfer of wealth this nation has ever
seen,” he said. “What financial instruments will they use?
“Do they use annuity based life insurance, variable or fixed? All these
financial products are intertwined between insurance and banking. The
reason we were created in the state’s constitution was to adequately
inform the consumer about what they were buying.”
Dilweg said he also supports efforts in the Legislature to mandate
autism coverage by insurance companies. Separate bills have been
approved by the state Assembly and Senate, but the chance of the two
chambers reaching a compromise by the end of the session on Thursday is
considered iffy at best.
“It’s something you just can’t ignore,” he said arguing that early
treatment of autistic children will save schools and society money and
help them be more active participants in society.