All material subject to strictly enforced copyright laws. © 2021 Insurance Insider is part of Euromoney Institutional Investor PLC.
Accessibility | Terms & Conditions | Privacy Policy | Modern Slavery Act | Cookies | Subscription Terms & Conditions

Fitch places Ambac on negative watch

In a further twist of the sub-prime knife, ratings agency Fitch has placed the world’s second largest monoline bond insurer, Ambac Assurance Corp on Rating Watch Negative.

Fitch gave the firm up to six weeks to “obtain further capital commitments and/or put in place additional reinsurance or other risk mitigation measures” to make up an estimated $1bn shortfall in capital needed to retain its AAA rating.

In a 21 December note, Fitch cited “Ambac’s current exposure to structured finance collateralized debt obligations (CDOs) backed by sub-prime mortgage collateral, including CDO-squared securities, which together totalled $32.2bn as of 30 September 2007, as well as Ambac’s exposure to residential mortgage-backed securities (RMBS)” as reasons for the rating action.

Despite entering into a $29bn reinsurance arrangement with Assured Guaranty Re earlier this month, Fitch stated the cession only “reduced the simulated shortfall [of capital] by about $250mn” under its Matrix rating system.

It continued: “Ambac’s aggressive and highly concentrated growth in the past few years into sectors backed mainly by US RMBS-related collateral has substantially increased the company’s capital burden compared to prior years”.

Ambac’s shares fell to close at $25.12 on 28 December. The shares had already lost about 70 per cent of their value this year.

On 19 December, ratings agency Standard & Poor’s (S&P) took action on six monoline bond insurers.

S&P placed FGIC on CreditWatch, while Ambac, MBIA, and SCA subsidiaries XL Capital Assurance and XL Financial Assurance were assigned a negative outlook to their AAA financial strength, financial enhancement and issuer credit ratings.

Troubled ACA Financial Guarantee Corp was downgraded by the ratings agency to CCC, from A. On 27 December, the insurer agreed to turn over substantial control to Maryland insurance regulators, the company said in a Securities and Exchange Commission filing.

The agreement with the Maryland Insurance Administration gives regulators the authority to approve or reject any deals made by ACA to pledge assets, pay dividends or engage in “certain material transactions”. ACA’s bond unit also agreed not to object to any move by regulators to declare it delinquent on its obligations.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree