Moody's announces XL downgrades while Dinallo says $15bn is required for bailout
The woes of bond insurers continue. Moody's has downgraded various XL entities from an ‘Aaa’ financial strength rating to ‘A3’.
As a result, the Moody’s-rated securities ‘wrapped’ by subsidiaries under the Security Capital Assurance banner – that is, XL Capital Assurance, XL Capital Assurance UK and XL Financial Assurance – will also suffer downgrades. This is the not the first stutter down the slope, and the owners of these securities will be worried.
Investors worldwide will be hit by the bond insurer crisis in their insurance portfolios, and there may be greater troubles should one or more of the big US bond insurers – such as MBIA, Ambac and ACA – go bust. Basically, the worse the fate of the bond insurers, the lower the value of your investment portfolio. Add on to this the London market exposure to professional liability policies written in the US, and you have a subprime-scale problem.
New York Insurance superintendent Eric Dinallo told Wall Street Banks recently that $15bn would be required to bail out the bond insurers.
However, as yet, nobody has stepped up to the plate.
