The head of the only active U.S. bond insurer on Tuesday ridiculed the new bond-insurer ratings methodology proposed by Standard & Poor’s as unjustified, irrational, and too subjective.

“Somewhere in this ratings process, reality has to matter,” said Dominic Frederico, chief executive of Assured Guaranty.

Frederico was reacting to the 39-page proposal S&P issued Jan. 24.

The rating agency is seeking comments on the proposed new criteria, which it said could lead to investment-grade insurers being downgraded “by one or more rating categories … unless those insurers raise additional capital or reduce risk.”

Assured is the only company active in the bond insurance industry. A full category downgrade could be fatal to its public finance business, whose value lies in allowing borrowers to substitute Assured’s rating for their lower credit level.

Shares of Assured Guaranty have fallen more than 30% since S&P stripped the holding company of its 'AAA' rating in late October. Moody’s Investors Service rates both of Assured’s insurer platforms two notches lower at 'Aa3'.

Another ratings methodology would represent the third review by S&P in the last 12 months, which Frederico said isn’t justified considering the company posted record earnings in the first three quarters of 2010.

Assured doubled its shareholders’ equity from roughly $2 billion on Jan. 1, 2008, to $4.2 billion on Sept. 30, 2010, according to Frederico.

“When I say reality has to be considered in the rating process, that’s the reality I focus on,” he said.

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