Moody's Investors Service Tuesday placed the Baa1 insurer financial strength rating of Ambac Assurance Corp. on review for downgrade.

The rating agency cited "the deterioration in Ambac's qualified statutory capital position and the likelihood of increased expected and stress-case loss estimates among the company's mortgage-related risk exposures relative to earlier expectations."

Moody's said the review, which it expects to complete in the "next few weeks," could result in a multiple-notch downgrade, including one that would put the bond insurer's rating into junk territory. The rating's outlook had been developing.

"Ambac's increased losses continue to reflect both the significant volatility of the company's mortgage-related risk exposures as well as the challenges inherent in estimating the losses that will ultimately develop from this portfolio over time," Moody's analysts wrote.

Moody's recently announced "significant increases" in its expectations for losses on mortgage-related securities. Ambac's incurred losses on its residential-mortgage backed security portfolio "are now meaningfully higher than the rating agency's prior expected-case loss estimate," excluding Ambac's recorded $860 million in net remediation benefits.

Ambac last week reported a $2.34 billion net loss in the fourth quarter, and a $5.6 billion net loss for 2008. It is currently working on plans to relaunch muni-only subsidiary Everspan Financial Guaranty Corp., the old Connie Lee Insurance Co.

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