The downgrade of United Guaranty, the rating service said, reflects a weakened credit profile resulting from the results "of historically high mortgage defaults and uncertainty about ultimate losses."

The concern is mitigated, Moody's said, by its limited exposure to "the highest risk mortgage products, robust capital adequacy and the support of AIG, including a reinsurance agreement with one of AIG's operating entities, National Union Fire Insurance Company of Pittsburgh.

United Guaranty is "well positioned to take advantage of current new business opportunities given its strong credit profile relative to peers."

The New York-based ratings services also downgraded the insurance financial strength of The PMI Group's U.S. mortgage insurance subsidiaries from "Aa2" to "A3."

In addition, Moody's said it downgraded to "Aa3" from "Aa2" the insurance financial strength rating of PMI Mortgage Insurance Company Limited (PMI Europe) and PMI Guaranty Co.

All share negative outlooks.

The insurance financial strength rating of PMI Mortgage Insurance Ltd. (PMI Australia) was also downgraded from "Aa2" to "Aa3" and remains under review for possible downgrade, said Moody's.

For PMI, Moody's cited deterioration in capital adequacy and medium-term profitability prospects. The company has limited financial flexibility, Moody's added.

Moody's said that "while U.S. mortgage insurance demand and new business quality have both improved in recent months, performance of [PMI's mortgage insurance subsidiaries] exposures originated prior to 2008 has eroded capitalization and those exposures remain vulnerable to further economic deterioration."