Capital Reinsurance Co. last week earned Moody's Investors Service's first Aaa claims-paying rating for a municipal reinsurer.

The company already has a triple-A rating from Standard & Poor's Corp., as do its maintain competitors, Enhance Reinsurance Co. and the College Construction Loan Insurance Association.

"Capital Re has built a strong statutory capital base that is more than sufficient to pay claims under various stress simulations," said William F. deSante, vice-president and managing director for Moody's structured finance ratings group.

Mr. deSante said Capital Re's "strong management and innovative approach to reinsurance provide the company with a competitive advantage in the market."

Capital Re, founded in 1988, focuses primarily on reinsuring municipal bonds, but the company also targets opportunities in the international markets, including mortgage-backed securities in the United Kingdom.

Moody's said the company reinsures business from all the major primary municipal bond insurers, but the current low premium environment creates a risk that the primary companies may wish to retain more business for themselves.

"Capital Re plans to combat this potential loss of business by functioning as an underwriting partner and participating in product development and niche markets," Moody's said. "Overall, Capital Re's proactive innovative business strategy has added strength and stability, and made the company less reliant on the fortunes of the primary insurers."

Capital Re's underwriting strategy targets facultative reinsurance on capacity-constrained issues, which gives the company control over the credit quality of its portfolio, Moody's said. The practice also provides primary insurers with additional capacity on large capacity-constrained issues.

One way the insurer manages its risks effectively is to retrocede business to international reinsurers, diversifying the risk concentration of the industry and the company's own portfolio, Moody's said.

Moody's also said Capital Re has achieved impressive financial results within a relatively short period of time.

Statutory net income was $13.4 million in 1991, and the firm's gross premium written for the year was $66.5 million, or $49 million after retrocessions.

Michael E. Satz, chairman and chief executive officer of the Capital Re Corp., said he believes the Aaa claims-paying rating from Moody's "confirms the high quality of our diversified reinsurance portfolio, reaffirms our financial strength, and positively supports the company's strategic direction."

Capital Re Corp., the holding company for Capital Reinsurance Co., recently issued over six million common shares of stock, earning $61 million in capital and bringing public ownership to more than 42%. The holding company plans to issue another $50 million in debt later this year.

In addition to its AAA rating from Standard & Poor's, Enhance is pursuing a triple-A designation from Moody's according to company official.

"We have applied and are confident we will succeed in getting a triple-A," said Sheila Brody, an Enhance vice president.

The other significant player in the municipal bond reinsurance field is the College Construction Loan Insurance Association, or Connie Lee, which focuses primarily on the education sector.

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