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A.M. Best Affirms Debt Rating of InCapS Funding II, Ltd. and InCapS Funding II Corp.'s Senior Notes
[July 16, 2014]

A.M. Best Affirms Debt Rating of InCapS Funding II, Ltd. and InCapS Funding II Corp.'s Senior Notes

OLDWICK, N.J. --(Business Wire)--

A.M. Best has affirmed the debt rating on multi-tranche collateralized debt obligation (CDO) co-issued by two bankruptcy remote special purpose vehicles: InCapS Funding II, Ltd. (Cayman Islands) and InCapS Funding II Corp. (Delaware) (collectively known as InCapS II and issuers). The outlook for the rating is stable. (See below for a detailed listing of the rating.)

The principal balance of the rated notes are collateralized by a pool of trust preferred securities, surplus notes and secondary market securities (collectively, the capital securities), primarily issued by small to medium-sized insurance companies. The capital securities are pledged as security to the notes. Interest paid by the issuers of the capital securities are the primary source of funds to pay operating expenses of the issuers and interest on the notes. Repayment of the notes principal is primarily funded from the redemption of the capital securities.

This rating action primarily reflect: (1) the current issuer credit ratings (ICRs) of the remaining issuers of the capital securities; (2) a stress of up to 250% on the assumed marginal default rates of insurers (derived from Best's Idealized Default Rates of Insurers); (3) the amount of capital securities considered to be in distress; (4) recoverie of 0% after the defaults of the capital securities; and (5) qualitative factors such as the effect of interest rate spikes; subordination levels associated with each rated tranche; the adjacency of very high investment grade ratings to very low non-investment grade ratings in the transaction's capital structure and the possibility that additional redemptions of highly rated entities will leave lower-rated companies in the collateral pool.

The rating could be upgraded or downgraded and/or the outlook revised if there are material changes in the ICRs of the remaining insurance carriers, an increase in the number of defaulted capital securities and/or additional capital security redemptions.

The following debt rating has been affirmed:

InCapS Funding II, Ltd. and InCapS Funding II Corp.-
-- "aa+" on $50.50 million Class A-2 Floating Rate Senior Notes Due 2034

This is a structured finance rating.

For access to special reports, analytical methodologies and transactions relating to insurance-linked securities, please visit

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit

Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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