NEW YORK - The outlook for the financial guaranty industry remains negative, Moody's Investors Service says in a report. The industry has not recovered from the financial crisis, as reflected in low insured volume and meaningful remaining risks from legacy portfolios.

"Insured penetration of the municipal market remains far below historical levels," says Vice President and co-author of the report Helen Remeza, "and the longer this continues, the more likely alternatives to financial guaranty, including debt issuance without credit enhancement, will gain market traction."

In addition, historically elevated levels of high-risk exposures, combined with high operating leverage and single obligor concentrations, leave financial guarantors vulnerable to changing economic conditions, notes Remeza. In this regard, she cites the weak US economy and ongoing European crisis as particular concerns.

Recently, financial guarantors' public finance portfolios have exhibited some stress, including a few high profile bankruptcies and some negative credit migrations resulting from slow economic recovery and budgetary pressures.

"Going forward, the financial guarantor industry could have narrower market opportunities while still being exposed to meaningful risks out of its legacy exposures, both of which weigh heavily on the outlook for the industry," notes Remeza.

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