SAN FRANCISCO (MarketWatch) - Moody's Investors Service said last night that it may downgrade the Aaa ratings of Assured Guaranty and Financial Security Assurance, two bond insurers that had managed to hold on to these crucial top ratings by avoiding some of the mortgage-fueled credit carnage this year.

The agency put the Aaa ratings of Assured Guaranty on review for a possible downgrade partly because of the complexity of the credit risks that have been taken on by the bond insurer and a drop in demand for the guarantees sold by the bond insurance industry.

"Assured's credit profile may no longer be consistent with its current ratings given uncertainty about the firm's portfolio risk profile, material shifts in the demand function for financial guarantees, and as observed recently among Assured's competitors - potential sensitivity of its franchise and financial flexibility if losses continue to rise," the agency said in a statement. Moody's put the top ratings of rival Financial Security Assurance on review for a possible downgrade because of the insurer's exposure to residential mortgage-backed securities, which has generated "material losses".

Both bond insurers have raised capital in recent months to strengthen their balance sheets. Compared to bigger rivals such as Ambac Financial, Assured and FSA weren't as exposed to complex mortgage-related securities known as collateralised debt obligations. Distressed-debt investor Wilbur Ross agreed to invest up to $1 billion in Assured Guaranty in February.

Dexia, which owns FSA, said in June that it planned to lend up to $5 billion to its bond-insurance subsidiary to boost confidence in the business amid concerns raised by Bill Ackman, head of hedge fund Pershing Square. Dexia also pumped $500 million into FSA earlier in the year.

However, that may not be enough for Moody's. In the case of FSA, the agency said Dexia's support may be conditional and might not be enough to limit the impact of possible future losses.

Assured Guaranty's exposure to mortgage securities hasn't deteriorated much and the company's recent expansion into the municipal bond market has left it with generally high-quality, diversified risks, Moody's said.

However, Moody's also warned that the leverage and complexity of Assured Guaranty structured-finance deals have made loss estimates difficult to calculate. The wide range of possible loss estimates may not be consistent with the low risks that Aaa rated bond insurers are supposed to take on, the agency added.

Moody's also said that demand has dropped a lot for the financial guarantees sold by bond insurers, including Assured.

"Such dramatic instability in the firm's current and prospective market opportunity also raises questions about whether an Aaa rating remains appropriate," the agency said.