Moody's Investors Service late Monday put the ratings of triple-A bond insurers Financial Security Assurance and Assured Guaranty Corp. on review for possible downgrade.

The move affects the two financial guarantors that had maintained their gilt-edged ratings throughout the ongoing credit crunch, as the others in their class dropped, many below investment grade by at least one ratings agency.

In its report, Moody's cited the guarantors exposure to complex credit risks and the falling demand for the bond insurance product they sell.

Moody's said Assured's credit profile: "may no longer be consistent with its current ratings given uncertainty about the firm's portfolio risk profile, material shifts in the demand function for financial guarantees, and as observed recently among Assured's competitors  potential sensitivity of its franchise and financial flexibility if losses continue to rise."

About FSA, Moody's cited the insurer's residential mortgage-backed securities exposure as causing "material losses" that could affect its credit.

Assured responded to Moody’s review. “We are concerned by Moody’s announcement at a time when Assured is experiencing broad market acceptance and investor demand for our insured paper,” stated Dominic Frederico, president and chief executive officer of Assured Guaranty Ltd.

“We believe it is important for investors to know that Moody’s action is not at all reflective of a deterioration in Assured’s capital base, credit exposures or earnings outlook. I would draw your attention to the following comments Moody’s made today in their press release,” continued Frederico. “First, their revised assessment of stress-case loss estimates on our residential mortgage-backed securities portfolio did not change meaningfully from their prior estimates. Second, Assured Guaranty Corp. and AG Re continue to exceed Moody’s current capital requirements for their current ratings of Aaa and Aa2, respectively. In addition, in relation to the $40 billion of our pooled corporate exposures Moody’s referenced, I would note that 95% of the portfolio is rated by Moody’s and 84% is currently rated Aaa by them.”

“We are hopeful that investors will focus on the fundamental credit strength of our company,” Frederico said. “It is our view, however, that Moody’s decision to reevaluate industry ratings during a time of unusually high market volatility and lack of liquidity in many credit markets could have been accomplished in a different manner without affecting municipal and other policyholders. Reflective of our current market position, we are also in negotiations to assume via reinsurance large portfolios of principally municipal risk into AG Re. We believe the cedents and their policyholders, as well as Assured, should materially benefit from these transactions. In light of the announcement by Moody’s, we do not know when or if these reinsurance opportunities will be realized,” concluded Frederico. “We are confident in Assured’s financial strength and are committed to maintaining our ratings and will work closely with Moody’s in their current review.”

FSA issued a statement Monday evening saying it would work to maintain a triple-A rating.

Robert Cochran, chairman and chief executive officer of Financial Security Assurance Holdings Ltd. and FSA, said in a statement: "We take note of the concerns Moody’s has expressed, and we will work closely with them to reestablish our Aaa-stable claims-paying ratings.”

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