The 'AAA' financial strength and financial enhancement ratings on CIFG Guaranty, CIFG Europe, and CIFG Assurance North America Inc. (collectively CIFG, or the company) are based on a consolidated margin of safety that is comfortably above Standard & Poor's Ratings Services' required 'AAA' level, a conservative approach to underwriting, sound risk-management practices, and strong European parentage that provides entry into European markets. The combined operations of CIFG produced a margin of safety based on Standard & Poor's capital adequacy test that was in the 1.4x-1.5x range. Unlike business written in past years, par written in 2005 was more diverse in terms of business line and sector, which has added some degree of diversification to the company's business and insured portfolio. CIFG appears to be gaining investor acceptance, as the company reported an increase in par written in each of its business lines in a financial guarantee market that is currently highly competitive. With competition comes pricing pressure, however, and management's strategy of emphasizing risk-adjusted returns as opposed to par written volume or market share that might not produce outstanding growth is a sound underwriting strategy.
Outlook
The stable outlook reflects CIFG's strong capital position, conservative underwriting strategy, and improving market acceptance, along with the commitment of its owners to the business. The outlook also reflects Standard & Poor's expectation that there will be improvement in the company's earnings, as well as continued progress made in diversifying its public finance and structured finance sector participation. The rating and outlook would be reassessed if the company does not prove successful in meeting these expectations. At this time, a pending change in ownership does not have an effect on the company's outlook, but Standard & Poor's will monitor the progress of the change to assess the company's continued adherence to its sound underwriting strategy.
