Press Release - MARCH 17, 2017
A.M. Best Releases Criteria: Rating Monoline Financial Guarantors in the Public Finance Sector
FOR IMMEDIATE RELEASE
OLDWICK - MARCH 17, 2017
The changes to this criteria procedure include a significant modification to the applicable default rates used in simulating the losses in a financial guarantor’s portfolio of insured municipal bonds in order to more closely reflect observed municipal bond default rates. Specifically, the Risk Class Relativity Factors have been adjusted such that, depending on the risk classification, the applicable municipal bond default rates range from 25% to 100% of the default rates in “Best’s Idealized Issue Default Matrix.” The changes also include revising the default period assumption to two years for all risk classifications rather than assuming a two- to four-year default period that varied based on the risk classification. Lastly, there is a loss given default (LGD) stress assumption to account for greater volatility in recoveries; the range of LGD stress for each respective risk class spans from 150% to 300% of base LGD.
This criteria procedure is available at www.ambest.com/ratings/methodology .
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