Feb. 25 (Bloomberg) -- MBIA Inc., seeking to stave off a crippling credit rating downgrade, will stop writing guarantees on asset-backed securities for six months and will separate that business from its municipal unit within five years.

Chief Executive Officer Jay Brown also said he has ``questions'' about the company's 2007 preliminary results released last month and hasn't yet signed off on the statements, according to a letter to shareholders today.

MBIA has raised $2.6 billion in capital in the past three months and earlier today said it would eliminate its dividend amid scrutiny from ratings companies. S&P today said it is no longer reviewing MBIA's AAA rating for downgrade. The company, which insures $673 billion of municipal and asset-backed securities, faced criticism from ratings companies, lawmakers and regulators over its decision to expand into collateralized debt obligations.

``Everything we are working towards right now is centered on regaining stability,'' Brown said in the letter. ``We can expect a bumpy ride over the coming months and possibly longer.''

S&P today said the insurer remains on negative outlook, meaning that any ratings move may be lower, though not any time soon. Ambac Financial Group Inc., which ranks second to MBIA among bond insurers, is being given more time to avoid a downgrade pending the outcome of company's plans to raise new capital, S&P said.

Shares Rise

S&P's decision sent MBIA up 20 percent in New York Stock Exchange composite trading and Ambac of New York gained 16 percent. A credit rating cut would stymie their ability to guarantee debt and strip the AAA stamp from $1.2 trillion of insured municipal and asset-backed debt. MBIA rose $2.40 to $14.58. Ambac gained $1.70 to $12.41.

Brown said he has been reviewing the company's 2007 financial statements, with a focus on MBIA's loss reserves and mark-to-market losses. The markdowns reflect the difference between what MBIA charged to insure certain securities and what it could have charged based on a change in the value of the underlying security during the period.

``It is a difficult and complex task for both the internal teams and the company's auditors to establish best estimates in the most volatile credit markets in the company's history,'' Brown wrote. ``I have a few more follow-up questions that need to be answered for me to confirm the company's preliminary results which were released a few weeks ago.''

MBIA increased its reserve for claims related to second- lien mortgages by $100 million for a total of $200 million less than a week after reporting its fourth-quarter results.

Record Loss

MBIA posted a record loss of $1.93 billion last year, its first loss at least 15 years, after losses on subprime securities. MBIA and the rest of the bond insurers are paying a price for expanding beyond the safety of municipal debt into securities such as CDOs, which repackage other pools of securities in to new debt with varying ratings.

MBIA's ability to raise $2.6 billion was ``a strong statement of management's ability to address the concerns relating to the capital adequacy of the company,'' S&P said.

Moody's is still reviewing MBIA and Ambac for downgrades. Fitch cut Ambac's insurance rating to AA last month and is considering cutting MBIA.

MBIA raised money through selling common shares and warrants to private-equity firm Warburg Pincus LLC and issuing $1 billion of surplus notes.

S&P estimated that MBIA may have losses of $5.5 billion before tax, eliminating its entire capital cushion.

MBIA replaced Chief Executive Officer Gary Dunton earlier this month after an 80 percent slump in the company's share price and criticism from investors, lawmakers and regulators for the expansion into money-losing CDOs. The company replaced Dunton with former CEO Brown, who said last week he favored separating the municipal business from the asset-backed guarantees to protect the public finance debt from losses.

To contact the reporter on this story: Christine Richard at Crichard5@bloomberg.net

Last Updated: February 25, 2008 19:21 EST