Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of bond insurer Assured Guaranty (NYS: AGO) were getting hammered by the market today, falling as much as 17% in intraday trading after ratings agency Moody's (NYS: MCO) put Assured's ratings on review for a possible cut.
So what: To some extent we can poke fun at the major ratings agencies for how they completely missed the boat prior to the financial crisis, as well as some more recent whiffs. However, for insurance companies like Assured, the specter of ratings cuts is no laughing matter; lower ratings directly affect business opportunities and the insurer's ability to sell coverage. With that in mind, there's sufficient reason for investors to be worried about the potential for a cut.
Specifically, Moody's put the Aa3 rating of insurance financial strength on Assured Guaranty Municipal, Assured Guaranty, and their affiliates under review. The A3 senior unsecured rating on Assured Guaranty US Holdings and Assured Guaranty Municipal Holdings was also put on review.
Now what: Assured didn't take this announcement sitting down. In a press release following Moody's announcement, Assured vigorously defended itself, saying:
Assured Guaranty has not just, as Moody's writes, "survived" the financial crisis but has demonstrated its resiliency, resourcefulness and financial strength. While we have paid nearly $4 billion in claims since the onset of the mortgage crisis to protect investors from losses related to our insured residential mortgage-backed securities ("RMBS"), our claims-paying resources to protect policyholders have grown from $11.2 billion in 2007 to over $12.8 billion today.
It's hard to say whether Moody's will follow through with a downgrade, but a look over Assured's recent results and its current valuation makes me think that there may be more opportunity than risk here for investors, and in the wake of today's sell-off the stock may be worth a closer look.
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