While financial guarantors have navigated the rough waters of the current economic downturn reasonably well, questions persist over exposure to troubled sectors of the ABS market as well as increased competition that may lead to decreased underwriting standards for monolines. Moody's Investors Service addresses these concerns in the  recently issued Financial Guarantor Industry Outlook, in which the rating agency concludes that while its outlook for the industry remains stable, "the occurrence of certain adverse events or developments could potentially change our view."

But Moody's points out that the current crossroads is an unprecedented one for the financial guarantor industry. "Given their exposure to consumer ABS and MBS transactions, as well as corporate risk embedded in CDOs and other commercial structured vehicles, the current economic downturn may be the first true test of the financial guarantors' expanded business strategy."

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