Sell Side

Ambac, MBIA Lose Their Moody's Triple-As

Ambac Assurance Corp. and MBIA Insurance Corp. lost their triple-A insurer financial strength ratings from Moody’s Investors Service Thursday.

Moody’s downgraded MBIA and its affiliated insurance operating companies five notches to A2 with a negative outlook and Ambac Assurance Corp. and Ambac Assurance UK Ltd. three notches to Aa3 with a negative outlook.

Moody’s had put the two insurance companies on watch for a possible downgrade on June 4.

Moody’s cited Ambac’s “significantly constrained new business prospects, its impaired financial flexibility, and increased expected and stress-loss projections among its mortgage-related risk exposures relative to previous estimates” as reasons for the downgrade.

Ambac’s negative outlook reflects uncertainties regarding the company’s future strategic plans and the potential for further adverse developments in its insured portfolio, Moody’s said. The company’s “substantive capital cushion at the current rating level” somewhat mitigates the risk, the agency said.

In the case of MBIA, Moody’s cited its limited financial flexibility and substantial risk within its portfolio of insured exposures, and a movement toward more aggressive capital management within the group.

MBIA’s portfolio is vulnerable to further economic deterioration, given the leverage contained in its sizable portfolio of resecuritization transactions, including some collateralized debt obligations, Moody’s said.

The agency said that while MBIA “remains strongly capitalized, estimated to be consistent with a Aa level rating, and benefits from substantial embedded earnings in its existing insurance portfolio, these other business factors led to the lower rating outcome.”

Standard & Poor’s downgraded the two insurers to AA and put them on negative watch on June 5.  Fitch Ratings downgraded both insurers to AA earlier this year. 




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