Standard & Poor's late Tuesday downgraded to 'BB-' from 'BB' the financial strength, financial enhancement, and corporate credit ratings of bond insurer Radian Asset Assurance. The company was taken off negative watch and placed on negative outlook.

S&P last downgraded the insurer by two notches on Nov. 24.

The decision was part a broader downgrade involving Radian's parent company, Radian Guaranty , which was lowered to 'B+' from 'BB-'.

"We believe the rating on Radian Asset must be highly correlated with the rating on its parent, reflecting the risk of the parent asking the subsidiary to provide it with additional capital over time," the agency said in a research update.

"However, because we believe Radian Asset's capital adequacy is stronger than its parent's at this time, we currently constrain the rating to no higher than one notch above the rating on Radian Guaranty."

The decision to downgrade the parent company relates to its role as a mortgage insurer.
"[T]he mortgage insurance sector could experience further downgrades as their capital erodes more quickly, in extreme cases potentially threatening the viability of companies and resulting in a runoff scenario, " S&P wrote in report by analysts Ron Joas, Rodney A. Clark and Dick P. Smith.

Four other mortgage insurers were also downgraded in the same report. Those insurers are Republic Mortgage Insurance Co., Genworth Mortgage Insurance Corp., United Guaranty Mortgage Indemnity Co., and PMI Mortgage Insurance Co.

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