NEW YORK (Bloomberg) - MBIA Inc. is writing "very little" new bond insurance business as borrowers balk at buying a guarantee from a money-losing company without stable AAA credit ratings.

MBIA, whose ratings were under scrutiny by Moody's Investors Service and Standard & Poor's (S&P) for more than three months, said losses on mortgage-backed securities will probably increase this year and expand beyond sub-prime mortgages.

The company, based in Armonk, New York, is seeking to salvage its business insuring municipal bond debt after expanding into guarantees on collateralised debt obligations that tumbled in value as the sub-prime-mortgage market collapsed. Rival Assured Guaranty Ltd. on Friday agreed to a $1 billion investment from investor Wilbur Ross to help it take more business from MBIA and Ambac Financial Group Inc.

"The demand for our product is the lowest it has been, and we are writing very little new business," the company said in a filing on Friday with the US Securities and Exchange Commission.

MBIA said it has seen "deterioration" in prime or near-prime home-equity loan securities it backed and loss payments may erode a "significant portion" of reserves by year-end. MBIA said it probably will make loss payments of as much as $800 million this year, before the effect of reinsurance contracts, mostly from bonds backed by mortgages and home-equity loans.

"Instead of dribs and drabs, these claims are coming much sooner than expected," said Ed Grebeck, CEO of debt consulting firm Tempus Advisors in Stamford, Connecticut. The claims are creating "further uncertainty" for all bond insurers, he said.

MBIA fell $1.08, or 7.7 percent, to $12.98 in New York Stock Exchange trading on Friday. The stock dropped 78 percent in the past year before Friday.

Moody's and S&P kept a negative outlook on MBIA's insurer rating, indicating that it may be considered for a downgrade in the future.

Moody's and S&P's affirmed the company's rating after the insurer raised $2.6 billion in capital and said it was suspending new business on asset-backed securities for six months. The company also said it will stop guaranteeing debt using credit-default swaps, which has been the largest source of its losses.

MBIA is in a "stable situation" with the ratings companies and its capital needs, CEO Jay Brown said in an interview on February 27. MBIA is considering contracts that would cede a portion of its business to reinsurers, increasing capital and is looking at other "alternative forms of capital that aren't dilutive to our shareholders," said Mr. Brown, who returned to the post last week after the ouster of Gary Dunton.

MBIA said in the filing on Friday that available capital also is increasing as debt it guaranteed matures.

By buying a stake in Assured Guaranty, Mr. Ross is seeking to capitalise on the strength of the Bermuda-based company.