Statement on Standard & Poor's Rating Criteria for Bond Insurers
February 1, 2012
On November 30, 2011, Standard & Poor’s Ratings Services (S&P) downgraded AGM and AGC to AA- Stable Outlook from AA+ CreditWatch and AG Re to AA- Stable Outlook from AA CreditWatch Negative. The rating actions were based solely on new bond insurer rating criteria published by S&P on August 25, 2011, about which Assured Guaranty had previously registered concerns.
In a November 30, 2011 press release, Assured Guaranty President and Chief Executive Officer Dominic Frederico noted that “The Stable Outlook assigned to our ratings reflects S&P’s recognition of the quality of our insured portfolio, our underwriting discipline, risk management capabilities and strong competitive position. Our AA- Stable ratings result in us maintaining some of the highest S&P ratings for a company in the financial sector.”
Despite the higher capital standards, Assured Guaranty has maintained its ratings in the AA category by continuing to execute its capital enhancement strategies, even though S&P had noted, in its August 25 report entitled Bond Insurance Rating Methodology and Assumptions, that the impact of the new bond insurance rating criteria could result in financial strength ratings on investment-grade bond insurers (such as AGM or AGC) being lowered by one or more rating categories.
This website contains a number of other documents related to the application of the new criteria to our operating companies and the concerns we have raised about those criteria:
On December 29, 2011, S&P released Assured Guaranty Ltd. Operating Companies, a full ratings analysis of AGM, AGC and AG Re.
In the press release that Assured Guaranty issued on September 27, 2011, we described the strategies we have been implementing to create additional rating agency capital and reduce leverage.
Assured Guaranty’s concerns about the criteria as they were originally proposed were explained by Dominic Frederico in a presentation to the Keefe, Bruyette and Woods Insurance Conference that was webcast on September 7, 2011.
In addition to our belief that the new criteria are not adequately supported by evidence, we believe the process by which they were developed was flawed. A proposal for the new criteria was published on January 24, 2011 in S&P’s Request for Comment: Bond Insurance Criteria. Assured Guaranty responded with two comment letters, on March 1, 2011 and March 25, 2011. Many others raised objections similar to ours. Yet S&P largely disregarded the comments or responded with more severe and unrealistic criteria without providing an opportunity to comment on previously undisclosed elements. For example, when the final criteria were released, we learned for the first time about a new Largest Obligors Test that was not included in the January 2011 Request for Comment. This test significantly reduces our allowed single-risk limits and limits our financial strength rating level.