Moody's Investors Service Wednesday afternoon downgraded the insurer financial strength rating of Ambac Assurance Corp. to Baa1 with a developing outlook from Aa3 on review for downgrade. The change came after the bond insurer's parent, Ambac Financial Group Inc., earlier in the day reported a net loss of $2.431 billion for the third quarter.

Moody's cited expectations of greater mortgage-related losses, the possibility of even greater than expected losses in extreme stress scenarios, Ambac's diminished business prospects, and its impaired financial flexibility for the downgrade. On Sept. 18, Moody's placed Ambac Assurance's Aa3 rating and MBIA Insurance Corp.'s A2 rating on review for downgrade.

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