Fitch Downgrades Security Capital, XL’s Guaranty Subsidiaries

January 28, 2008

Fitch Ratings announced that it 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.

Fitch said its decision followed SCA’s announcement “that it has determined not to raise new capital at the present time due to current market conditions.” All of the rating agencies have recently reacted to the troubles at XL/SCA (see related articles).

On Dec.12 Fitch placed SCA on is “Rating Watch Negative” list, noting at the time that it had 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.”

Fitch further indicated that 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 said it expects to resolve the Negative Rating Watch after the agency evaluates these various qualitative factors, as well as the progress SCA makes with respect to its ongoing future capital enhancement plans.”

Source: Fitch Ratings –

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