Moody's downgrade of Radian Group's mortgage insurance subsidiaries comes as no surprise to the company after Standard & Poor's made a similar move last week, a company spokesman said.
Moody's Investor Service yesterday downgraded several of the company's subsidiaries, saying the action was the result of a review initiated in January. The rating agency said that despite some business improvements, risk exposure prior to 2008 "has eroded capitalization and those exposures remain vulnerable to further economic deterioration."
Among the downgrades, the insurance financial strength of Radian Guaranty Inc. went to "A2″ from "Aa3″; Radian Insurance Inc. went to "Baa1″ from "Aa3″; and Amerin Guaranty Corp. went to "A2″ from "Aa3." All the ratings were given a negative outlook.
A Radian company spokesman, Rick Gillespie, said that "although any downgrade is disappointing, and this is disappointing, Moody's downgrade was not unanticipated and is consistent with Standard & Poor's."
S&P lowered Radian Asset Assurance and its British affiliate to "A" from "double-A," and Radian Asset's Market Street Custodial Trust Series I-III money market was lowered to "triple-B" from "A." The entities were put on CreditWatch Negative.
S&P noted market uncertainties about future business as reasons for the downgrade.
Despite Moody's downgrade, the action is not expected to have any impact on mortgage operations and the major government lending agencies have already "affirmed their top tier status" to the insurer, Mr. Gillespie said.
He added that the company maintains plenty of capital to pay all claims "under any scenario." The company continues to assess its need for new capital going forward, he said.
Philadelphia-based Radian, like other guaranty insurers, is facing losses from the subprime mortgage market melt-down that have adversely affected earnings recently.
In May Radian reported its 2008 first-quarter results, saying net income increased $82 million compared to the same period last year, rising to $196 million. However, the company said it had a net operating loss of $215 million compared to net operating income of $107 million in the prior year.
Radian Chief Executive Officer S.A. Ibrahim said at the time of the company's quarterly report that the company has $1.7 billion in mortgage insurance loss reserve and that its mortgage insurance business has significantly shifted to prime loans.
"We have seen the continuation of weak housing and credit markets, and these conditions have impacted results in our mortgage insurance and financial guaranty businesses," he said, adding that the company was considering a range of "alternatives to strengthen our capital position."
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