Moody’s Investors Service Friday night downgraded both Assured Guaranty Corp. and Financial Security Assurance Inc. from Aaa, leaving the municipal market without any insurers with triple-A ratings from all three rating agencies.
Moody’s
Moody’s said its downgrade of Assured “primarily reflects Moody’s updated views on Assured’s exposure to weakness inherent in the financial guaranty business model.” The downgrade of FSA reflects its “diminished business and financial profile resulting from its exposure to losses on U.S. mortgage risks and disruption in the financial guaranty business more broadly,” Moody’s said.
Assured Guaranty Ltd. president and chief executive officer Dominic Frederico
“We are disheartened by Moody’s downgrade of the debt and insurer financial strength ratings of Assured and its subsidiaries, despite our best efforts to address each and every concern raised by Moody’s during the review process,” Frederico said. “In a market environment that requires more measured and consistent approaches from regulators, legislators and the rating agencies, Moody’s behavior has been counterproductive. Their repeated and prolonged credit review process has exacerbated investors’ fears and harmed overall financial market credibility, which ultimately has created more uncertainty about the value of our product than was necessary.”
Frederico said Moody’s should have placed less emphasis on the near-term industry factors — which he called “highly subjective” — and more on the insurer’s capital adequacy and portfolio quality, which reflects its ability to pay any claims when due.
Robert P. Cochran, chairman and chief executive officer of Financial Security Assurance Holdings and FSA,
“We disagree with Moody’s on a number of points and believe that the downgrade to Aa3 reflects hypotheses about future market and credit environments rather than the fundamental credit strength of the company,” he said. “Based on its special comment on the financial guaranty industry published yesterday, it appears that Moody’s has moved in the direction of believing that no financial guaranty company can be rated Aaa.”
Moody’s has had both companies on review for downgrade since July 21.
Moody’s telegraphed the moves on Thursday, releasing a report that questioned the ability of any financial guarantor to earn a standalone Aaa rating. Developments in financial guaranty industry over the past year have “called into question the extent to which the business fundamentals of financial guaranty insurance are supportive of standalone Aaa ratings,” Moody’s said.
It leaves Berkshire Hathaway Assurance Corp. as the only insurer rated Aaa by Moody’s. The rating agency has said in the past BHAC would not be rated that high without the guaranty from affiliate Columbia Insurance Co.
