Kroll Bond Rating Group assigned MBIA's municipal only insurer National Public Finance Guarantee a AA-plus rating Monday afternoon, the highest rating in the insurance industry.
Kroll assigned a AA-plus score to Assured Guaranty's muni-only Municipal Assurance Corp. when the business launched in July 2013. The agency does not rate Build America Mutual.
National received insurance financial strength and a stable outlook based on Kroll's view that the muni-only insurer has an extensive existing portfolio and an experienced management team with industry contacts.
"National has an established underwriting platform that is supported by seasoned professionals and well-developed operating systems," Kroll reported in its rating report. "This should enhance its ability to execute on its stated business plan. National will also benefit from a revenue stream generated by the ceded book of business which provides flexibility as the company seeks to establish its market position after a period of dormancy."
The insurer is expected to reenter the market at some point this year and begin underwriting within the U.S. Public Finance market after being out of the business for six years following the financial crisis.
National's insured portfolio totaled $276.8 billion as of Dec. 31, 2013 on a gross par basis and $271.1 billion on a net par basis, according to the report. The portfolio was acquired from MBIA's U.S. public finance book.
"National projects that by 2020, 50% of its insured portfolio will be business written after 2013," the report said.
According to the report, National has the capability of passing Kroll's stress case scenarios at a AAA rating level, though the agency has stated in its Financial Guaranty Rating Methodology that the agency will not assign a rating above AA-plus even if the insurer meets the requirements.
Though Kroll has placed National at the top, the agency is concerned that there is "no corporate charter provision ensuring that negative credit drift will not occur at National over time."
National's portfolio contains exposures to distressed credit including $4.9 billion of aggregated net par exposure to Puerto Rico and $2.4 billion of net par exposure to Detroit.
"Detroit exposures through its Monte Carlo and financial models at various below investment grade levels. National passed the Monte Carlo stress tests at the highest rating levels under all KBRA stress scenarios," the report said.
The insurer's overall risk has improved and has exceeded a reduction in assets and claim paying resources, Kroll said.
