A sworn affidavit bearing the testimony of MBIA (MBI) Chief Financial Officer Edward Chaplin drudged up more negativity in the big-banks suit challenging the bond insurer’s 2009 restructuring.
In the affidavit, Chaplin admits certain errors were contained in pieces of information submitted to the New York State Department of Insurance when the bond insurer was trying to obtain permissions from the insurance regulator to siphon off $5 billion from its insurance subsidiary to create a second firm.
MBIA objected Wednesday to the characterization that the errors would have changed the outcome of the firm’s transformation request and approval since MBIA considers the errors to be minor, technical mistakes that had no impact on the insurer’s ability to remain solvent or obtain permissions for restructuring.
Chaplin’s affidavit shows him admitting that projections on financial data using hypothetical stress and extreme stress scenarios contained errors in the amount of allowable tax benefit on projected losses. The insurer allegedly took a deferred tax benefit all at once instead of over a long period of time.
While Chaplin admitted the firm made mistakes, he said, “None of these errors impact the department’s conclusion that MBIA would remain solvent after transformation.”
The affidavit also shows Chaplin discussing errors in assumptions the firm made on issues like the commutation of reinsurance policies, contingency reserves and an asset-swap transaction.
“The modeling errors referenced in Mr. Chaplin’s affidavit are primarily applicable only to the hypothetical extreme stress scenario provided to the insurance department in connection with its analysis and did not impact MBIA Corp.’s financial solvency or ability to meet its obligations to policyholders even in that hypothetical stress scenario,” MBIA said in a statement.
MBIA, in its defense, pointed to an affidavit containing information form Jack Buchmiller, a supervising risk management specialist at the New York State Insurance Department.
Buchmiller’s affidavit claims “had these errors been corrected at the time of my review, it would not have led me to change my conclusion regarding MBIA Corp.’s post-transformation solvency.”
Robert Giuffra, lead counsel for the policyholders and a partner at Sullivan & Cromwell, released a statement saying, “MBIA’s admission that its application to the NYID was riddled with multiple material errors confirms what the policyholders have said all along — namely that MBIA provided the NYID with inaccurate financial data and projections to secure then-Superintendent Dinallo’s approval of its $5 billion fraudulent restructuring. MBIA Insurance’s financial condition continues to deteriorate, and policyholders urgently call on the Department of Financial Services to order an immediate, independent, expert analysis of the solvency of MBIA Insurance.”
