I've looked a little and you are going to struggle to find quality analysis. Several minor points I thought of when buying:
1) There are analysts recommending MBIA on basis of ABV. I think non-GAAP measures like ABV are garbage but even assuming MBIA settles on very favorable terms their ABV is still going to be below AGO unless they reverse all sorts of reserves. So there is kind of an indirect analysis there.
2) Insurance companies don't have to pay off losses immediately. If there are bonds coming due in 2040 that default, AGO just has to pay the coupon and ultimately principal according to original terms. This is just based on my limited understanding but my point is, it isn't like cash flow goes in the toilet if lots of municipalities do go under.
3) AGO management, for whatever reason, has never been caught up in the scandals that other bond insurers have. They also largely avoided the structured finance traps so I think one can make an argument that they have better controls/management.
4) If lots of MUNIs do start to go under, inflation would help them out. If one wants to think the Fed would help it might be a backstop. Maybe.
Still, I agree lots of municipalities overpromised and some are openly talking about hammering the bond holders rather than employees so that has to scare you some. Who knows, I wouldn't buy unless you are prepared to hold for a good long time.
I agree with you the accounting is tricky to get one's head around and NonGAAP measures are problematic
My understanding is the same regarding their obligations and yes if a 2040 muni bond issue defaults they only have to make payments in the interim or to make up for reduced payments if a haircut in a voluntary restructuring or in a Chapter 9 plan occurs. Meaning that the insurance payout is likely many multiples smaller than the notional value of the issue.
It also appears that state law can affect the outcome for bondholders in Chapter 9 even for general obligation bondholders. There seems to be some indication as well that so called revenue bonds may not be as secure as once thought if the underlying enterprise is insolvent.
My sentiment is that there are too many variables right now for me to measure and forecast on this one to make a call long or short and more importantly to try and time this one in any way.
I guess that's reflected in how the market has this one priced. Its sort of not sure if it could go under due to temporary cash flow distress ( if insurance payouts for defaults overwhelmingly overtook premiums). On the other hand its seems quite possible that the municipal bond crisis could be overstated or that even if it gets bad that the actual payouts will be manageable for a fairly well capitalized company such as this. Eventually it would stabilize and do much better possibly as more investors and issuers would want their bonds insured ( to lower the cost of financing and give investors piece of mind).
I think if the dividend yield were a little higher than its current 3% I would be more inclined to buy and hold. 3% just doesn't seem like enough compensation for the potential risk here. Like I said its entirely possible that the risk is totally overstated, but its difficult to ascertain that with a total lack of any in depth analysis. In the schedules of issuances released by the company all you get is a notional amount. Its hard to extrapolate what realistic potential losses could be from their data.
Still a pity in that I am sure there are large sums to be gained by someone willing to untangle the accounting and come out with a complex forecast model of cash flows. If anyone on this board wants to team up and try and untangle this beast please let me know.
Right now the stock is in a holding pattern and obviously the ratings agency's outlook is huge because its affects the company's ability to raise additional capital which it might have to do if the municipal finance crisis snowballs.
You should be aware that Wilbur Ross(also a director) has been a recent buyer of AGO and holds a substantial position with a average cost much higher than todays price. Who knows the accounting better than CEO Frederico who has also been a buyer . Other officers and directors have also been buyers in the open market. Any sales you see relate to taxes do on options. Frederico stated in the last CC that he has the bulk of his net worth and his childrens net worth invested in AGO. In other words the insiders are not bailing on AGO and are keeping all their shares that they exercise on options (as well as going to the open market to make additional purchases). The Book is $25 and Adjusted book is $48. The ABV is their current estimate of what they would receive in a liquidation scenerio over time. I would start your research with the conference calls and presentations and you will see that AGO has a excellent CEO in charge of the situation.