Bermuda-based bond reinsurer Ram Holdings Ltd. received a ratings blow as Moody's downgraded its reinsurance unit Ram Re's insurance financial strength rating to Baa3 from A3.

Moody's said the rating action reflected the expectation of greater losses on mortgage-related exposures, amid continued adverse delinquency trends. The agency also noted Ram's diminished business prospects as reflected by low underwriting volume. It also noted the company's impaired financial flexibility.

Insurance companies' ability to write new business is severely hampered when their ratings move below the 'A' grades.

Moody's also downgraded the rating of the preference shares of Ram Holdings to B2 and the rating of Blue Water Trust, a related contingent capital facility, to Ba3.

"While we are disappointed with this rating action, we believe that our commutation efforts have improved our insured portfolio," Ram chief executive officer Vernon Endo said.

"In particular, we note that Moody's does not project losses with respect to the ABS CDOs (asset-backed securities collateralised debt obligations) remaining in our portfolio after the commutations. Our 'developing outlook' for the first time acknowledges the potential for improvement, via further commutations among other possible positive developments, in our insured portfolio.

"We note that Moody's still has not established a matrix for reinsurance credit that would allow us to determine the ongoing value of our reinsurance to our ceding companies."

Ram's statement said the company is continuing "to pursue a number of alternatives to improve its capital position and the risk profile of its insured portfolio including commutations of risks". Due to current market conditions, RAM does not expect to raise new capital at the present time.