The first quarter proved to be both the best of times and the worst of time for the bond insurance companies reporting Thursday.

For Assured Guaranty Ltd., one of only three stable triple-A rated bond insurers in the market, public finance business climbed more than 1,300%, while Security Capital Assurance Ltd.ceased writing public finance business and drew on a $200 million capital facility.

Assured, parent of triple-A rated monoline Assured Guaranty Corp., Thursday reported a $169.2 million loss for the first quarter, as the company set aside more loss reserves to cover falling values on securities backed by home equity lines of credit and residential mortgages, and reported unrealized mark-to-market losses on credit derivatives.

The loss represented a 534% drop compared to the $39 million gain in the first quarter of 2007, the company said.

In the quarter, Assured set aside $59.1 million in reserves, and reported growth of $168.9 million in unrealized mark-to-market losses on credit derivatives.

Assured reported a 159% increase in its present value of gross written premiums - a non-Generally Accepted Accounting Principles measure used to keep track of new business production - to $276.6 million, up from the $106.7 million the company wrote in the first quarter of 2007.

The new business production was led by a 1,301% increase in U.S. public finance during the quarter to $123.3 million, from $8.8 million in the year-ago quarter. The first quarter U.S. public finance business also represents a 382% increase over that of the previous quarter, when Assured wrote $25.6 million in the fourth quarter of 2007.

"Beginning in fourth-quarter 2007, Assured's financial guaranty direct segment has experienced a substantial increase in demand for its insurance and credit derivative financial guaranty products, particularly in the U.S. public finance market," the company said in a release. "The company has also benefited from pricing improvements associated with wider credit spreads in the fixed-income markets."

Assured also said the present value of gross premiums written for financial guaranty reinsurance, through Assured Guaranty Re, declined 7% to $21.4 million from $23.1 million in the first quarter of 2007.

The experience of Security Capital Assurance, parent of bond insurer XL Capital Assurance Inc., was different. It also announced first-quarter results after the close of the market Thursday, reporting a net loss of just $96.8 million.

While the results are down 360% from the $37.3 million in gains reported in the first quarter of 2007, and while the losses were substantial, the overall loss calculations were helped out by a $72.7 million one-time gain.

SCA tapped a capital facility with XL Financial Assurance Ltd. in which SCA exercised an option on $200 million of Series B perpetual preferred shares of XLFA under a previously agreed-upon capital facility.

The quarter's net losses were based on mark-to-market losses related to credit derivative exposures of $187.2 million and home equity line of credit and second-lien mortgage exposure of $37.7 million, the company said.

SCA took credit impairment charges of $22.2 million on the credit derivatives exposed to certain collateralized debt obligations of asset-backed securities.

In March, SCA said XLCA would cease writing new business. As a result, the company suspended the reporting of adjusted gross premiums.

The company had calculated AGP by including up-front premiums received on new deals, along with the present value of what the company expects to earn from the deals in future installments.

In its place, SCA said net premiums earned in U.S. public finance increased 98% to $26.9 million in the quarter, compared to $13.6 million in the first quarter of 2007. The increase was primarily the result of refunding premiums earned by premium acceleration for XLCA-insured bonds that were refunded.

"Refundings increased as a number of the company's insured auction-rate and variable-rate demand municipal bond insurance policies were refinanced," the company said.

SCA is also in the midst of a lawsuit with Merrill Lynch & Co. concerning seven credit default swap contracts - with a total notional amount of $3.1 billion - written with the bank. The case is expected to be heard in August, SCA said.


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