One of the insurance-linked securities (ILS) sponsored by financial guarantee and municipal bond specialist Build America Mutual Assurance Company has had its ratings revised to Positive from Stable by Kroll Bond Rating Agency (KBRA), while another two remain at Stable.
Through these securitized structures, the insurer has integrated the capital markets into its reinsurance strategy and employed catastrophe bond securitization technology to facilitate this.
Similar to the mortgage ILS transactions that we cover on Artemis, the foundational portfolio of business diminishes over time with the Fidus Re series of transactions, indicating that the potential risk linked to an investment in the issued ILS notes decreases over time.
Now, KBRA has affirmed its AA+ rating on the Fidus Re Ltd. (Series 2021-1) issuance, and at the same time also affirmed its AA rating on both the Fidus Re Ltd. (Series 2022-1) and Fidus Re Ltd. (Series 2025-1) transactions.
“The affirmations reflect the continued conservative and static composition of the Covered Portfolios, ongoing amortisation of insured exposures within the defined 12-year Risk Period, and stress case modeling outcomes indicating that projected cumulative Risk Period losses remain below each respective attachment point at confidence levels consistent with the current ratings, with meaningful headroom remaining,” KBRA explained.
KBRA also confirmed that the outlook for both the Series 2021-1 and Series 2025-1 notes remains stable, while the outlook for the Series 2022-1 notes has been revised to positive from stable.
Additionally, the agency noted that the revision of its outlook to positive for Fidus III primarily reflects continued amortisation of exposures due within the Risk Period, including amortisation modestly exceeding original scheduled assumptions, in combination with stable-to-favourable rating migration across the insured portfolio.
“As a result, the modeled probability that cumulative Risk Period stress losses will exceed the $110 million attachment point has declined based on KBRA’s analysis. At current rating levels, projected losses remain below the $135 million attachment point for Fidus II and below the $110 million and $190 million attachment points for Fidus III and Fidus IV, respectively,” KBRA added.
At the same time, the agency explained that the stable outlook for both the Series 2021-1 and Series 2025-1 transactions reflects the continued amortisation of the covered portfolios, which consist of granular pools of predominantly low-risk U.S. municipal credits, as well as stable insured credit performance and favourable rating migration trends.
Read about all of the Fidus Re financial guarantee insurance-linked securities (ILS) in our extensive Deal Directory.
