Fitch has downgraded the insurer financial strength (IFS) ratings of Assured Guaranty and Financial Security Assurance (FSA) to double-A minus from double-A and to double-A from double-A plus respectively. The agency has also downgraded the debt ratings of the US holding companies Assured Guaranty US Holdings and Financial Security Assurance Holdings to single-A minus. The ratings have been removed from rating watch negative and assigned a negative rating outlook.

Fitch's rating actions primarily reflect increased expectations of credit losses arising from the companies' residential mortgage securitisation exposures. To date, most of the claims activity experienced by AGC and FSA has been from exposures to securitisations of second-lien mortgages.

During 2009, however, Fitch's performance expectations for certain first-lien RMBS categories - specifically Alt-A and Option ARM - have weakened sharply. As a result, loss estimates related to first-lien RMBS exposures have been revised upward appreciably.

Dominic Frederico, president and ceo of Assured Guaranty, says he is pleased that Assured Guaranty and FSA remain in the double-A rating category, and suggests that it is a designation indicative of significant financial strength. "We believe the one-notch rating downgrades primarily incorporate Fitch's stress loss estimates based on an extremely pessimistic view of the future performance of residential mortgage exposures and point out that Fitch noted our ability to mitigate potential future losses and improve rating agency capital," he says.

Frederico adds: "Importantly, the removal of our ratings from rating watch negative to the longer-term designation negative outlook provides time for more clarity on the direction of the economy and future performance of the residential mortgage portfolio versus pure estimates."