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January 23, 2008 at 09:10 PM
An arm of the National Association of Insurance Commissioners has come up with rules for incorporating bond insurer rating cuts in the valuation of insured bonds.
Members of the Valuation of Securities Task Force, part of the Financial Condition Committee of the NAIC, Kansas City, Mo., voted unanimously Tuesday to adopt a proposal developed by VOS Task Force Chair Michael Moriarty, a New York regulator.
The task force was responding to moves by major rating agencies to lower the financial strength ratings of some bond insurers.
On Jan. 18, the New York office of Fitch Ratings announced the firm has cut the insurance financial strength ratings of the insurance affiliates of Ambac Financial Group Inc., New York, to AA, from AAA.
The Ambac downgrades led to corresponding downgrades of about 137,000 Ambac-insured municipal bonds.
Earlier, in December 2007, Standard and Poor’s Ratings Services, New York, cut the financial strength rating of ACA Financial Guaranty Corp., New York, to CCC, from A.
S&P has suspended the rating of ACA-insured bonds for which the issuer has not sought an “S&P public underlying rating,” or “SPUR.”
A SPUR is an S&P rating associated with the strength of the issuer itself, rather than a rating linked to the strength of the bond insurer.
During a conference call, VOS Task Force participants said they have been using the term “SPUR” to refer to all ratings of underlying bond quality available through the rating agencies, not just to underlying quality ratings from S&P.
At the NAIC’s Securities Valuation Office, an NAIC 1 rating is the highest rating, and an NAIC 6 rating means an issuer is at or near default.
