Market Loses Last Triple-A Insurer as S&P Drops Assured Guaranty

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The public finance market no longer has a triple-A rated bond insurer. Standard & Poor’s downgraded Assured Guaranty’s two insurer platforms on Monday to 'AA-plus' with a stable outlook from 'AAA' with a negative outlook.

Stock in the parent company fell 14.9% to $18.12 in early morning trading.

The downgrade affects the counterparty credit and financial strength ratings of Assured Guaranty Corp., a diversified guarantor that wraps municipal and structured-finance debt and Assured Guaranty Municipal Corp., a muni-only guarantor.

“The downgrades reflect our view of a struggling financial guarantee market, the companies’ weak statutory operating performance, and the quality of the companies’ capital within our capital adequacy analysis,” primary analyst David Veno wrote in the credit report.

Assured’s two platforms wrapped 1,293 issues totaling $20.8 billion in the first three quarters of 2010, reflecting a 7% slice of the $296.7 billion issued through September. It commands 100% of the bond insurance market.

Veno said the lack of competition within the insurance industry “is symptomatic of investors’ and issuers’ diminished demand for bond insurance.”

The potential for the reemergence of a strong insurance sector fades the longer this persists, he said.

S&P also affirmed its 'A+' counterparty credit rating on Assured Guaranty, and the outlook remains stable.

The stable outlook for Assured and its two platforms reflects the rating agency’s view of the company’s “strong capitalization, largely investment-grade book of insured par, and strong business position that would benefit from an improved market for insured paper.”

Both insurer platforms are rated 'Aa3' by Moody’s Investors Service, with negative outlooks.

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