Guaranty insurers Ambac Financial Group and MBIA Inc. criticized Moody's announcement that it placed the companies on review for possible downgrade, one calling the announcement driven by marketplace "panic."

Late yesterday, Moody's Investors Service issued a statement saying the ratings of New York-based Ambac and Armonk, N.Y.-based MBIA were being placed on review for possible downgrade because its stress models indicated loss projections from exposure to loss in subprime residential mortgage backed securities may be higher than originally projected.

The rating agency said its projections indicate that cumulative loss rate projections on subprime mortgage related exposure will be substantially above its earlier projections.

Moody's said that, for example, in January it anticipated the loss run rate for January 2006 vintage subprime mortgages ranged between 14 and 18 percent. It's new projections now put that range between 17 and 26 percent.

With that and other projection figures in mind, Moody's said it will reevaluate both insurers' exposure and the impact that would have on the carriers because they have substantial subprime mortgage exposure.

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

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

"Ambac believes that Moody's rating actions continue to cause confusion, uncertainty and the risk of material economic damage if their assumptions ultimately prove to be too onerous," Michael Callen, chairman and chief executive officer, said in a statement. "We are aggressively managing our mortgage-related exposures and have made demonstrable progress in reducing risk in our insured portfolio. Ambac's financial strength will continue to improve as we de-lever and commute and remediate our exposures."

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

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

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Guaranty Insurers Critical Of Moody's Possible Downgrade

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