Insurer Financial Strength rating falls from 'AAA' to 'A'
Fitch Downgrades SCA and XLCA/XLFA, Ratings Remain on Watch Negative
Fitch Ratings has downgraded the following ratings on Security Capital Assurance Ltd. (SCA) and its financial guaranty insurance subsidiaries:
XL Capital Assurance Inc. (XLCA)
XL Capital Assurance (U.K.) Ltd. (XLCA-UK)
XL Financial Assurance Ltd. (XLFA)
--Insurer Financial Strength (IFS) to 'A' from 'AAA'
Security Capital Assurance Ltd.
--Long Term Issuer Rating to 'BBB' from 'AA'
--Fixed/Floating series A perpetual non-cumulative preference shares to 'BBB-' from 'AA-'
Twins Reefs Pass-Through Trust
--Pass-through trust securities to 'BBB' from 'AA'
The ratings remain on Rating Watch Negative.
The downgrades follow SCA's announcement yesterday that it has determined not to raise new capital at the present time due to current market conditions.
As Fitch announced on Dec. 12, 2007, when it placed SCA on Rating Watch Negative, the company has a modeled capital shortfall of more than $2 billion at the 'AAA' rating threshold. The downgrade places XLCA and XLFA's insurer financial strength (IFS) ratings at a level commensurate with an 'A' rating stress level under Fitch's most recent capital modeling.
The downgrade of the IFS ratings to 'A' coupled with the continuation of the Negative Rating Watch, reflects the significant uncertainty with respect to the company's franchise, business model and strategic direction; uncertain capital markets and the impact of SCA's recent decisions on future financial flexibility; the company's future capital strategy; ultimate loss levels in its insured portfolio; and the challenges in the financial guaranty market overall. Fitch expects to resolve the Negative Rating Watch after the agency evaluates these various qualitative factors, as well as the progress SCA makes with respect its ongoing future capital enhancement plans.
The downgrade in the holding company debt ratings reflects greater uncertainties surrounding SCA's future earnings and ability to pay dividends on its fixed/floating series A perpetual non-cumulative preference shares, together with movement to the more typical notching used at the 'A' IFS rating level.
Fitch notes that when it placed SCA on Rating Watch Negative on Dec. 12, 2007, the agency stated if a downgrade were to occur, it would expect the IFS rating of XLCA and XLFA to be downgraded to the 'AA' rating category, assuming little change to the company's current capital position. However, that view assumed SCA would have likely reduced at least a portion of its capital shortfall. While Fitch believes SCA continues to work towards addressing its capital enhancement plan, to date finalized execution has fallen materially short of Fitch's prior expectations. Fitch will comment on the impact of the downgrade of SCA's IFS rating on the ratings of securities insured by XLCA in a separate release.
