Is Time Running Out for Bond Insurers? (CNBC)

As troubled bond insurers like MBIA and Ambac fight to maintain their triple-A ratings, officials at these firms are pondering how their businesses might look if they do indeed get downgraded, CNBC has learned.

Bond insurers guarantee bonds held by investors from default, agreeing to pay interest and principle if the issuer doesn't do so. But maybe more important to investors is that insurers also lend their triple-A rating, the highest rating in the bond market, to the bonds as part of their insurance package.

People inside the New York State insurance department, which has taken the lead in trying to prop up the insurers, say both MBIA and Ambac have enough assets to cover losses stemming from their insurance of depressed collaterialized debt obligations, or CDOs, held by large banks like Citigroup.

The bigger question is whether these firms can compete with ratings less than triple-A, particularly now that the bond insurance business will be focusing on covering bonds of municipal governments. Many large investors of municipal debt can only hold securities with triple-A ratings.

Read More: CNBC/Yahoo News