SCA Questions Fitch's Methodology in Responding to Downgrade of XLCA

Security Capital Assurance Ltd. yesterday responded to the downgrade to junk status of its bond insurer, expressing "disappointment" with Fitch Ratings for taking the action.

On Wednesday, Fitch downgraded the guarantor, XL Capital Assurance Inc., to BB from A, and moved it to negative outlook.

In its response to Fitch, SCA again leveled criticism at the rating agency's capital model, saying it "employed significantly different assumptions" when evaluating the asset-backed security collateralized debt obligations on XL Capital's books. Fitch publicly rated just three of the 25 transactions and used that to formulate loss estimates of between $3 billion and $4 billion, SCA said. An analysis conducted by the company found case loss provisions of $838.6 million before reinsurance.

Fitch has taken steps in recent weeks to address similar concerns raised by other bond insurers. On March 19, Fitch released a report that provided a number of explanations and solutions, including a plan to pull the CDO transactions out of an insurer's portfolio for analysis independent of the other evaluated asset classes in the capital model.

It is not clear whether this action was undertaken when evaluating the CDOs insured by XL Capital.

SCA also said Fitch looked at the expected losses on the CDOs over a time period of between two and seven years, while the company claims that 89% of paid claims will occur between 30 and 40 years in the future.

A spokesman for Fitch declined to comment.

MBIA NAMES NEW TREASURER

In other bond insurer news, MBIA Inc. Tuesday named Fred Pastore managing director and treasurer, responsible for managing relationships with the rating agencies, and overseeing capital and liquidity management, cash management, and reinsurance.

Pastore began his career as an analyst with Moody's Investors Service, before moving over to MBIA in 1995. He was in part responsible for designing the company's first long-term financial planning model and a global cash management system, and more recently has managed MBIA's relationships with the rating agencies.

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