The municipal bond insurance industry appears to be regaining some of its financial credibility, as reflected in recent rating actions by Standard & Poor’s.
Although recent, more stringent rating criteria changes affected two bond insurers’ ratings, a third saw its rating affirmed based on the insurer’s solid business and financial risk profile.
Assured Guaranty (AG) and Assured Guaranty Municipal (AGM), sister companies owned by Assured Guaranty Ltd., saw their financial strength ratings lowered from “AA+” to “AA-” as a result of the changes in S&P’s rating criteria. Significantly, however, both AG and AGM’s outlooks were raised from “negative” to “stable.”
S&P cited strong business and capital positions as key rating factors supporting the new AG and AGM ratings and outlook.
At the same time, S&P reaffirmed National Public Finance Guaranty Corporation’s (NPFG) ratings of “BBB” with a “developing” outlook. NPFG, which was split-off from parent MBIA Insurance Corp., is the municipal bond business entity established to focus solely on maintaining MBIA’s municipal insurance business.
S&P indicated that if current litigation challenging the municipal portfolio split-off fails, it is likely NPFG would see its rating raised to the “A” category. If that were to happen, NPFG intends to re-enter the municipal bond insurance underwriting business. The “developing” outlook reflects the continuing litigation and its uncertain resolution.
Once stalwarts, muni bond insurers were hit hard after straying from their core mission and venturing into the ill-fated subprime mortgage market.
The bottom line in these recent rating actions is that the Assured companies remain strong and stable bond insurers in S&P’s eyes, and NPFG is well capitalized with a low-risk book of business, perhaps a harbinger of an overall strengthening of the industry.