Standard & Poor's Ratings Services said it lowered its counterparty credit and financial strength ratings today for Triad Guaranty Insurance Corp., citing the bond insurer's "significant operating losses."
The firm said it had dropped Triad, which was placed on CreditWatch last month, to "triple-B" from "double-A-minus." At the same time, S&P lowered its counterparty credit rating on Triad Guaranty Inc. to "double-B" from "A-minus." All of the ratings remain on CreditWatch with negative implications.
The possible resolutions of the CreditWatch vary from an affirmation with a negative outlook to a downgrade of multiple notches, S&P said.
James Brender, S&P credit analyst, said, "The downgrade reflects Standard & Poor's view that significant operating losses will deplete a material portion of Triad's capital base and make it difficult for the company to continue writing new business at some point in 2008."
When Triad went on Credit Watch on Feb. 13, Mr. Brender said there were "concerns regarding Triad's operating performance, historical risk management and capitalization. We stated that the resolution of that Credit Watch could be a downgrade of multiple notches."
S&P said the firm is on Credit Watch because it may conclude that Triad's claims-paying ability is not consistent with an investment-grade rating.
The rating firm said Triad's capitalization appears strong today, "but it will weaken over time because of significant operating losses and the depletion of soft capital available through reinsurance arrangements with lender captives and professional reinsurers."
The process, said S&P is likely to involve the application of the rating firm's criteria for insurance companies that are in runoff. TGIC's recent 10k filing with the Securities and Exchange Commission states that Triad must significantly augment its capital resources in order to continue writing new business, S&P noted.
"The proposals being considered involve structures under which Triad would implement a runoff plan," Mr. Brender said. "Under these scenarios, we would apply our criteria for insurance companies that are in runoff. Our focus will be on comparing the firm's current liabilities and potential losses to its existing resources. Our criteria usually cap ratings for companies in runoff at 'triple-B.'"
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