Moody’s Investors Service announced that it has placed the insurance financial strength ratings of two prominent financial guarantors — Ambac and MBIA — on review for possible downgrade.

Regarding Ambac, Moody’s said today’s rating action reflects its growing concerns regarding Ambac’s overall credit profile, including the company’s significantly constrained new business prospects and financial flexibility, as well as possible increased expected and stress loss projections among its mortgage-related risk exposures. Moody’s noted that the most likely outcome of the ratings review would be a downgrade, with Ambac’s insurance financial strength rating likely to remain in the Aa rating category. Prior to today’s rating action, the rating outlook for Ambac was negative.

Moody’s also placed MBIA’s rating under review for possible downgrade. It said the rating action reflects Moody’s growing concern that MBIA’s credit profile may no longer be consistent with current ratings given the company’s diminished new business prospects and financial flexibility, coupled with the potential for higher expected and stress losses within the insurance portfolio.

As a result of this review, the Moody’s-rated securities that are guaranteed or “wrapped” by Ambac and MBIA are also placed under review for possible downgrade, except those with higher public underlying ratings.

In response to the move, Ambac said, “We are disappointed by the Moody’s announcement, particularly in light of the significant progress we have made to strengthen our capital position and refocus our business.”

Michael Callen, chairman and CEO of Ambac, commented, “The timing of Moody’s announcement is unfortunate since we believe that the uncertainty surrounding Ambac is temporary. Outside the mortgage-related exposures, the remainder of our portfolio is performing well, and in line with our expectations. We have presented Moody’s with concrete near-term plans to deploy our people and expertise in the municipal market via our already-licensed, Connie Lee vehicle. I remain confident that as further clarity develops around our portfolio, Ambac’s strong business prospects will be realized.”

“We disagree with Moody’s decision today,” said Jay Brown, MBIA chairman and CEO. “When Moody’s affirmed our rating with a negative outlook in February, we believed that it would refrain for six to 12 months from taking additional ratings actions unless the environment or MBIA’s position changed materially. Since then, there have been no material adverse changes in the environment, and we believe our capital position has improved. Thus, we are surprised by both the timing and direction of this action and can only conclude that the requirements for a Triple-A rating continue to change.

“We share Moody’s concerns regarding our new business production, but we are in no way reliant on new business production to satisfy our insurance obligations or our capital requirements. In addition, the upside to slower business is a strengthening capital base,” said Brown.

“We believe the actions we have taken to date make a review of our ratings unnecessary at this time,” Brown continued. “Nonetheless we will work closely with Moody’s analysts to address their concerns.”