Seven "triple-A" rated bond insurers have more than enough capital to support their current rating levels, Fitch Ratings has reported.
The New York-based rating agency introduced a new economic capital model known as Matrix, which it will now use in its ratings of financial guaranty insurers, and found that the core capital adequacy ratio–the key output produced by the model–was sufficient for all seven companies.
Each financial guarantor is expected to maintain a minimum CCAR of 1.00 for its given rating threshold, Fitch said. A CCAR in excess of 1.00 means the company holds more capital than required to meet simulated claim payments generated by the Matrix model.
According to a report on the initial model results, "triple-A" rated financial guarantors had CCARs ranging from a low of 1.05 for Security Capital Assurance Ltd. to a high of 1.48 for Financial Security Assurance Inc.
Other CCARs at the triple-A level were:
o Ambac Assurance Corp.–1.14
o Assured Guaranty Ltd.–1.11
o CIFG Guaranty–1.28
o Financial Guaranty Insurance Company–1.08
o MBIA Insurance Corp.–1.09
One "double-A" rated financial guaranty insurer, Philadelphia-based Radian, saw its CCAR come in just under the required threshold for its rating–with a level of 0.98. Fitch noted, however, that "a reasonable cure period will be granted" before any rating action is taken, and that Radian recently exited some problem exposures.
According to Fitch, once these underwriting changes are incorporated into Matrix, Radian will likely pass the minimum CCAR of 1.00 to maintain its "double-A" rating.
In a statement, Thomas Abruzzo, managing director, said, "We believe the very strong showing of the financial guaranty industry under Matrix is a testament to the very high levels of financial strength in this industry, and we do not view any signs of weakness reported upon our introduction of Matrix as problematic in any way."
He added that on a going-forward basis, all financial guarantors rated by Fitch will have individual access to the Matrix model to help them manage their capital adequacy requirements.
Matrix is similar to Prism–a model unveiled by Fitch last year as part of its ratings of property-casualty insurers that are not financial guarantors. Like Prism, Matrix is a stochastic global capital model.
Dynamic, or stochastic, models assess the ability of companies to withstand multiple stresses simultaneously by running thousands of computer simulations of possible future environments.
Using the Matrix model, Fitch said it bases the denominator of its CCAR on up to 500,000 scenarios of insured claims simulated over a spectrum of good through bad economies. The numerator of the ratio includes the financial guarantor's actual capital and other claims-paying resources such as unearned premium reserves and loss reserves.
Fitch's special report on initial model results, as well as a criteria report and a Webcast replay describing the new model in detail, are available at www.fitchratings.com.
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