Moody’s Investors Service has placed the debt ratings of Assured Guaranty and its subsidiaries as well as the insurance financial strength ratings of Assured Guaranty’s insurance subsidiaries under review for possible downgrade.
In its announcement, Moody’s cited constrained business opportunities for financial guaranty insurance and continued economic stress for U.S. municipal, mortgage, and European exposures.
However, in a response to the ratings action this week, Assured said that it had been working with Moody's to highlight improvements the company had made since ther rating agency's 2009 review.
Dominic Frederico, president and CEO of Assured Guaranty said that the company was "surprised that Moody’s decided it had enough information to place Assured Guaranty on review for a possible downgrade."
"In light of our improved financial strength over the last two years, Moody’s action was unjustified and unwarranted," said Frederico.
According to the response, Assured Guaranty said it has demonstrated its resiliency, resourcefulness and financial strength. Frederico stated that while the company has also paid nearly $4 billion in claims since the onset of the mortgage crisis to protect investors from losses related to Assured Guaranty insured RMBS, its claims-paying resources to protect policyholders has also exceeds $12.8 billion today from $11.2 billion in 2007.
Furthermore, the company achieved an operating income of $664 million and $604 million, with operating ROEs of 14.9% and 12.1%, in 2010 and 2011, respectively. The company has also reduced its insured portfolio’s exposure by approximately $105 billion overall, including $62 billion in structured finance, of which $11 billion was in the RMBS portfolio.
In the RMBS area, Frederico believes that Assured's proactive risk management and loss mitigation approach has produced a cumulative total of $2.4 billion in settlement and putback receipts and commitments from reps and warranty providers in its RMBS deals.
"We were among the first companies to substantiate and receive payments for the pervasive misbehavior in this market," he said. "Because of our confidence in our R&W rights, we anticipate that the bulk of our RMBS losses will ultimately be paid by third parties. We have continued to move aggressively to reduce delinquencies and losses through servicing intervention and have seen declines in delinquencies, improvements in loss severities and lower losses on transactions where we have replaced the servicer or imposed special servicing."
As for the limited business opportunities for the industry that Moody's cited in its review, Frederico said that that since the 2Q09, the company has insured over $58 billion of U.S. municipal bonds.