AGO's credit rating is not a problem, cap levels are high and going higher as RMBS issues get minimized. Bond default probabilities, while higher than in past years, is still not a major threat. On a discounted cash flow basis (@ 4.5%), earned premiums from reserves puts a cash value of AGO share at ~$10.50/share.
The KEY to AGO's stock is all about EARNINGS. The viability of AGO's current business model is questionable going forward and undoubtly is going to change. The "market" is waiting to see what changes occur w/in AGO to generate income.
With high capitalization levels, AGO has some choices. Will structured finance command a larger %age of future incomes? Will Muni-debt spring back to life? I think the answer is YES and YES to both of the above questions, but it will take time and depend on an improving economy and seeing a more solid debt market.
I think AGO is dead money for a while, but still a great investment if one looks forward 2-3 years, assuming AGO mgmt. makes good strategic moves.