FGIC’s bond insurance operations may be separated

New York regulators are eager to consider splitting Financial Guaranty Insurance Co.’s core bond insurance businesses to protect municipal credit ratings against costly downgrades and stem troubles in the debt markets.

FGIC said last week that it wanted to organize a new domestic financial guarantee insurer to “provide support for public finance obligations previously insured by FGIC.”

State Insurance Supt. Eric Dinallo said that “without capital infusions, this probably is the necessary outcome.”

Bond insurers have struggled as rating companies worried the firms had too little capital to cover a spike in claims. Rating companies fear rising mortgage delinquencies will spur defaults among bonds backed by the troubled loans. That would force insurers to pay out claims.