Deposit Insurance

NY Insurance regulator tells FGIC not to pay claims

(Reuters) - New York’s insurance regulator has told bond insurer Financial Guaranty Insurance Co to suspend paying claims as of Tuesday, because it is in violation of the state’s minimum capital requirements, the company said.

FGIC, a smaller rival to bond insurers Ambac Financial Group (ABK.N) and MBIA Inc (MBI.N), said it would cease to make the payments, as ordered.

The order comes four days after FGIC filed its quarterly statement with the New York Insurance Department, which showed that it had a deficit of $865.8 million at the end of September.

FGIC said it was working on a restructuring plan to address the capital shortfall. Steps it could take may include transactions to rid it of certain liabilities, including the commutation, or cancellation, of guarantees it sold for certain asset-backed securities.

FGIC must submit a plan showing how it would restore capital to the New York insurance superintendent no later than Jan. 5, 2010, according to the company’s statement. Failure to do so could result in the New York insurance department moving to either take-over or liquidate the company.

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