U.S. bond insurers may lose their top credit ratings because of diminishing new business and financial inflexibility, Moody's said on Wednesday.

The ratings agency put MBIA and Ambac, the two biggest bond insurers, on review for a possible downgrade. The two U.S.-based companies were founded to insure municipal bonds but became heavily involved in insuring mortgage debt.

MBIA responded by saying its capital position has improved since a recent Moody's review and that it "can only conclude that the requirements for a triple-A rating continue to change."

Moody's said the most likely outcome from the review was a downgrade. In December, Moody's conducted a similar review but concluded that MBIA and Ambac's capital positions were sufficiently strong to merit a top rating.

Prior to the review, the outlook for both bond insurers was negative. Moody's said Ambac would likely be downgraded to double-A, but said MBIA faced the possibility of falling two notches to single-A.

On MBIA, Moody's said: "Today's 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."

The statement on Ambac was similar, saying: "Today's rating action reflects Moody's 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."

As a result of the review, Moody's said all the securities guaranteed by Ambac and MBIA could possibly be downgraded, except those which merit top ratings without the benefit of insurance.

MBIA immediately issued a press release and took issue with the review, saying it has been caught off guard by the review.

"We disagree with Moody's decision today," said Jay Brown, MBIA Chairman and Chief Executive Officer. "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."

Shares of Ambac and MBIA fell sharply following the announcement. At 1:23 p.m. EDT, MBIA was down 12.9% and Ambac down 16.9%.

By Adam Button and edited by Cristina Markham