Ratings Roundup: Ambac, Ballantyne Re, Paris Re, Cincinnati Specialty, American Strategic

December 27, 2007

Fitch Ratings has placed the following ratings of Ambac Financial Group, Inc. and Ambac Assurance Corp. (Ambac) on Rating Watch Negative: Ambac Financial Group, Inc.- Long-term rating ‘AA’; – $400 million 5.95 percent senior unsecured notes due Dec. 5, 2035 ‘AA’;
–$142.5 million 9.375 percent senior unsecured debentures due August 1, 2011 ‘AA’; – $75 million 7.5 percent senior unsecured debentures due May 1, 2023 ‘AA’;- $400 million subordinated notes due Feb. 7, 2087, along with Ambac Assurance Corp., Ambac Assurance UK Ltd. and Connie Lee Insurance Co.currently given Fitch’s Insurer financial strength (IFS) of ‘AAA’. Fitch said the action follows the completion of its updated assessment into “Ambac’s current exposure to structured finance collateralized debt obligations (SF CDOs) backed by subprime mortgage collateral, including CDO-squared securities, which together totaled $32.2 billion as Sept. 30, 2007, as well as Ambac’s exposure to residential mortgage-backed securities (RMBS). This review indicates that Ambac’s capital adequacy under Fitch’s Matrix financial guaranty capital model currently falls below guidelines for an ‘AAA’ IFS rating by around $1 billion.”

Fitch Ratings has placed the ‘AAA’ rated Ambac-insured issues of Ballantyne Re on Rating Watch Negative. This action follows Fitch’s recent placement of Ambac Financial Group, Inc. and its financial guaranty insurance subsidiaries’ Insurer Financial Strength (IFS) ratings of ‘AAA’ on Rating Watch Negative. The affected issues are as follows:Ballantyne Re – –$500 million class A-2, series A floating-rate guaranteed notes;
–$100 million class A-3, series A floating-rate guaranteed notes;
–$100 million class A-3, series B floating-rate guaranteed notes;
–$100 million class A-3, series C floating-rate guaranteed notes;
–$100 million class A-3, series D floating-rate guaranteed notes.
Fitch noted that it has previously placed Ambac’s ‘AAA’ IFS rating on Rating Watch Negative (see above). “Ballantyne Re is a special purpose public limited company incorporated and registered in Ireland,” Fitch explained. “The company was established for the limited purpose of entering into a reinsurance agreement with Scottish Re, and conducting activities related to the notes’ issuance. Under the reinsurance agreement, Scottish Re ceded a block of business to Ballantyne Re. Ballantyne Re issued the notes to finance excess reserve requirements under Regulation XXX for the ceded block of business. The Rating Watch Negative on the affected Ballantyne Re issues will be resolved once the Rating Watch Negative on Ambac is resolved.”

A.M. Best Co. has affirmed the financial strength rating of (FSR) ‘A-‘ (excellent) and the issuer credit rating (ICR) of “a-” of PARIS RE America Insurance Company (PRA), a subsidiary of the main operating company of PARIS RE group, PARIS RE S.A. (France). The outlook on all ratings is stable. “The ratings of PRA reflect the strong support from PARIS RE group through a 75 percent quota share retrocession program with PARIS RE Switzerland A.G. and a claims guarantee from its parent company PARIS RE S.A.,” said Best. “The ratings also factor the enhancing business profile of the restructured company. PARIS RE S.A. is in the process of combining its three US subsidiaries: PARIS RE Latin America Inc, AXA Space Inc. and the existing PRA which up until now was in run-off.”

A.M. Best Co. has assigned a financial strength rating (FSR) of ‘A’ (Excellent) and an issuer credit rating (ICR) of “a” to Delaware-based The Cincinnati Specialty Underwriters Insurance Company, Inc. (CSU), a wholly owned subsidiary of The Cincinnati Insurance Company (CIC) of Fairfield, Ohio, the lead P/C operating company within Cincinnati Financial Corporation (CINF). The outlook for all ratings is stable. “CSU’ s ratings reflect its excellent level of risk-adjusted capital and the explicit and implicit support garnered from being part of CINF,” said Best. “CSU will market excess and surplus lines coverages exclusively to CIC’ s existing independent agency plant and will utilize CIC’ s field marketing and claims representatives, loss control associates and other services. Agents will write CSU business through CSU Producer Resources, Inc., CINF’ s new wholly owned insurance brokerage.”

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘B++’ (Good) and assigned issuer credit ratings (ICR) of “a-” to American Strategic Insurance Group (ASI) of St. Petersburg, Fla. and its members. The outlook for both of the ratings is stable. “These rating actions reflect ASI’ s solid risk-adjusted capitalization resulting from continued strong operating performance through its prudent underwriting, innovative pricing systems and effective reinsurance programs,” Best explained. “As a result, significant surplus growth has occurred in recent years, complemented by the continued support from its parent company.”

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