Security Capital Assurance Ltd. (SCA) has expressed its disappointment in the further downgrading of subsidiaries XL Capital Assurance Inc. (XLCA) and XL Financial Assurance Ltd.'s (XLFA) Insurer Financial Strength (IFS) ratings to below investment grade by Fitch Ratings.

On Wednesday, Fitch downgraded the IFS of XLCA, XL Capital Assurance Ltd.(XLCA-UK) and XLFA to 'BB' from 'A', the long-term issuer of SCA Ltd. to 'B-' from 'BBB', and its $250 million fixed/floating series A perpetual non-cumulative preference shares to 'CCC' from 'BBB-'.

In addition, Twins Reefs Pass-Through Trust's $200 million pass-through trust securities was downgraded to 'B' from 'BBB'.

It followed downgrades to well below 'AAA' by each of the three major rating agencies.

SCA said that, while Fitch has not shared detailed information on its modeling with the company, it believes that the ratings agency employed "significantly different assumptions" in its analysis of the company's Collateralised Debt Obligation of Asset-Backed Securities (CDO of ABS) portfolio than the company did.

As explained on the company's March 14, 2008 fourth quarter 2007 earnings call, SCA said it conducted a loan level collateral analysis as of year-end 2007 on each of the company's insured CDO of ABS transactions, and this analysis was substantially corroborated by a "highly regarded outside third party".

In contrast, SCA said that of its 25 insured CDO of ABS transactions, Fitch has publicly rated just three. Based on its analysis, Fitch's estimate of expected losses on SCA's CDO of ABS portfolio is stated to range between $3 billion and $4 billion, it added. The company's comprehensive bottom up analysis of the collateral supporting the CDO of ABS portfolio resulted in the establishment of case loss provisions totaling $838.6 million before reinsurance and $651.5 million after reinsurance in the fourth quarter of last year.

Separately, SCA believes that Fitch has indicated it is discounting the company's CDO of ABS expected losses over time periods ranging between two and seven years. As of December 31, 2007, the company estimated that approximately 89 percent of paid claims associated with its CDO of ABS portfolio are expected to occur between 30 and 40 years into the future. The company said that such timing assumptions can have a significant impact on present value calculations and corresponding loss estimates.

Lastly, SCA said, it believes that, by employing general cumulative loss assumptions, Fitch's analysis assumes that all collateral pools will perform the same. In contrast, the company's loan level collateral analysis develops expected losses on a security by security basis, it added. Further, the company's analysis takes into account the specific structural aspects of each CDO of ABS transaction that it has insured.