Posted Date : 15 May 2009

MARC has released its Financial Guarantee Insurer Rating Methodology, explaining its approach to rating financial guarantee insurers. The rating that would be assigned to a financial guarantee insurer (FGI) would be an Insurer Financial Strength (IFS) rating. MARC’s insurer financial strength rating on an FGI incorporates assessments of willingness to pay as well as timeliness of payment, consistent with its obligation under its insurance policies and contracts to provide unconditional, irrevocable and timely payment of principal and interest on scheduled debt service of insured securities.

MARC applies the same basic analytical template that it uses for other types of insurers, which is focused on the following sub-factors: franchise strength, insured portfolio characteristics, underwriting and surveillance, reserves and loss reserving, capital adequacy, investments and liquidity, profitability, management and ownership. Beyond insurer specific factors, MARC believes that regulatory restrictions and oversight could exert a significant influence on risk positioning and the insurer’s observed business and credit risk profile.

MARC’s Chief Rating Officer, Miss Milly Leong, was quoted as saying, “MARC’s rating of a newly established FGI will reflect our fundamental belief that the relative significance of a particular rating factor changes over the life cycle of the FGI. Financial support provided by its sponsors, and the commitment of an FGI’s owners to the insurer would be of greater relevance to the rating of a start-up FGI in its initial years of operation as compared to franchise strength which typically requires time to develop.”

A government-sponsored FGI would benefit from a high level of implied support, particularly if it possesses an important public policy role that is unlikely to decline with the passage of time. As the business profile of the FGI is established and the influence of the legal, regulatory and supervisory framework on the FGI’s risk profile becomes clearer, MARC will be able to fully apply its typical analytical template to the rating of FGI.

In anticipation of rating FGI-insured obligations shortly, MARC will be expanding its range of rating suffixes for credit-enhanced obligations to include an 'fg' subscript to denote that a rated obligation is guaranteed by the FGI.

MARC’s detailed methodology report is available on its website at
Roza Shahnaz Omar, Senior Vice President and Head, Business Development
03 - 2092 5398 / roza@marc.com.my