Risk & Compliance

Investors Push Firm for Credit-Risk Data

Principal Financial Group reveals it has $996.5 million worth of exposure to bond and mortgage insurers.
Sarah JohnsonMarch 5, 2008

The ongoing credit crunch and subprime-mortgage saga has heightened investors’ demand for knowing how much risk exposure their companies face.

In response to investors’ questions about Principal Financial Group’s ties to bond insurers and mortgage companies, the 401(k) services and insurance provider filed an 8-K on Tuesday outlining its $996.5 million vulnerability.

Spokeswoman Tina Marchetti tells CFO.com that the investors’ inquiries were informal, through the firms’ regular correspondence with them, such as E-mails or phone calls. Other financial services firms, such as Hartford Financial Services Group, Lincoln Financial Group, and Prudential Financial, have also included data about their exposure to mortgage insurers in recent regulatory filings, Marchetti says.

The Securities and Exchange Commission has wanted financial services companies to disclose more information to investors about their debt investments in the months since so many write-offs began rippling through Wall Street amid the subprime lending crisis. However, Marchetti says Principal Financial was not required to share the information provided in Tuesday’s 8-K.

Principal Financial lists the 10 so-called “monoline” and mortgage insurers it has exposure to as of Dec. 31, such as MBIA Inc. ($375.5 million), Ambac Financial Group ($234.1 million), and Radian Group ($23.7 million).

These insurers provided guarantees on $774.1 million of the underlying municipal bonds, corporate credit, or asset-backed securities, the firm says. Of that amount, 44 percent was municipal bonds, 40 percent was bank notes, 9 percent was in securities backed by subprime first lien mortgages, and 7 percent was corporate bonds.

The firm’s direct exposure to securities issued by the insurers totaled $222.4 million.