Moody's yesterday downgraded two mortgage insurers, AmericanInternational Group's United Guaranty Mortgage Indemnity and ThePMI Group's mortgage insurers, over worries about losses and theirfinancial resources.

Moody's downgraded the insurance financial strength of UnitedGuaranty Mortgage Indemnity Company and its subsidiary, UnitedGuaranty Mortgage Indemnity Company, from "Aa2" to "Aa3."

It also downgraded the insurance financial strength of thegroup's second lien insurance company, United Guaranty ResidentialInsurance Company of North Carolina, and its student loan insurancecompany, United Guaranty Commercial Insurance Company of NorthCarolina, from "Aa2" to "A1."

The ratings outlook is negative, Moody's said.

The downgrade of United Guaranty, the rating service said,reflects a weakened credit profile resulting from the results "ofhistorically high mortgage defaults and uncertainty about ultimatelosses."

The concern is mitigated, Moody's said, by its limited exposureto "the highest risk mortgage products, robust capital adequacy andthe support of AIG, including a reinsurance agreement with one ofAIG's operating entities, National Union Fire Insurance Company ofPittsburgh.

United Guaranty is "well positioned to take advantage of currentnew business opportunities given its strong credit profile relativeto peers."

The New York-based ratings services also downgraded theinsurance financial strength of The PMI Group's U.S. mortgageinsurance subsidiaries from "Aa2" to "A3."

In addition, Moody's said it downgraded to "Aa3" from "Aa2" theinsurance financial strength rating of PMI Mortgage InsuranceCompany Limited (PMI Europe) and PMI Guaranty Co.

All share negative outlooks.

The insurance financial strength rating of PMI MortgageInsurance Ltd. (PMI Australia) was also downgraded from "Aa2" to"Aa3" and remains under review for possible downgrade, saidMoody's.

For PMI, Moody's cited deterioration in capital adequacy andmedium-term profitability prospects. The company has limitedfinancial flexibility, Moody's added.

Moody's said that "while U.S. mortgage insurance demand and newbusiness quality have both improved in recent months, performanceof [PMI's mortgage insurance subsidiaries] exposures originatedprior to 2008 has eroded capitalization and those exposures remainvulnerable to further economic deterioration."