S&P Upgrades MBIA, Inc. (MBI) to 'A-'; Cites NPF as Principal Debt Servicing Counterparty

March 18, 2014 3:20 PM EDT
Standard & Poor's Ratings Services said today that it has raised its financial strength rating on National Public Finance Guarantee Corp. (National) to 'AA-' from 'A'. At the same time we raised the counterparty credit rating on MBIA Inc. (NYSE: MBI) to 'A-' from 'BBB'. The outlook on both companies is stable.

"The rating upgrade on National reflects our view of the company's prospective strong business risk profile and strong financial risk profile, based on our belief that the company will have a strong competitive position and strong operating performance, as well as its current extremely strong capital adequacy position," said Standard & Poor's credit analyst David Veno.

We view National's operating performance as strong, and believe the company will begin writing business with favorable pricing characteristics as it demonstrates good operating performance and profitability. We expect the company will maintain its prudent underwriting standards as evidenced by the minimal losses it has experienced on its insured U.S. public finance portfolio.

The rating upgrade on MBIA Inc. reflects our view that National is its principal source of debt-servicing and holding company expense needs. The rating also reflects MBIA Inc.'s structural subordination to its regulated operating subsidiary. The continued estimated tax escrow release for the foreseeable future related to the tax-sharing agreement and National's ability to pay dividends also support holding company liquidity.

The outlook on both companies is stable based on our expectation that, as National begins to write business, it will gain market acceptance and demonstrate sustainable competitive advantages. We expect National to generate favorable pricing and operating performance metrics. We also expect that, as National begins to write business, it will attain a risk-adjusted pricing
ratio above 4%, operate with a combined ratio below 100%, and generate positive cash flow.

"We could lower the ratings if National does not meet our pricing and operating performance expectations, or if does not attain adequate market share, indicating a weaker competitive position than that of its peers," Mr. Veno continued. "We could also lower the ratings if the company's underwriting practices become inconsistent, in our view, with a low-volatility book of business or inadequate risk-adjusted pricing. We are unlikely to raise the rating in the next two years--any potential upgrade will depend on a sustainable material competitive advantage relative to peers."

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