NU Online News Service, March 26, 12:47 p.m. EDT
Standard & Poor's Ratings Services said the rating status for the Wisconsin subsidiary of municipal bond insurer Ambac Financial Group has been revised after that state's regulator halted claim payments to certain policyholders.
The counterparty credit, financial strength, and financial enhancement ratings on Ambac Assurance Corp. have been changed to 'R' "regulatory intervention" from 'CC' "very weak," S&P said.
David Veno, Standard & Poor's credit analyst said in a statement that the firm had taken action following a directive and court action by Wisconsin Insurance Commissioner Sean Dilweg.
He noted that the directive is for Ambac to establish a segregated account primarily for policies related to residential mortgage-backed securities, credit derivatives and other structured finance transactions.
A judge has given the commissioner permission to halt claim payments on those policies while a rehabilitation plan is in the works.
"It is our understanding that a plan for rehabilitation of the segregated account calls for cessation of claim payments on this exposure," the S&P statement said.
The regulatory directive with respect to the segregated account leads S&P to believe "that such a move will lead to concern that it favors one class of policyholders over another," the firm said.
Mr. Dilweg's office Wednesday went into Lafayette County Circuit Court in Darlington, Wis. to take control of the account with residential mortgage-backed securities policies and received approval then for a temporary moratorium on claim payments.
The hold on payments from that Segregated Account is pending approval of a rehabilitation plan, his office said.
After the court action, the Office of the Commissioner of Insurance released a statement noting that, "The OCI has been closely monitoring AAC's capital position and financial health since the subprime mortgage crisis began resonating through the economy more than two years ago.
"The economic downturn, combined with AAC's substantial investment in, and insurance of, mortgage-related exposures damaged AAC's business and financial position and reduced its claims-paying resources."
These events, said OCI, "created a potential financial hazard to policyholders, creditors, and the public. There also has been a steady, significant increase in AAC's projected loss impairments."
Mr. Dilweg said with the company facing losses his action was " a durable solution for all policyholders while maximizing AAC's resources…"
It was noted that AAC's parent based in New York is not regulated by Wisconsin "and isn't directly included in the OCI's plan for rehabilitation."
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