Rating agency Moody's Investors Services said today that bond insurers MBIA Inc and Ambac Financial Group Inc had meaningfully higher losses than expected within their asset backed portfolios relative to their top-level Aaa rating.

The service said that in the short term it would assess whether worsening performance in that sector is likely to affected guarantors exposed to those securities, adding that the agency will update the market as appropriate.

Mody's said loss expectations for that asset class are higher than previously anticipated to worse-than-expected performance trends.

This could have material implications for the estimated capital adequacy of financial guarantors most exposed to this risk, Moody's said in a statement.

On Monday, MBIA posted a $2.4 billion loss for the first quarter on charges related to billions of dollars of exposures to securities linked to subprime mortgages. It acknowledge $1.34 billion of pre-tax impairments and loss reserves related to securities it insured with exposure to the housing market.

Nearly three weeks ago, Ambac said it could be forced to look for additional capital after reporting a loss for the third straight quarter. It lost $1.66 billion for the quarter ending March 31. It lost $1 billion in anticipated losses on mortgage securities as opposed to CDO losses.

In a Moody's report today, it said it has increased its loss projections on loan pools backing subprime second lien residential mortgage-backed securities.

Moody's now expects 2005 vintage subprime second lien pools to lose 17% on average, 2006 vintage pools to lose 42% on average, and 2007 pools to lose 45% on average.