NEW YORK (Bloomberg) — MBIA Inc., Ambac Financial Group Inc. and the rest of the bond insurance industry will have to disclose troubled securities they insured and speed the pace of reserving against deteriorating credits under new accounting rules announced yesterday.
The Financial Accounting Standards Board (FASB) will require bond insurers to recognize a claim liability when there is evidence of credit deterioration rather than waiting for a default, according to a statement posted on the accounting group’s Web site. Bond insurers also will be required to disclose securities on their watch lists and provide more information about risk management.
The rules, which took almost three years to develop, are part of an effort by the Norwalk, Conn., board to standardize accounting by financial guarantee insurance companies. Bond insurers have posted record losses as they boost reserves for expected claims on securities backed by subprime mortgages and home-equity loans, often using different methods.
The change “is particularly timely in light of recent concerns about the financial health of financial guarantee insurers, and will help bring about much-needed transparency and comparability to financial statements,” said Mark Trench, project manager for the new FASB rules.
The rules are effective for financial statements issued for fiscal years that begin after Dec. 15.
Bond insurers have used different methods to reserve against claims, making comparisons across the industry difficult, FASB said. Some insurers set aside reserves based on a percentage of premiums received during a period while others reserve based on a drop in the credit ratings of specific bonds they back.
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