Moody's Investors Service has downgraded the financial strength rating of Channel Reinsurance from "Aa3″ to "Baa1," citing Channel Re's "overall credit profile in the current environment." The outlook for the rating is negative.

Moody's said that market perceptions about Channel Re's "only primary client," the bond insurer MBIA, have impacted Channel Re's ability to write new business in the last few months. "If business volumes continue to remain weak, Channel Re's investors could decide to reconsider their long-term commitment to the financial guaranty reinsurance business, potentially resulting in a change in strategy or a downsizing of the firm's capital base going forward," Moody's said.

Moody's also said that any change in strategy by Channel Re would be affected because two trust accounts which Channel Re uses to provide collateral protection to MBIA hold "a large portion" of Channel Re's assets.