Standard & Poor’s rating service has assigned an AA-minus rating to Assured Guaranty’s new municipal-only financial guaranty insurer, Municipal Assurance Corp.
MAC received long-term financial strength and counterparty credit ratings of AA-minus and a stable outlook based on S&P’s view that the muni-only insurer will maintain investment-grade underwriting standards and a strong competitive position in the market for new-issue public finance.
“We expect [Assured] to underwrite only a minimal amount of structured finance business,” S&P said in a press release Wednesday. “The stable outlook also reflects our view that the company’s financial flexibility will remain strong and supportive of its very strong capital position.”
Assured acquired the business that would become MAC from Radian Asset as part of a January 2012 deal that Assured president and CEO Dominic Frederico said would enhance the company’s flexibility to respond to changes in the financial guaranty industry. The company announced in January 2013 it would launch a municipal-only insurer after receiving a two-notch rating downgrade by Moody’s Investors Service.
“Assured Guaranty is pleased to have received the S&P rating on Municipal Assurance Corp, our new municipal only financial guaranty insurer,” Robert Tucker, managing director of investor relations and corporate communications at Assured, said in an emailed statement. “Our work to establish MAC is moving forward, and we will continue to keep the market informed of our progress.”
MAC is core to the Assured management’s strategy of writing a diversified book of business, S&P said, adding that it sees risk in the bond insurance industry as being low. MAC is initially capitalized with $800 million, and Assured companies Assured Guaranty Municipal Corp and Assured Guaranty Corp have ceded $79 billion and $24 billion of par to MAC, respectively. S&P considers MAC, AGM, AGC and Assured Guaranty Re Ltd as core to Assured Guaranty Ltd, and rates them as a consolidated group.
Compressed credit spreads and competition within the bond insurance industry may limit Assured’s near-term business growth prospects, S&P said. The rating agency said in a July 2012 industry outlook that bond insurance could wrap as much as 20 to 30 percent of new issue par in U.S. public finance.
Assured wrapped $3.4 billion, or 60 percent of the bond insurance market, across 271 issues in the first half of the year, according to Thomson Reuters data released July 12. Build America Mutual, which holds an AA stable rating by S&P, insured $2.1 billion, or 38 percent of the market, over 290 issues.
“While BAM welcomes new bond insurers to broaden our industry, the organizational structure and ratings of MAC clearly indicate that MAC is intrinsically linked to the other Assured companies from a credit perspective,” Laura Levenstein, chief risk officer at BAM, said in an emailed statement. “BAM remains the highest rated and only pure municipal bond insurance company, providing greater value for bondholders.”
A single $107 million deal wrapped by Berkshire Hathaway Assurance Corp represented 2 percent of the market in the first half of this year. The government bond insurer controlled by financier Warren Buffett, rated AA-plus by S&P, has not wrapped any other bonds since November 2009.