UPDATE 1-Moody's cuts Channel Re, MBIA's reinsurer

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NEW YORK, Feb 22 (Reuters) - Moody's Investors Service on Friday cut its top "Aaa" ratings on Channel Reinsurance, which provides reinsurance of policies written by bond insurer MBIA Inc (MBI.N), due to its exposures to residential mortgage-backed debt.

The downgrade may negatively impact the value of the reinsurance policies it has written for MBIA, its only customer, Moody's said in a statement.

Moody's cut Channel Re's insurer financial strength rating three notches to "Aa3," the fourth-highest investment grade, from "Aaa."

Channel Re reinsured a number of large asset-backed collateralized debt obligations (CDOs) in the last 18 months, with aggregate ABS CDO exposure representing 12 percent of Channel's total net par outstanding, Moody's said.

CDOs pool assets, including risky residential mortgages. Expected losses from these securities is threatening the top ratings of bond insurers including MBIA, which rating agencies view as having insufficient capital relative to the loss projections.

Moody's expects Channel Re's insurance policies to lose $230 million, compared with its current claims-paying ability of approximately $930 million, "which Moody's considers to be more consistent with capitalization at the Aa rating level," the rating agency said. (Reporting by Karen Brettell; Editing by Tom Hals)