Assured Guaranty Corp.'s outlook improved to stable from negative at Moody's Investors Service, which affirmed its A3 ratings on the bond insurer and Assured Guaranty UK.
Assured's ratings reflect its strong overall capital profile and core earnings power, its ability to underwrite transactions in both the public finance and structured finance markets worldwide through its multiple insurance operating subsidiaries, the ongoing improvement in capital adequacy due to insured portfolio amortization, as well as its leadership position in the financial guaranty insurance sector, Moody's said in a release Monday. The rating service also affirmed stable outlooks and A2 ratings of Assured Guaranty Municipal Corp. and Assured Guaranty Europe.
"With this most recent report, Moody's, S&P Global Ratings and Kroll Bond Rating Agency have all now affirmed their ratings and stable outlooks for the financial strength of the Assured Guaranty units they rate," said Dominic Frederico, president and CEO of Assured. "All three agencies have indicated that Assured Guaranty's exposures to Puerto Rico credits are unlikely to affect their current ratings. With $12 billion in claims-paying resources, $400 million of annual income currently generated from our investment portfolio and a strong credit profile, Assured Guaranty is well positioned to help issuers reduce borrowing costs while protecting insured bondholders."
The release by Moody's also said that these strengths are tempered by the still depressed levels of financial guaranty insurance utilization, which leaves the company with a limited opportunity set within this niche sector. Other challenges include the potential for volatility in earnings and capital arising from large single risk exposures within its insured portfolio, and the firm's elevated levels of below-investment grade risk exposure, including substantial exposures to the Commonwealth of Puerto Rico and its affiliated debt issuers.
As part of its analysis of Assured's Puerto Rico exposures, Moody's contemplates a variety of loss given default (LGD) scenarios largely based on the LGD-range implied by Moody's ratings on various Puerto Rico issuers. Moody's most recent analysis suggests that Assured's Puerto Rico related losses are likely to be manageable within the context of its capital resources and core earnings power.
"As of second quarter of 2016, AGM and AGC had approximately $2.1 billion and $1.7 billion, respectively, of total net par exposure to Puerto Rico issuers, representing approximately 56% of AGM's qualified statutory capital and 71% of AGC's QSC. In our current base case Puerto Rico loss scenario, AGM's claim losses are expected to be mostly an earnings event with the potential for a modest impact on its capital given AGM's lower sensitivity to Puerto Rico losses and its strong earnings profile. While our stress scenarios indicate that AGC will experience higher levels of losses as a percentage of its capital, the resulting deterioration in capital is expected to remain consistent with AGC's current A3 rating level except in the most adverse scenarios," said the Moody's release.
Assured Guaranty's Municipal Assurance Corp. subsidiary has no exposure to Puerto Rico.
