MBIA, Ambac insurance off downgrade watch -S&P

NEW YORK, Aug 14 (Reuters) - Standard & Poor's on Thursday said it is no longer reviewing its ratings on the insurance arms of MBIA Inc (MBI.N) and Ambac Financial Group (ABK.N) for downgrade, though it retained a negative outlook on both companies.

The negative outlook on MBIA Insurance Corp and Ambac Assurance Corp mean they still may be downgraded from "AA," the third highest rating, over the next two years.

"We assigned a negative outlook to MBIA due to its significant exposure to domestic nonprime mortgages and related exposures to collateralized debt obligations (CDO) of asset-backed securities (ABS)," S&P said in a statement.

"The negative outlook on Ambac reflects our view that the company's exposure to domestic nonprime mortgages and related exposures to CDO of ABS has likely damaged its franchise and that the company faces diminished new business flow," S&P added.

Both bond insurers lost their top "AAA" ratings in June due to losses the companies are expected to take from insuring risky mortgage-backed debt. (Reporting by Karen Brettell; Editing by Leslie Adler)