Standard & Poor's Rating Service took ratings action against six bond insurers affected by the subprime mortgage crisis, and Moody's announced that it placed subsidiaries of XL Insurance on review for possible downgrade.
Yesterday, S&P said it took the actions because of "worsening expectation for the performance of insurance nonprime residential mortgage-backed securities and CDOs (collateralized debt obligation) of asset-backed securities."
The rating service said the six are expected to see claims and/or suffer rating downgrades that will affect their capital resources, making those resources insufficient at the current rating level.
There is also concern, S&P continued, that should any of the companies suffer a capital shortfall, they be able to raise capital or have a plan in place to do so.
ACA Financial Guaranty Corp. had its financial strength rating dropped from "A/Watch-Negative" to "triple-C/Watch-Negative"
Ambac Assurance Corp. found its financial strength rating of "triple-A" move from stable to negative.
The "triple-A" financial strength rating of Financial Guaranty Insurance Co. and FGIC U.K. Ltd. was placed on "credit watch negative" from stable.
MBIA Insurance Corp. and XL Capital Assurance "triple-A" ratings moved from stable to negative.
MBIA reacted to the news saying it was pleased S&P affirmed the company's rating and that it is working on a capital management plan that will return the company to a stable outlook.
The company received a $1 billion commitment from Warburg Pincus earlier this month to increase it claims paying resources.
Late yesterday, Moody's Investors Service placed the "Aa3″ insurance financial strength rating of XL Insurance and its subsidiaries on review for possible downgrade.
Moody's said it took the action because of its reinsurance and investment in Security Capital Assurance Ltd. and XL's own exposure to the subprime mortgage investments within its own portfolio.
XL has a 43 percent equity interest in Security Capital and $1.3 billion investment in subprime mortgage assets.
Security Capital is a bond insurer and reinsurer, part of XL Capital, which had its ratings cut by Fitch Ratings Service last week because of fears it will need to raise $2 billion to cover a shortfall.
Additionally, the company has been hit with a shareholder's equity suit over the drop in its stock price from its offering in June of $30 a share to its current trading value above $4.
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