June 10 (Bloomberg) -- The ratings of MBIA Inc. and Ambac Financial Group Inc., the world's largest bond insurers, are poised to fall to below investment grade, according to analysts at Municipal Market Advisors.

Standard & Poor's lowered the two insurers to AA from AAA on June 5, while Moody's Investors Service said it is considering a reduction of the companies' top-level ratings. The downgrades will make it more difficult for the insurers to generate new business and raise additional capital, accelerating the decline of their credit quality, Municipal Market Advisors of Concord, Massachusetts, said in a report today.

The analysts said they based their prediction on what happened when S&P and Moody's reduced other bond guarantors. The insurance units of CIFG Holding Ltd., FGIC Corp. and Security Capital Assurance Ltd. fell below investment grade after initially losing their AAA ratings.

``Based solely on what has happened to other downgraded bond insurers, the downgrades to MBIA's and Ambac's ratings will reasonably continue, perhaps rapidly, into non-investment grade territory,'' the analysts wrote.

MBIA Chief Executive Officer Jay Brown said in a statement after the rating reduction last week that he is confident of the company's ``capitalization, liquidity and future prospects.'' Ambac said in a statement it was frustrated by S&P's ``ever- changing criteria for AAA financial strength ratings.''

Fitch Ratings earlier this year lowered MBIA and Ambac to AA from AAA. The bond insurers have suffered losses since expanding into backing securities linked to subprime mortgages and home-equity loans now defaulting at record rates.

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net.

Last Updated: June 10, 2008 15:06 EDT