Standard & Poor's Ratings Services upgraded ratings of bond insurers Assured Guaranty and National Public Finance Guarantee, the agency said Tuesday afternoon.
Assured Guaranty, the only insurer to continue operating through the 2008 financial crisis, received a boost to AA from AA-minus. MBIA Inc.'s National was raised to AA-minus from A.
The move means Assured will now boast the same rating as the only other active financial guarantor in the municipal market, Build America Mutual. BAM has had an AA rating from S&P since before it began underwriting business.
"The rating action reflects our view that Assured's competitive position remains strong relative to its peers' in the bond insurance industry," Marc Cohen and David Veno, S&P analysts, wrote in the report. "We believe that Assured no longer warrants a different rating than other recent entrants in the financial guaranty market based on its legacy structured-finance portfolio."
Assured's structured finance portfolio no longer carries a disadvantage associated with issuer and investor sentiment, S&P said in the report, and the insurer's timely payments in the event of high-profile defaults last year has lent its business credibility.
Market penetration by bond insurers was in free-fall leading up to 2013 after a precipitous drop in business following the financial crisis. The onset of the recession in 2008 left the industry responsible for just 19% of new bonds, and the amount of insured bonds has fallen yearly before an uptick in 2013 that left penetration at 3.6%.
Assured claimed 61% of the market in 2013 with $7.38 billion of insured bonds by par amount, while BAM insured $4.44 billion. Berkshire Hathaway Assurance had a single deal in 2013 that accounted for less than one percent of the market.
"We are pleased that S&P has recognized the strength of our competitive position and market acceptance along with our extremely strong capital base and our pricing discipline," Dominic Frederico, president and chief executive officer of Assured, said in a press release.
S&P's upgrade of National to AA-minus puts the insurer in the position to do business after a six-year hiatus dating back to the financial crisis, Mark Palmer, an equity analyst at BTIG Research, said in report following the ratings actions.
"[MBIA's NPFG] is poised to join buy-rated Assured Guaranty (AGO) and Build America Mutual (BAM) as the only active bond insurers," Palmer wrote. "During our meeting with [MBIA] management last week, National chief executive officer Bill Fallon said that it could take some time for the unit to ramp up."
While the rating implies that National is ready to insure transactions, Palmer said the National team will need to be cautious to avoid municipalities that may try to exploit the unit's eagerness to demonstrate its product.
"We view National's operating performance as strong, and believe the company will begin writing business with favorable pricing characteristics as it demonstrates good operating performance and profitability," S&P said in its report.
The rating on National could drop if the insurer doesn't meet the agency's pricing expectations, or falls short of adequate market share, S&P's Veno wrote.
