Channel Re Hit In Rating Report

Standard & Poor's this week has revised its outlook onBermuda-based Channel Reinsurance Ltd. from stable to negativewhile maintaining the company's AAA financial strength rating.

"The outlook revision reflects concerns regarding the level ofstaffing at Channel Re relative to the size of its portfolio andvolume business, as well as the process and performance of itsboard and committees," the S&P report said.

The AAA rating reflects the company's strong capital positionand steps taken by the investors to ensure parity between the riskassumed by the company and that retained by MBIA Insurance Corp,its sole source of business, S& P said.

MBIA Inc. is the largest U.S. municipal bond insurer and owns astake in Channel Re.

S&P analyst David Veno said the fact that MBIA's investmentin Channel Re, along with the need for a Triple-A reinsurancecapacity, somewhat aligns their interests. But there still remainsthe risk to Channel Re investors of adverse selection of risk cededby MBIA.

Mr. Veno also expressed concern about the outcome of currentinquiries conducted by the Securities and Exchange Commission andthe New York Attorney General's Office as to the nature of MBIA'srelationship with Channel Re.

Channel Re has five full-time staffers, one of whom is anadministrator and office manager overseeing a $30 billion book ofbusiness, the credit agency said in its report.

Armonk, N.Y.-based MBIA issued a statement saying "that as aninvestor in Channel Re, MBIA will work with Channel Re and otherChannel Re investors to address any issues that S&P has raisedin their recent report."

"S&P's outlook revision on Channel Re to negative has noimpact on MBIA's claims-paying resources or capital position," thestatement said.