Thursday, January 24, 2008

Wisconsin insurance commissioner suddenly has some very big, Ambac-size shoes to fill

When Wisconsin governor James Doyle appointed Sean Dilweg state insurance commissioner a year ago, I doubt he imagined his appointee would be called on to help save the U.S. financial system. If he had, I imagine he might have looked for someone with a little more more hardcore financial experience.

Don't get me wrong. Mr. Dilweg looks like a nice guy, and as a former English major myself, I'm always happy to see an English major play a significant role in public life, especially when his educational credentials are butressed by a Masters in Public Administration from the La Follette Institute of Public Affairs at the University of Wisconsin-Madison.

But it's not immediately clear what his resume of jobs in state government contributes to his ability to help keep bond insurer Ambac Financial Group Inc, the troubled Wisconsin-chartered insurance company he regulates, afloat. (Nor is it immediately clear why Ambac, which is based in New York, is chartered in Wisconsin in the first place, but I'm sure it's related to the informed regulatory oversight we here in the Midwest can provide to such a complex business.)

In a quick Google News search, it's hard to find much of anything about Mr. Dilweg prior to this week. He apparently kept a pretty low profile as insurance commissioner. But he's all over the news pages now, in stories about Ambac, which is one of two bond insurers -- the other is MBIA -- that have been hard hit by the downturn os the subprime mortgage market.

The NYT had an eye-opening lead story this morning about how the anticipated downgrade by the ratings agencies of the two insurers' ratings threatens the state and municipal bond markets, which they also insure, along with the big banks that hold many of these securities. In short, it threatens the stability of the whole financial system, and the article seems to suggest the crisis may have been behind the Fed's sudden, precipitous interest rate cut earlier in the week, which may have been intended to prop up stock prices long enough to complete the recapitalization of the troubled insurers.

Eric R. Dinallo, the New York insurance superintendent who regulates MBIA, is taking a lead role in meeting with Wall Street executives to arrange for a capital infusion for the two companies. But as the Times notes, Mr. Dilweg is also involved, because he regulates Ambac.
Sean Dilweg, the commissioner of insurance in Wisconsin, which regulates Ambac, sat in on the meeting but said he would be working with Ambac directly. Mr. Dilweg said he met separately on Tuesday with executives at Ambac, which is based in New York but chartered in Wisconsin.

“Eric is looking at the overall issue, but I am pretty confident that we will work through Ambac’s specific issues,” Mr. Dilweg said in a telephone interview. “They are a stable and well-capitalized company but they have some choices to make.”
That's what he told the Times yesterday, and he seemed equally optimistic today when he was interviewed by Reuters.
But the second-largest bond insurer in the United States is still well-capitalized, said Commissioner Sean Dilweg in an interview with Reuters.

To the extent that Ambac needs to raise capital to maintain its debt ratings, it should be able to, Dilweg said.

"I'm not concerned with capital coming in in the future here," Dilweg said. "They've been having some very positive discussions."
Reassuring words. Trouble is, they're coming from a state insurance commission that was as surprised as anyone that Ambac's insurance portfolio turned out to be as risky as it was. Are you reassured?

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