As of last week, there were only 2 municipal insurance companies still rated AAA: Assured Guaranty and FSA. Assured Guaranty just announced they will buy FSA and so there will only be 1 left. I've heard of a number of new entrants on the horizon, including a insurance company by Warren Buffett. Obviously, the benefit of insurance may have diminished as many of the firms have been downgraded, although my understanding is that even the downgraded firms who have stopped insuring new municipal bonds are still meeting their obligations for existing outstanding bonds.
Clearly, the underlying natural rating of the municipality has become more important than the insurance rating. Also, some types of bonds are less likely to default than others. For example, general obligation bonds are backed by taxing power (the ability to raise taxes as necessary to pay the bonds). Other types of bonds, such as mello-roos bonds, are only revenue backed (whatever revenue comes in is all that is available to pay the bonds). So be sure to research the various types of municipal bonds to see which are less likely to default.
The last thing I want to recommend is look at default rates. The numbers I've seen show that municipalities default far less than corporate bonds. We've heard of so many corporations go bankrupt year after year, but it's quite rare that a city or school district goes bankrupt. Even the devastation to the taxing base after Hurricane Katrina did not result in any defaults. So municipal bonds still seem to be a safe move.
Of course, they are financially very attractive right now. Historically, it's very rarely been the case that municipal bonds have offered higher interest rates than US Treasuries due to the tax exemption, but in the current environment that's exactly what's happening.