Fitch Ratings placed the AAA insurer financial strength rating of Financial Security Assurance Inc. on negative watch, citing recent developments at the bond insurer’s parent Dexia SA and “continued challenges to FSA’s core franchise.”

“Historically, Dexia has demonstrated a strong financial and strategic commitment to FSA,” Fitch said in a statement. “Its ability to provide additional capital and liquidity support was strengthened following the Dexia’s recent recapitalization and explicit sovereign statements guaranteeing Dexia’s institutional obligations. That said, the change in ownership and management does create some uncertainty as to Dexia’s willingness to provide future support, as well as the nature of that support in terms of its structure and permanence.”

Fitch said that although FSA avoided losses from structured finance collateralized debt obligations, the insurer has exposure to the residential mortgage-backed securities market through both its financial products and financial guaranty businesses. 

FSA noted in a statement that it believed Fitch’s decision was based on “uncertainty about parent Dexia’s future support for FSA under new ownership and management and the challenging market environment, rather than on the fundamental credit strength of the insurance company.”

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