Financial Security Assurance Holdings Ltd. yesterday reported a first-quarter net loss of $421.6 million due to increased loss reserves and deteriorating conditions for second-lien mortgages. The news overshadowed the bond insurer’s significant growth in deals written for the U.S. municipal market.

The losses at the holding company, parent of triple-A bond insurer Financial Security Assurance Inc., reflected a $317.9 million unrealized loss for credit default swaps tied to pools of corporate debt and a $355 million increase in loss reserves. The reserves were made up of $266.1 million more for actual losses on eight home equity lines of credit and a new $86.9 million case reserve set-aside for four Alt-A closed-end second-lien mortgage transactions.

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