UPDATE 1-Assured Guaranty plans new municipal bond insurer

Fri Jan 18, 2013 6:02pm EST

By Ashutosh Pandey

Jan 18 (Reuters) - Assured Guaranty said it plans to launch a new municipal-only financial guaranty insurer this year that will not carry a Moody's rating, a day after the rating agency downgraded the bond insurer.

The company, however, did not disclose the size of the new insurer or its planned investment.

"The typical minimum amount of capital that will be required to have the critical mass to launch a municipal-only bond insurer is somewhere in the $500 million range," BTIG analyst Mark Palmer said.

Mortgage insurer Radian Group Inc agreed to sell Radian Asset's Municipal and Infrastructure Assurance Corporation to Assured Guaranty for $91 million last January.

The licensed shell, which came with $75 million in capital, could be capitalized and provide the company with a municipal-only bond insurer, Palmer said.

The municipal-bond insurance industry witnessed a sharp and swift contraction in recent years. The amount of insured bonds in the $3.7 trillion municipal market dropped in 2012, following a six-year trend, according to Thomson Reuters data.

There were 1,163 issues, worth $13.3 billion, representing 3.6 percent of total issuance last year. In 2011, 1,229 issues totaling $15.2 billion were insured, representing 5.5 percent of the bonds sold that year.

Assured Guaranty Municipal Corp - the biggest player in the industry - backed $11.5 billion of bonds, while Assured Guaranty insured $13.7 million bonds in 2012.

DISPUTING DOWNGRADE

Moody's downgraded the Insurance Financial Strength rating of the company and its subsidiaries on Thursday.

"We strongly disagree with Moody's assignment of an A2 rating to Assured Guaranty Municipal," Chief Executive Dominic Frederico said in a statement.

"Moody's ratings now appear to be determined by unsupported qualitative factors and assumptions about future product demand, future profitability and future stock price."

The bond insurer's board also authorized a $200 million share repurchase program.

Assured Guaranty shares, which fell more than 4 percent in early trading on the downgrade, closed up about 3 percent on the New York Stock Exchange on Friday.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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