Standard & Poor's slashed its outlook for Ambac Financial Group and MBIA Insurance, the world's biggest bond insurers, that insure more than $1.2 trillion in debt.
S&P now has a "negative" outlook for those bond insurers, and for XL Capital Assurance, a unit of Security Capital Assurance, indicating their triple-A ratings have a greater chance of a rating cut in the next two years.
It also is reviewing Financial Guaranty Insurance, a unit of Blackstone Group, for a downgrade, citing deteriorating performance of mortgage debt and collateralized debt obligations.
"The rating actions were prompted by worsening expectations for the performance of insured nonprime residential mortgage-backed securities and CDOs of asset-backed securities," S&P said in a statement.
S&P also cut its ratings on ACA Financial Guaranty to junk status. ACA's rating was lowered to "CCC," or eight levels below investment grade, from "A," the sixth-highest investment-grade rating.