Troubled bond insurer MBIA Insurance Corp. got more positive news today when a second rating service said it was confirming the carrier's triple-A financial strength rating in light of its moves to improve its capital position.
Moody's Investors Service said the Armonk, N.Y.-based concern's "Aaa" ratings and its affiliated insurance operating companies were being affirmed with a negative outlook. MBIA was placed on review for downgrade by Moody's on Jan. 23.
Yesterday, Standard & Poor's took the same action on MBIA, which this month saw the return of Joseph W. Brown Jr. as its chief executive. Yesterday, the firm said it will stop paying quarterly dividends for a $174 million yearly saving, and within five years will split its municipal bond business from its structured finance business.
The insurer also announced it would not take on any new structured finance risks for six months.
Moody's said it also confirmed the "Aa2″ rating on surplus notes issued by MBIA and the "Aa3″ senior unsecured ratings of parent company, MBIA Inc.
The rating firm said its actions were based on "MBIA's ongoing efforts to strengthen its capital position in light of its troubled mortgage and mortgage-related collateralized debt obligation (CDO) exposures, as well as changes the company is implementing to reduce the volatility associated with its insured portfolio."
Based on the risks in MBIA's portfolio, Moody's said, estimated stress-case losses would be in the range of $13.7 billion. Against MBIA's estimated claims paying resources of approximately $16.1 billion, this would be in excess of the "minimum" "Aaa" level, but short of the "1.3 times-Aaa target" level by about $1.7 billion.
Moody's said the shortfall in capitalization from the "Aaa" target was considered in relation to MBIA's plans for closing the gap through a combination of capital strengthening measures, and was determined to be consistent with an "Aaa" rating.
Moody's said further that the most likely or "expected" scenario is that MBIA's insured portfolio will incur lifetime losses of approximately $4 billion in present value terms, and that MBIA's current claims-paying resources cover this expected loss estimate by roughly four times.
Moody's noted that over the past two months, MBIA has completed transactions to raise $1.6 billion in equity and $1 billion in surplus notes, "demonstrating a strong commitment to its policyholders."
Moody's said the dividend elimination and six-month suspension of new structured finance underwriting, in combination with normal portfolio runoff and targeted reinsurance strategies, should significantly contribute to that objective.
The ability of the company to reestablish its strong market position in the U.S. public finance market will take time, but should be facilitated by the firm's strategy to separate its municipal, structured finance and asset management businesses into distinct legal entities over time, according to the rating firm.
MBIA reported a net loss for 2007 of approximately $1.9 billion, and had shareholders' equity of about $3.6 billion as of Dec. 31, 2007.
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