Citing Capital Concerns, Moody's Drops Radian Asset to A3

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WASHINGTON - Moody's Investors Service yesterday downgraded bond insurer Radian Asset Assurance to A3 from Aa3, citing deterioration in capital adequacy and an inability to produce near-term profits.

Pointing to management's announcement that the subsidiary of Radian Group Inc. "will likely cease writing new business and will serve as a potential source of capital for Radian's mortgage insurance platform," Moody's also gave the company a negative outlook.

Moody's noted that Radian's "Type 1" insurer designation has been confirmed by mortgage holder Freddie Mac. This allows Radian to continue to write new residential mortgages sponsored by the government. Moody's said Radian's ability to retain Type 1 status will be important to future ratings considerations.

Standard & Poor's downgraded Radian Asset to A from AA and kept it on negative watch earlier this month. Radian responded to the downgrade, contending it was not associated with a lack of cash reserves and said it had $1.6 billion in statutory capital at the end of the first quarter.

The Moody's report agreed that Radian Asset's capital profile "remains strong currently," but said that could change if resources from the subsidiary are diverted to help Radian's mortgage insurance platform.

Rick Gillespie, senior vice-president with Radian Group, said the announcement by Moody's was "disappointing" but expected, given the Standard & Poor's downgrade. The downgrade "will inhibit ability to write business," Gillespie said.

Asked about Moody's concerns about a possible shift in resources, Gillespie acknowledged that Radian Asset "will potentially serve" as capital for Radian's parent company.

Moody's and Standard & Poor's had each affirmed their Aa3 and AA ratings for the insurer in December. Since then, the credit and subprime crises have drained capital for insurers that backed mortgage-backed securities. MBIA Insurance Corp. and Ambac Assurance Corp., among the largest bond insurers lost their triple-A ratings earlier this month.

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