Moody's Investors Service downgraded Assured Guaranty'sinsurance financial strength ratings due to continued struggles inthe market in which the company operates.

The ratings actions include lowering Assured Guaranty MunicipalCorp. to A2 from Aa3, Assured Guaranty Corp. to A3 from Aa3, andAssured Guaranty Re Ltd.(AGRe) to Baa1 from A1.

“Today's rating action reflects Moody's downward reassessment ofAssured's business franchise, expected future profitability, andfinancial flexibility,” Moody's says in a statement. “Assuredoperates in an industry that has not recovered from the financialcrisis and, like its peers, will continue to struggle in the faceof declining fundamentals, including a dramatic reduction ininsurance usage, modest profitability and still-meaningful legacyrisk.”

Assured Guaranty provides financial guaranty insurance,guaranteeing scheduled principal and interest payments when due onmunicipal, public infrastructure and structured financings.

Moody's notes that Assured's insured portfolio's credit qualityand its capital adequacy “generally remain strong” though data fromSept. 30, 2012, but the ratings agency adds that the company's“positioning on key dimensions of financial strength,” such asfranchise strength, profitability, and financial flexibility, haveweakened due to changes in the financial guarantor industry and thebroader economic environment.

Assured, meanwhile, issued a lengthy rebuttal to Moody's ratingsaction. “We strongly disagree with Moody's assignment of an A2rating to AGM [Assured Guaranty Municipal Corp], especially givenMoody's statements in its own release that AGM has capital adequacy'corresponding to a high Aa score' and insured portfoliocharacteristics that are 'high investment grade,'” says DominicFrederico, president and CEO.

Criticizing the ratings agency's methodology, Fredericocontinues, “Moody's ratings now appear to be determined byunsupported qualitative factors and assumptions about futureproduct demand, future profitability and future stock price thathave little or no relevance to the company's actual ability to meetall of its financial obligations with the highestcertainty.

“When a company's financial strength and the quality of itsinsured portfolio are no longer the dominant factors in its'financial strength rating,' there is a serious flaw in the ratingprocess. A close reading of Moody's release also revealscontradictions and inconsistencies that essentially discreditit.”

Assured's statement points out numerous instances where it saysMoody's analysis of the company 10 months ago contradicts theconcerns stated in its latest action.

The company also charges that Moody's did not conduct its ratingprocess in accordance with transparency mandated under theDodd-Frank Act. “Specifically, Moody's still has not sharedmaterial capital model results with us, despite our repeatedrequests throughout the process,” Frederico says. “As importantly,on the limited information provided, Moody's would not discussunderlying assumptions used to achieve these summary results norassure us that all Moody's rated companies are stressedsimilarly.”

Frederico also accused Moody's of using subjective criteriameant to support a pre-determined conclusion.