The three municipal bond insurers won a vote of confidence last week, as S&P Global Ratings affirmed their ratings.
S&P affirmed its AA ratings on Assured Guaranty and Build America Mutual, as well as its AA-minus rating on National Public Finance Guarantee, all three with stable outlooks. The AA ratings are the highest S&P currently assigns to any active financial guarantor.
S&P said Assured Guaranty has greater flexibility than other guarantors to capitalize on growth trends and pricing opportunities because it writes guarantees in a broader range of U.S. public finance sectors and has additional revenue sources provided by its global infrastructure and structured finance businesses, which also provide diversification of risk.
"Based on our view of the insurable new-issue U.S. public finance and global markets, we don't believe the company's competitive position or earnings will dramatically change, so, we don't expect to raise our ratings in the next two years," S&P said in a July 27
In determining the AA Stable ratings, one of S&P's scenario analyses assumed every one of Assured Guaranty's insured Puerto Rico obligations would default, and that Assured Guaranty would pay claims totaling 100% of that debt service over the next four years. S&P also looked at other scenarios to see whether the capital adequacy score would change if claim payments totaled 15%, 25%, 35% or 45% of Assured Guaranty's Puerto Rico debt service over the life of the transactions. The result, in all scenarios, was that these losses would not change Assured Guaranty's S&P capital adequacy score.
S&P also said that it is unlikely it will raise the rating in the next two years, as any upgrade would depend on significant improvement in BAM's operating performance on an absolute basis and relative to peers. The analysts said they may lower BAM's rating if operating performance doesn't improve and there isn't meaningful growth in statutory capital, if demand for financial guarantees offered by BAM falls as shown by a meaningfully lower amount of par insured, or if analysts believe BAM won't meet their expectations.
"We view BAM's competitive position as strong," S&P said. "Although BAM has a limited operating history, the acceptance of the company's insured wrap by market participants is shown by its number of municipal issues and insured par since inception. In 2015, BAM insured about 38% of total insured U.S. public finance-insured par and across roughly 849 deals. As of Dec. 31, 2015, the composition of the insured portfolio was geographically well diversified. BAM does not have any exposure to issuers in Puerto Rico. Most of its net par exposure is general obligation bonds and principally small school districts."
S&P said that the outlook on
S&P said that it may raise its ratings if National shows successful execution and seasoning of its strategic risk management program and optimization of risk-adjusted returns, as well as a sustainable competitive position relative to peers.
"We view National's competitive position as strong, and believe it will continue to grow its premiums written and provide added value to the U.S. public finance market," S&P said. "Its flexibility in writing a variety of sectors allows it to take advantage of arising opportunities. Its new business writings in 2015 showed a positive momentum in total par insured, as well as the number of transactions insured; the trend continues into 2016."
