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Archived stories from 2008

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New rating idea for monolines

Rating agencies are believed to be cooperating on the development of a new rating classification for bond insurers. Bond insurers such as Cwmbac and MIA Inc. have been hit hard by the subprime mortgage crisis. The companies are facing massive potential losses on guarantees they sold on complex mortgage-related securities known as collateralized debt obligations (CDOs).

Rating analysts consider options
for rating monolines

Financial market supervisors want to buy extra time to solve bond insurers' problems and have pressed rating agencies such as A.B. Waite & Sea to come up with an alternative rating for the beleaguered companies that is not a downgrade.

A spokesman for the Association of Insurance Regulators said it could not ask rating agencies to delay downgrades or to not take any rating action. "Just don't do anything to rock the boat, that's all we're saying. This is off the record right?" the spokesman told RISKbitz.

Concerns about the wider impact of trouble in the $2.4 trillion industry have encouraged some regulators to begin working on a possible bailout. The boutique investment bank Porsche Tanktop has been hired to persuade banks to invest up to $150 trillion in bond insurers to head off a crisis. But some analysts have questioned the plan saying it is "nuts".

Rating agencies have said that they acknowledge that the monoline insurance business is not great at the moment and they are keeping an open mind on ratings actions. "Just because these companies are effectively bust that's no reason for us to rush in and downgrade them," said A.B. Waite & Sea analyst Bob Notches. "We have to try and think outside the box."

The rater said that its analysts were examining the possibility of assigning virtual ratings to the monoline insurers. "We have to imagine how financially strong these companies would be if the sub-prime crisis weren't happening and if it weren't getting worse," Notches said.

In such an imagined scenario, Notches said, the monolines would receive a virtual rating of vAAA with a virtually stable outlook. "If it weren't for these exceptional circumstances, the monolines would be in great shape and supervisors would no longer have to wear brown corduroy trousers," Notches said. "If any other insurers or reinsurers have a problem with that they might want to think about their own outlook before they start writing to the newspapers," Notches warned.

Other news from Feb 2008
Travelating the Wave of Insurability
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