Moody's Investors Service Friday downgraded to Caa1 with a negative outlook from B1 the insurer financial strength ratings of bond insurer Financial Guaranty Insurance Co.
The rating action came as a result of a review started in late October and "reflects Moody's expectation of higher mortgage-related losses arising from FGIC's insured portfolio and the constrained liquidity and financial flexibility of the holding company."
Moody's noted FGIC's "substantial exposure" on its U.S. second-lien, subprime, and other residential mortgage products, of which Moody's expects "materially higher" losses. Moody's currently anticipates a loss of $3.9 billion on FGIC's insured portfolio. FGIC had claims-paying resources of $4 billion at the end of the third quarter, Moody's said.
MBIA earlier this year reinsured $166 billion of FGIC's public finance portfolio. Despite this and FGIC's negotiations with structured finance counterparties, FGIC's risk-adjusted capital adequacy position has weakened, Moody's said.
Meanwhile, Standard & Poor's earlier this week raised its financial strength rating on bond insurer ACA Financial Guaranty Corp. to B from CCC, while withdrawing the rating at the request of the company.
Standard & Poor's said the upgrade "reflects the positive effects of the restructuring transaction completed this past August that settled all outstanding CDO and reinsurance exposures of the company." Following the restructuring plan - approved by Maryland regulators - ACA has entered run-off.
