Standard & Poor's (S&P) has given an AA long-term counterparty credit and insurer financial strength rating to UK-based Radian Asset Assurance Ltd (RAAL).
The company is a newly created subsidiary of US-based bond insurer Radian Asset Assurance (RAA).
It will underwrite trade credit reinsurance and financial guarantees, with financial guarantee risk substantially reinsured with RAA.
The rating outlook is negative, mirroring the outlook for its parent company.
“The ratings on RAAL are based on its strategic importance to RAA and on the explicit support provided to RAAL by RAA in the form of a net worth maintenance agreement (NWMA), as well as RAAL's stand-alone credit quality,” said S&P credit analyst Laura Santori.
The NWMA requires RAAL to be adequately capitalised by RAA at all times. Under the NWMA, the company's directors are responsible for calling the requisite additional capital from RAA. As an additional safeguard, the company's articles of association permit non-executive directors to make the capital call.
“The failure of RAA to pay such calls could result in a lowering of its ratings,” added Santori.
Given that RAAL's financial guarantee business would be substantially reinsured to RAA, RAAL's stand-alone risk profile would largely stem from its credit reinsurance operations, said S&P.
Related additional major rating factors are RAAL's adequate business position in the credit reinsurance market, good prospective earnings, strong capitalisation, and high risk concentration due to the small size of the credit insurance market and the limited number of players.
