White Mountains Funds New Municipal Bond
Bermuda-domiciled White Mountains Insurance Group, Ltd. has capitalized HG Global Ltd. with approximately $600 million to fund Build America Mutual Assurance Company [BAM] through surplus notes and to provide reinsurance support for municipal bond insurance risks underwritten by BAM.
BAM, the only mutual bond insurer in the financial guaranty industry, is rated AA/Stable by Standard & Poor’s Ratings Service and regulated by the New York Department of Financial Services. BAM is chartered to serve the U.S. municipal bond market exclusively, with a clean balance sheet and first loss protection from a long-term reinsurance agreement with HG Re Ltd. (“HG Re”), a wholly owned subsidiary of HG Global. Led by co-founders Robert P. Cochran, Managing Director and Chairman of the Board, and Sean W. McCarthy, Managing Director and Chief Executive Officer, both veterans of the bond insurance industry, BAM is owned by municipal issuers, who benefit directly from a stable insurer dedicated to serving them.
Ray Barrette, Chairman and CEO of White Mountains, said, “Bob and Sean, our old partners from Financial Security Assurance (FSA), have created a unique organization to serve the municipal finance market. We are very excited to be part of such an innovative solution to the financing needs of local governments. BAM expects to write its first policies in September.”
HG Global has provided the initial capitalization of BAM through the purchase of approximately $500 million of BAM surplus notes. HG Re, a Bermuda-based special purpose insurer, provides 15%-of-par, first loss reinsurance protection for policies underwritten by BAM. HG Re’s obligations to BAM are collateralized in NY trusts. HG Re has contributed $300 million of BAM surplus notes and $100 million in cash to the collateral trusts as initial reinsurance capital support. The reinsurance treaty between BAM and HG Re is continuous with limited amendment provisions in order to guarantee BAM the long-term support it requires for its obligations.
White Mountains owns 98% of HG Global’s preferred equity and 89% of its common equity. Management owns the remaining equity either directly or under a restricted share award agreement. White Mountains expects to syndicate approximately $110 million of its investment to interested investors in the near future to broaden the support for BAM.
HG Global has filed a patent application covering this unique structure with the U.S. Patent and Trademark Office.
