Moody’s Investors Service Tuesday night downgraded bond insurer CIFG Assurance NA  to 'B3' from 'Ba2', keeping its ratings review with direction uncertain less than a week after Assured Guaranty Corp. agreed to reinsure $13 billion of CIFG’s U.S. public finance book.

Increased expectations of mortgage-related losses and CIFG’s efforts to commute certain exposures led to the action, Moody’s said. In addition to the reinsurance deal, CIFG has also reached an agreement to commute $12 billion in structured finance exposures in a deal that has yet to close.

Moody’s action also applies to CIFG Guaranty and CIFG Europe.

Part of CIFG’s future rating will depend on the impact of the insurer’s reinsurance agreement and its efforts to reduce other exposures, Moody’s said. Moody’s said it is unlikely it will upgrade CIFG to investment-grade status given questions about the company’s medium and long-term strategy.

CIFG’s moves to reduce its exposures have helped its regulatory standing. As a result of CIFG’s efforts, the New York Insurance Department has said it has temporarily forebear on placing the insurer into rehabilitation, even though it had statutory filings “indicating insolvency.”


Under terms of the most recent deal, Assured will reinsure CIFG policies and then seek to novate them, essentially canceling the original policies and replacing them with ones from Assured.

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