Not all triple-A bond insurers are the same, according to a report issued last week by Kemper Securities Corp.

Kemper devised a "report card" for primary bond insurers that is designed to help investors distinguish between comparably rated financial guarantors.

Capital Guaranty Insurance Co. received the industry's highest score in an evaluation of key credit factors, with a "grade-point average" of 3.71 out of a possible four points.

Financial Guaranty Insurance Co. and Municipal Bond Investors Assurance Corp. each had grade point averages of 3.67 to tie for second place.

AMBAC Indemnity Corp. received an A- grade of 3.62, and three firms -- Capital Markets Assurance Corp., Financial Security Assurance Inc., and College Construction Loan Insurance Association -- received a B+, with respective scores of 3.52, 3.43, and 3.38.

Capital Guaranty is one of the smaller players, so its industry-leading score may surprise those who are more familiar with the larger players: AMBAC, FGIC, and MBIA.

"I'm personally gratified to see the report because I have always maintained that size doesn't guaranty success or quality," said Michael Djordjevich, president and chief executive officer of Capital Guaranty. "In the long run, market share doesn't mean that much. It's how much profitability you generate. Kemper's study shows to me that building the company for the long run was the right approach."

Robert R. Godfrey, executive vice president at MBIA said the Kemper report was a "fine start" but missed some major points: That insured bonds are the "strongest value in the market today," and that the rating agencies have established and maintained "very high standards" for the industry.

MBIA executives also took exception to some of Kemper's findings which cited Capital Guaranty as having the strongest insured book of business and had the firm sharing top honors with CapMAC and Connie Lee regarding loss experience.

Said William P. Condon, a senior vice president at MBIA: "When you take into consideration the maturity and size of our portfolio, we think any objective observer has got to come to the conclusion that MBIA is the strongest in the industry in terms of portfolio quality and loss experience."

Officials from the other primary insurers declined to comment.

Some bond insurance observers said privately that the industry needs analysis from sources other than the rating agencies because the agencies may have an incentive -- support of their own ratings -- to tone down their analyses.

"The report provides a good overall explanation of the industry. However, the grading in some of the categories is subjective and open to debate," said one rating agency executive who requested anonymity. "Also, each of the categories are given equal weight in the overall grade although some are clearly more important than others."

Kemper's grading is based largely on seven factors: ownership, capital adequacy, liquidity, profitability, quality of the insured book of business, loss experience, and use of reinsurance.

The report aimed to point out the subtle differences between the AAA-rated insurers, not to imply that there are any large gaps in quality, said Richard Ciccarone, director of tax-exempt fixed income research for Kemper.

"We're not talking about huge distinctions between the major companies; that's why they're rated the same," Ciccarone said. "We are attempting to provide a unique fine tuning from those factors we deem important."

Asset Guaranty Insurance Co., the only primary bond insurer to have a rating lower than triple-A, received a 3.06 or B ranking on the Kemper grade scale. Asset Guaranty is rated AA by Standard & Poor's Corp., and AAA by Duff & Phelps Credit Rating Co.

All of the other firms are rated AAA by Standard & Poor's and Aaa by Moody's Investors Service, except for Connie Lee which is not rated by Moody's. FGIC is also rated AAA by Fitch Investors Service, and CapMAC carries a AAA from Duff & Phelps.

Aaron Task is a reporter for The Guarantor, a weekly newsletter of The Bond Buyer.

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