Bond insurer Financial Guaranty Insurance Company, partly owned by private-equity power Blackstone Group, asked New York's regulator for approval to divide into two firms after Moody's Investors Service lowered its financial strength ratings below "AAA."
New York Insurance Superintendent Eric Dinallo, interviewed on CNBC, said that his department had received notification from FGIC that they have sought application to have their business "actually split into two."
The two-company plan would involve one firm holding FGIC's more secure municipal bond insurance, and the other its riskier business involving repackaged mortgages and other debt linked to the subprime market–a so-called good bank/bad bank plan.
Earlier in the week, billionaire investor Warren Buffet, chairman of Berkshire Hathaway, said he had offered to reinsure the municipal bond business of FGIC and the nation's other major bond insurers.
Meanwhile, another rating agency, Standard & Poor's, cited concerns regarding the mortgage and housing markets as it lowered the ratings of a smaller mortgage insurer and took various negative actions on several others.
The moves came after New York Gov. Eliot Spitzer testified at a congressional hearing today that major bond insurers face the possibility of losing their prized "triple-A" ratings in four to five days. (See related story online).
His timeline was wrong for FGIC, and Mr. Dinallo said today that the rating firms later said the other major bond firms will have more than five days to repair finances.
Moody's lowered FGIC's rating to "A3″ from "Aaa," and also lowered FGIC Corporation's senior debt rating to "Ba1″ from "Aa2."
Moody's said the downgrades were based on its "assessment of FGIC's meaningfully weakened capitalization and business profile resulting, in part, from its exposures to the U.S. residential mortgage market." The ratings remain on review for possible downgrade, Moody's noted.
S&P lowered the ratings of Radian Group Inc. and its mortgage insurance subsidiaries (Radian MI) to "A-minus" from "A," and placed the rating on CreditWatch with negative implications. S&P said that operating performance and risk management top its concerns.
The rating agency also noted that the combined ratio for the firm's portfolio of insured first-lien mortgages will be "significantly greater" than originally thought. S&P said the ratings on Radian MI could be lowered multiple notches or affirmed with negative implications.
S&P also placed the counterparty credit and financial strength ratings of Triad Guaranty Insurance Corp. and the counterparty credit rating on Triad Guaranty Inc. on CreditWatch with negative implications. S&P said it believes Triad's loss ratio will be higher than anticipated for 2008.
Additionally, S&P placed the ratings of PMI Group on CreditWatch with negative implications. But S&P noted that PMI will likely not fall below a "double-A-minus" rating as it has less subprime mortgage exposure than most competitors and has been "proactive in addressing the growth of high loan-to-value loans in the mortgage insurance industry."
While PMI Group is invested in FGIC Corporation, which S&P had recently downgraded, the rating agency said that the CreditWatch placement of PMI Group is unrelated.
S&P said it has also revised its outlook to negative from stable for Genworth Financial Inc.'s mortgage insurance subsidiaries (Genworth MI), and for United Guaranty Corp. (UGC) and its core and dependent subsidiaries.
S&P commended Genworth MI's "excellent enterprise risk management," but cited deteriorating underwriting results in the United States due to "the very challenging environment" as the reason for the outlook change.
For United Guaranty Corp., S&P said the outlook change coincides with an identical revision to American International Group Inc. "S&P considers the UGC MI companies to be core subsidiaries of AIG, so the ratings move in tandem with those on AIG's other core insurance subsidiaries," S&P said.
This article updated Feb.15, 10:08 a.m. EST
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