Bond insurer still troubled by sub-prime mortgage worries

Standard & Poor's (S&P) has downgraded Ambac Financial and the company's main bond insurance unit expecting further sub-prime mortgage losses.

S&P downgraded Ambac Financial to BBB from A and cut Ambac Assurance, the bond insurance subsidiary, to A from AA. The outlook is negative.

"The company's exposures in the U.S. residential mortgage sector and particularly the related collateralised debt obligation structures have been a source of significant and comparatively greater-than-competitor losses and will continue to expose the company to the potential for further adverse loss development," S&P credit analyst Dick Smith said.

"These losses have slightly more than offset the benefits to the company of lower capital requirements that result from a declining book of business," he added.

S&P warned that Ambac Financial, may face added problems next year because its bond insurance unit cannot pay dividends to the holding company unless its regulator, the Wisconsin Insurance Commissioner, approves.

The Wall Street Journal reported that Ambac disputed with the downgrade. It reported the company saying: "Our frustration stems, in part, from the ever-changing criteria for AAA financial strength ratings."

It also quoted Michael Callen, chairman and chief executive of Ambac as saying: "We believe there would be strong demand for a stable AAA financial guarantor focused solely on guaranteeing the obligations of both municipal and global public finance."