Response to Moody’s March 20, 2012 Announcement Concerning Assured Guaranty’s Ratings
April 13, 2012
Moody’s Investors Service (Moody’s) recently published two sets of reports on Assured Guaranty. In the first report, dated March 20, 2012, Moody’s placed the Insurance Financial Strength ratings of Assured Guaranty Municipal Corp. (AGM) and Assured Guaranty Corp. (AGC) on review for possible downgrade, citing lower origination volume, a difficult economy and the potential for lower margins in the future. On the second occasion, March 26, 2012, Moody’s published separate updated Credit Opinions for AGM and AGC showing that, using Moody’s own Financial Strength Rating Scorecard, both AGM and AGC have earned strong Aa ratings.
While a great deal has occurred since 2009, when Assured Guaranty was last reviewed by Moody’s, we do not believe that a potential downgrade based primarily on concerns about origination volume and future margins (neither of which are relevant to a financial guarantor’s financial strength rating) appropriately reflects Assured Guaranty’s fundamental claims-paying ability, or would be in the best interest of insured bondholders ─ or the financial markets in general.
Over the last three years, Assured Guaranty developed specific strategies to meet the challenges of the recent recession and to lay a firm foundation for our business going forward. Notably we:
- pursued strategies to reduce losses (e.g., by causing mortgage originators and sponsors of securitization transactions to repurchase defective loans and by purchasing insured securities at a discount);
- maintained credit and pricing discipline on new originations;
- prudently managed our capital position, resulting in significantly improved leverage ratios;
- developed additional sources of capital; and
- set a high standard of transparency to further strengthen investor confidence in both the fixed income and equity markets.
To evaluate the success of these strategies, we have measured Assured Guaranty’s economic performance relative to each metric described in Moody’s Rating Methodology for the Financial Guaranty Insurance Industry.* In the PDF file at this link, we describe the improvements we have made since 2009 relative to each of the analytical components of Moody’s criteria. Using these published guidelines and consistent with the Credit Opinions Moody’s published for AGM and AGC on March 26, we believe the Assured Guaranty companies continue to meet Moody’s Aa rating requirements.
* Moody’s Rating Methodology for the Financial Guaranty Insurance Industry – September 2006.