Financial Security Assurance Inc. yesterday saw its stable Aaa rating affirmed by Moody's Investors Service, which cited the bond insurer's strong capital position and improved market position.

The affirmation came despite some noticeable deterioration in the insurer's home equity line of credit business, which should be monitored, Moody's said.

FSA has been the rare winner in the recent bond insurer troubles, capturing even more of the insured market, along with similarly untroubled Assured Guaranty. Both guarantors are rated triple-A by all three rating agencies.

"FSA has been able to take advantage of the current environment by generating high-quality business at historically strong premium rates," Moody's said in the report. "[Their] large underwriting volume is also an important indicator of the perceived value of financial guaranty insurance by the capital markets more generally."

FSA has written 384 deals worth $8.2 billion so far in 2008, according to Thomson Financial. This makes them the busiest bond insurer by far, capturing 59.9% of the market, Thomson data shows. Fellow triple-A Assured Guaranty has written 145 deals worth $3.9 billion, for 28.4% of the market, according to Thomson. The next closest insurer, MBIA Insurance Corp., has insured 1.8% of the market this year.

FSA's estimated stress-case losses would be about $4.5 billion, including $1.1 billion in mortgage exposures such as home equity lines of credit, Moody's said. The total losses are about $2 billion less than Moody's estimate of FSA's claims-paying resources, giving the financial guarantor a total capital ratio of 1.4 times. This exceeds Moody's Aaa target level, the rating agency said.

The reserves were shored up in February when FSA's parent, Dexia SA, contributed $500 million in capital, allowing the bond insurer to underwrite more business and still keep a total capital ratio above Moody's target. Dexia's pledge of capital at a time of increased volatility in the financial guaranty business is considered a strength, Moody's said.

One area of concern for Moody's is Financial Security Assurance Holding Ltd.'s alleged involvement in bid rigging of guaranteed investment contracts. Last month, the SEC notified the company that it was considering a civil injunction or bringing an administrative proceeding against it, which could place "incremental negative pressure" on its ratings, Moody's said.

Meantime, Standard & Poor's yesterday published the underlying ratings on more than 19,000 insured municipal issues in what it said was an effort to increase transparency. As the ratings of the bond insurers remain volatile, investors have for several months looked to the underlying credit of insured bonds to judge the credit quality of the issue.

Based on an analysis of that credit quality, Standard & Poor's said nearly 90% of the underlying credits on insured issues were at A or better. The sample size represents about 60% of all public finance insured issues which were concentrated in the sectors of tax-backed, appropriation, and utility issuers, the rating agency said.

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