Guaranty insurers Ambac Financial Group and MBIA Inc. criticizedMoody's announcement that it placed the companies on review forpossible downgrade, one calling the announcement driven bymarketplace "panic."

Late yesterday, Moody's Investors Service issued a statementsaying the ratings of New York-based Ambac and Armonk, N.Y.-basedMBIA were being placed on review for possible downgrade because itsstress models indicated loss projections from exposure to loss insubprime residential mortgage backed securities may be higher thanoriginally projected.

The rating agency said its projections indicate that cumulativeloss rate projections on subprime mortgage related exposure will besubstantially above its earlier projections.

Moody's said that, for example, in January it anticipated theloss run rate for January 2006 vintage subprime mortgages rangedbetween 14 and 18 percent. It's new projections now put that rangebetween 17 and 26 percent.

With that and other projection figures in mind, Moody's said itwill reevaluate both insurers' exposure and the impact that wouldhave on the carriers because they have substantial subprimemortgage exposure.

Ambac said it was "surprised and disappointed" with Moody'sdecision. Both Ambac and MBIA pointed to language by the ratingagency in its report indicating that a lot of variables exist thatcould affect the losses either positively or negatively. They alsosaid Moody's acknowledged its estimates could be too high.

Both companies pointed to their work at raising capital toinsure they have enough money to cover their risks.

"Ambac believes that Moody's rating actions continue to causeconfusion, uncertainty and the risk of material economic damage iftheir assumptions ultimately prove to be too onerous," MichaelCallen, chairman and chief executive officer, said in a statement."We are aggressively managing our mortgage-related exposures andhave made demonstrable progress in reducing risk in our insuredportfolio. Ambac's financial strength will continue to improve aswe de-lever and commute and remediate our exposures."

"Moody's will spend the next few weeks running their modelsusing stress assumptions on top of what is obviously already anactual stress case," Jay Brown, MBIA chairman and CEO,explained.

"While we will work with them to point out the inherent flaws intheir logic, we believe our owners should take this as yet anotherupward revision in model assumptions forged in the heat of apanic-driven market. The reality is we have worked for the pastthree months to minimize actual economic loss caused by changes inrating options and have plans in place to deal with any outcome ofthis review," he asserted.