SOURCE: The Bedford Report

The Bedford Report

April 04, 2011 08:16 ET

Ambac and Assured Guaranty Struggle to Remain Relevant

The Bedford Report Provides Analyst Research on Ambac and Assured Guaranty

NEW YORK, NY--(Marketwire - April 4, 2011) - After experiencing catastrophic losses following the 2007 subprime mortgage crisis, bond insurers have struggled to recover. Although insurers maintain that they still have a viable business catering to smaller bond sales from issuers with lower investment-grade credit ratings, investors have avoided the sector, believing the profit potential for a bond insurer without the coveted "AAA" credit rating is limited. The Bedford Report examines the outlook for companies in the Surety & Title Insurance Industry and provides research reports on Ambac Financial Group, Inc. (PINKSHEETS: ABKFQ) and Assured Guaranty Ltd. (NYSE: AGO). Access to the full company reports can be found at:

Maintaining a high credit rating is critical to the success of a bond insurer as these companies rely on a high credit rating to allow themselves to guarantee lower rated debt. In 2008 bond insurers began to lose their AAA ratings and were forced to stop selling new guarantees. S&P announced that there are nine new categories and that companies will likely have to raise additional capital and lower risk if they want to achieve high investment grades. This change comes in response to the bout of companies that lost AAA investment grades during the financial crisis. Ambac was even forced into pursuing a restructuring of their business when the crisis took place. S&P also changed its criteria for mortgage-backed bonds and other securities after assigning top ratings to financial instruments that later collapsed in value during the credit crisis.

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Assured Guaranty CEO Dominic Frederico believes that municipal bond insurance is still a "relevant" business. Although Assured Guaranty lost its "AAA" credit rating last October, Frederico said the company did almost $400 million in revenue on municipal insurance on over 1,700 transactions in 2010.

Assured Guaranty reported a net loss of $157.5 million, or 86 cents a share, in its fiscal fourth quarter. That compared with net income of $216.7 million, or $1.27 a share, in the fourth quarter of 2009. Ambac, meanwhile, announced a fourth quarter 2010 net loss of $81.6 million, or $0.27 per share. This compares to fourth quarter 2009 net income of $558.1 million, or $1.93 per share.

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