Moody's Investors Service last week downgraded Radian Asset Assurance Inc. to Ba1 from A3, following a Feb. 13 downgrade to parent Radian Group Inc.'s mortgage insurance subsidiaries. The outlook is stable.

Worsening credit conditions for certain structured finance products negatively affected Radian's expected- and stress-case losses, Moody's said.

"[The] downgrade of Radian Asset reflects the substantial deterioration in the credit profile of Radian Guaranty, the group's main mortgage insurance operating company and parent of Radian Asset, coupled with increased loss estimates on Radian Asset's pooled corporate exposures," Moody's said.

Moody's will withdraw its ratings on Radian-insured municipal bonds without underlying ratings, because it has downgraded the insurer below investment grade.

Radian Group last year transferred Radian Asset to its mortgage insurance subsidiary Radian Guaranty Inc. to provide capital support. Radian Asset, which had $965 million in statutory capital and $2.8 billion in claims-paying resources as of the end of last year, will no longer write new business, Radian has said.

Although Radian Asset will be bound to regulations on dividend distribution, the plan to contribute capital could weigh on it in the future, Moody's said. The mortgage subsidiary wants to continue writing business, Radian executives said at a fourth-quarter earnings conference call last month.

"While Radian Asset's capital profile remains strong currently, it could well decline over time as capital resources are diverted from the company to support Radian's substantially weakened mortgage insurance platform," Moody's said.

Analysts also warned about Radian Asset's concentration of pooled corporate exposures.

"While Radian Asset has limited exposure to mortgage-related risks in its insured portfolio, approximately 40% of the company net par outstanding is concentrated in highly-rated mezzanine tranches of pooled corporate exposures," Moody's said. "These large and potentially correlated risks could meaningfully weaken the company's capital adequacy position should the performance of these exposures deteriorate, particularly in light of the current economic environment.

The financial guarantor has been attempting to reduce all its outstanding exposures. Its net par outstanding fell to $100.7 billion at the end of 2008 from $116 billion at the end of 2007.

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