Assured Guaranty (AGO) cites recent success in blocking the bond insurer from claims on poorly underwritten mortgages as one reason for its disagreement with a recent Moody's analyst report.
The monoline released a report questioning Moody's Investors Service's (MCO) decision to put the 'insurance financial strength ratings' of Assured Guaranty Municipal Corp. and Assured Guaranty Corp., on review for possible downgrade.
In March, Moody's said the insurer's lower book of business, as well as the harsh economy, created the "potential for lower margins in the future."
The insurer's declining market share also was cited as a big concern.
But Assured Guaranty, in its own report, says profit margins and new business alone do not dictate the long-term strength of an insurer.
Instead, the insurer believes it made significant headway in distancing itself from claims on poorly underwritten mortgage loans that it insured for banks. Assured Guaranty has been pushing back in court claiming some of the underwriting on certain loans failed to comply with representations and warranties made in the initial insurance contracts covering the mortgage bonds.
Furthermore, Moody's said the key focus of an insurer should be its ability to pay claims, not origination volumes or future margins.
"Two important conclusions can be drawn (from Assured Guaranty's data)," the company said. "First, since the onset of the real estate collapse in the U.S., despite Assured Guaranty having paid nearly $4 billion of insured claims, our claims-paying resources have actually grown from $11.2 billion (including AGM before its acquisition) to over $12.8 billion today. Second, during this same period of time, Assured Guaranty’s leverage, whether measured against statutory capital or claims-paying resources, has declined significantly."
Assured said the last time it was reviewed by Moody's in November 2009, it had already pulled in $175 million in reps and warranties recoveries on poorly underwritten loans and carried an asset of $1 billion in future projected recoveries. From 2009 through the end of 2011, the insurer claims it obtained $2.2 billion of additional receipts and commitments for recoveries on reps and warranties losses.
"This cumulative year-end 2011 total of $2.4 billion of receipts and commitments is more than twice the amount Moody’s previously estimated and proves the value of this source of recovery and our ability to mitigate future losses from our RMBS exposures," Assured Guaranty wrote in its own report.
Assured Guaranty said when taking into account the companies third-party loss sharing agreements on RMBS insurance coverage, the company's risk exposure on RMBS is at the same level reached in 2009.