UPDATE 2-Fitch affirms FSA bond insurer "AAA" rating

(Adds FSA comment, details)

NEW YORK, Jan 24 (Reuters) - Fitch Ratings on Thursday affirmed Financial Security Assurance's "AAA" insurer strength rating, citing the company's improved competitive position because of significantly lower exposure to subprime mortgage risk compared with its rivals.

Fitch said in a report that FSA, a unit of French-Belgian bank Dexia (DEXI.BR), has effectively avoided direct exposure to higher-risk collateralized debt obligations (CDOs), which have been under considerable pressure in the past several months.

FSA also has sufficient excess capital for its rating and maintains very good financial results excluding the negative effects of mark-to-market losses on credit derivative and guaranteed investment contract asset portfolios, Fitch said.

The rating agency maintains a stable outlook on FSA.

FSA said in a statement it is now the only major financial guarantor with "AAA" ratings and stable outlooks from the three rating agencies.

"Having exercised restraint in the credit-insensitive environment of the past few years, we are in a strong position going forward," Robert Cochran, chairman and chief executive officer of FSA, said in the statement.

Ratings agencies have been reviewing ratings of bond insurers to make sure they have enough capital to cover obligations on the securities they guaranteed.

Bond insurers are wobbly after having guaranteed principal and interest payments on a series of repackaged subprime mortgage loans and other debt. Expected losses from those guarantees are surging, forcing the insurers to raise more capital to stem potential rating cuts.

Fitch last week cut the "AAA" rating on FSA rival Ambac (ABK.N) to "AA" and on Thursday downgraded XL Capital Assurance Inc, part of Security Capital Assurance SCA.N, to "A."

Shares of Ambac Financial rose in extended trade on Thursday after the UK's Evening Standard newspaper reported that billionaire investor Wilbur Ross is in talks to take over the bond insurer.

Fitch said it expects FSA to be minimally affected by future CDO-related stress relative to many of its key competitors. Fitch added that FSA has less exposure to residential mortgage-backed security transactions than its rivals.

The rating agency said FSA has significant indirect exposure to CDOs through its guaranteed investment contract program but said the bond insurer has been adding liquidity to the program to mitigate risk. (Reporting by Anastasija Johnson; Editing by Leslie Adler)