Baa1 - same rating it gave to Bear Stearns back in March. The bonfire of the bond insurers continues apace.
From the Moody’s statement, emphasis ours:
Today’s rating action concludes a review for possible downgrade that was initiated on September 18, 2008, and reflects Moody’s
view of Ambac’s diminished business and financial profile resulting from its exposure to losses from US mortgage risks and disruption in the financial guaranty business more broadly. The outlook for the ratings is developing.
The downgrade results from four factors. First is Moody’s expectation of greater losses on mortgage related exposure. The company’s reported losses and related increases in loss reserves in the third quarter are broadly consistent with Moody’s current expectations. Second is the possibility of even greater than expected losses in extreme stress scenarios. Third is the company’s diminished business prospects. Fourth is the company’s impaired financial flexibility.
In its 3Q2008 earnings release, Ambac reported incurred losses of $608 million on financial guaranty policies, primarily related to direct RMBS exposures, and $2.5 billion of credit-related impairments on credit default swaps referencing ABS CDOs. The increase in loss reserves and credit impairments has resulted in a significant reduction in regulatory capital; at 3Q2008, Ambac’s policyholders’ surplus was approximately $1.1 billion and contingency reserves were approximately $3.4 billion.
Ambac’s insurance financial strength rating remains investment grade reflecting the rating agency’s view that Ambac’s aggregate resources(including statutory contingency reserves and contingent capital) provide a meaningful capital cushion above expected loss levels. Should Ambac’s regulatory capital position continue to deteriorate, there would be further negative pressure on the firm’s ratings.
