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21 Nov 2008
Moody's downgrades Assured Guaranty to Aa2, Assured Guaranty Re to Aa3; outlook stable
New York, November 21, 2008 -- Moody's Investors Service has downgraded to Aa2 from Aaa the insurance
financial strength ratings of Assured Guaranty Corp. and its wholly
owned subsidiary, Assured Guaranty (UK) Ltd., (collectively
AGC); and has also downgraded to Aa3 from Aa2 the insurance financial
strength ratings of Assured Guaranty Re Ltd. (AG Re) and its affiliated
insurance operating companies. In the same rating action,
Moody's downgraded to A2 from Aa3 the senior unsecured rating of
Assured Guaranty US Holdings Inc. and the issuer rating of the
ultimate holding company, Assured Guaranty Ltd. (Bermuda).
Today's rating action concludes a review for possible downgrade
that was initiated on July 21, 2008, and primarily reflects
Moody's updated views on Assured's exposure to weakness inherent
in the financial guaranty business model. The outlook for the ratings
is stable, and the announced acquisition of FSA's financial
guaranty business is not expected to have a meaningful impact on the credit
profile of AGC or AG Re. The rating agency added that the acquisition
of FSA by Assured Guaranty will, if completed as planned,
create a combined entity with substantial financial resources and a strong
As a result of today's rating action, the Moody's-rated
securities that are guaranteed or "wrapped" by Assured are
also downgraded to Aa2, except those with higher published underlying
ratings (and for structured finance securities, except those with
higher published or unpublished underlying ratings). A list of
these securities will be made available under "Ratings Lists"
The downgrades primarily reflect Moody's view that the business
model of financial guaranty insurance has been damaged over the past year
due to sustained turmoil in credit markets and the very poor performance
exhibited by a number of guarantors. This has a number of specific
implications for AGC and AG Re. First, we see fewer new business
opportunities and weaker confidence in the industry overall. Second,
we believe the group's business position and financial flexibility
may be quite sensitive to potential changes in its risk profile.
Third is the impact that large and potentially correlated risk exposures
could have on the company's financial strength should the performance
of those exposures deteriorate, particularly in light of the current
economic environment. Finally, though somewhat less significant,
is Moody's expectation of greater losses on mortgage related exposures,
resulting in a modest deterioration of capital adequacy at both AGC and
In Moody's view, the level of demand for financial guaranty
insurance over the near-to-medium-term is less certain
than in the past, which has negative implications for the strength
and stability of both AGC and AG Re's business franchise.
There has been a sharp decline in structured finance business opportunities
in the primary market as a result of the current market dislocation,
and future structured finance underwriting opportunities are likely to
be tempered by concern over the volatility associated with certain structured
credits. While there continues to be a market for municipal bond
insurance, Moody's said that prospective opportunities in
the municipal sector may also be narrower than in the past given changing
perceptions about municipal risk among buyers, lower confidence
in the financial guaranty industry broadly and a trend toward alternative
forms of execution, including the issuance of uninsured paper.
Moody's noted, however, that while the financial guaranty
industry's importance within the US municipal market has declined
overall, AGC's relative competitive position in these markets
has been favorably affected by its position as one of three primary financial
guarantors with limited exposure to higher-risk ABS CDOs,
and that AG Re should continue to benefit from its affiliation with AGC.
Moody's also believes that customer demand may be inherently unstable,
with a very sharp fall-off in demand likely to result from even
moderate declines in a guarantor's credit profile. This susceptibility
to changes in credit risk profile creates a "demand cliff"
beyond that observed in most other industries. Furthermore,
the extreme sensitivity of a financial guarantor's franchise value
to changes in its risk profile also affects financial flexibility,
where even the best positioned firm could experience a dramatic constriction
of financing options if material losses were to develop.
AG Re's Aa3 insurance financial strength rating considers that as
a reinsurer, AG Re's franchise is not only impacted by the
broader challenges facing the financial guaranty industry, but also
by its reliance on the business volumes and capital management strategies
of AGC and other primary guarantors. As the highest rated financial
guaranty reinsurer, AG Re has a strong competitive position and
should continue to benefit from its affiliation with AGC. However,
with few active 3rd party customers, Moody's believes that
AG Re's principal role is likely to be as a vehicle through which
AGC can manage its own capital position; under stress scenarios affecting
both AGC and AG Re the group may have greater incentive to support AGC
than AG Re.
AGC's Aa2 and AG Re's Aa3 insurance financial strength ratings
and stable rating outlook reflect Moody's view that the aggregate
resources at both companies (including statutory contingency reserves
and contingent capital) provide a very substantial capital cushion above
expected loss levels. Assured's disciplined underwriting
strategy and municipal market expansion have resulted in a generally high-quality
and diversified insured portfolio beyond the firm's mortgage-related
exposures. Most non-mortgage exposures are performing well,
although the insured portfolio is exposed to transaction or sector deterioration,
especially in light of the increased risk of a prolonged and deep recession.
On November 20, 2008, Moody's released a report titled
"The Changing Business of Financial Guaranty Insurance."
The report, which can be accessed on Moodys.com, explores
the above mentioned industry challenges and vulnerabilities in the context
of Moody's financial guaranty rating methodology.
LIST OF RATING ACTIONS
The following ratings have been downgraded:
Assured Guaranty Corp. -- insurance financial strength
rating to Aa2 from Aaa;
Assured Guaranty (UK) Ltd. -- insurance financial
strength to Aa2 from Aaa;
Assured Guaranty Re Ltd. -- insurance financial strength
to Aa3 from Aa2;
Assured Guaranty Mortgage Insurance Company -- insurance
financial strength to Aa3 from Aa2;
Assured Guaranty Re Overseas Ltd. -- insurance financial
strength to Aa3 from Aa2;
Assured Guaranty US Holdings Inc. -- senior unsecured
to A2 from Aa3, junior subordinated debt to A3 from A1;
Assured Guaranty Ltd. (Bermuda) -- issuer rating
to A2 from Aa3;
Assured Guaranty Capital Trusts I and II -- provisional
preferred to (P)A3 from (P)A1; and
Woodbourne Capital Trusts I, II, III, and IV --
contingent capital securities to A1 from Aa2.
The following ratings were assigned:
Assured Guaranty US Holdings Inc. -- provisional
senior unsecured at (P)A2, provisional subordinated debt at (P)A3;
Assured Guaranty Ltd. (Bermuda) -- provisional senior
unsecured at (P)A2, provisional subordinated debt at (P)A3,
provisional preferred at (P)Baa1.
Assured Guaranty Corp., a wholly owned subsidiary of Assured
Guaranty US Holdings Inc., is a financial guaranty insurance
company based in New York. At September 30, 2008, Assured
Guaranty Corp. had net par exposure of $112 billion and
qualified statutory capital of $1.1 billion. Assured
Guaranty Re Ltd. is a financial guaranty reinsurance company based
in Bermuda with net par exposure of $115 billion as of September
30, 2008. Assured Guaranty Re and Assured Guaranty US Holdings
Inc. are wholly owned by Assured Guaranty Ltd. [NYSE:AGO],
a Bermuda-based holding company. As of September 30,
2008, Assured Guaranty Ltd. had total assets of $4.4
billion and $2.1 billion in GAAP shareholder's equity.
Senior Vice President
Financial Institutions Group
Moody's Investors Service
Financial Institutions Group
Moody's Investors Service
No Related Data.
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