Standard & Poor’s released ratings action on five of the bond insurers Monday, downgrading Financial Guaranty Insurance Co. to A, from AA, and maintaining a credit watch with developing implications, while downgrading XL Capital Assurance Inc. to A-minus, from AAA, and keeping it on negative watch.


On Friday, triple-A rated CIFG Guaranty was placed on review for a possible downgrade by Moody's Investors Service because of concerns about mounting losses on the collateralized debt obligations the company insures and uncertainty over the future direction of CIFG's business.

Standard & Poor’s also affirmed the triple-A rating for MBIA Insurance Corp., but took it off credit watch and gave it a negative outlook. Ambac Assurance Corp. remains at triple-A, on credit watch with negative implications, while CIFG Guaranty saw its triple-A rating affirmed, and its negative outlook maintained.


The ratings actions follow from the latest stress tests conducted by Standard & Poor’s in which they looked at the exposure of the financial guarantors to non-prime U.S. mortgages. 


“We developed a set of net cumulative loss assumptions by asset type and vintage that we believe will likely turn out to be no less than, and perhaps higher than, the ultimate loss levels experienced,” Standard & Poor’s said in a release. “As such, save for the possibility of materially adverse asset class performance beyond our current expectations, we view this stress test as one that will retain its relevance over time.”


Last month, Moody's updated their loss estimates for 2006 vintage residential subprime mortgage-backed securities to range from 14% to 18%, which undercut CIFG's capital cushion and brought it below acceptable Aaa levels, Moody's said. Further reviews of other subprime vintages are ongoing.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.