In a market where bond insurance is the concern of every conversation, the fourth-quarter and year-end results for 2007 reported by the last two bond insurers left unblemished from recent rating downgrades and warnings may come as some relief.

Financial Security Assurance Ltd., the holding company for triple-A rated Financial Security Assurance Inc., announced fourth-quarter 2007 financial results yesterday, reporting a net loss of $91.9 million. The loss represented a 199% drop from a $92.8 million gain in the final quarter of 2006.

For the year, FSA reported a net loss of $65.7 million, or a 115% drop from last year's net income of $424.2 million.

The bulk of the losses came because of write downs in unrealized fair-value adjustments for the credit derivatives the company guarantees. For the quarter FSA marked down $188.6 million, and for the year it recorded a loss of $417.7 million.

The majority of those derivatives were credit default swaps on pooled corporate risk.

FSA increased its overall new business production to $318.4 million for the quarter, an 8.9% increase over the $292.4 million in the year-ago quarter. For the year, FSA increased new business production by $1.3 billion, a jump of 39.6% over the $910.2 done in all of 2006.

The company measures its new business production in terms of "PV premiums," a combination of the up-front premiums from deals closed during the quarter and the present value of estimated future installment premiums from those deals.

The growth was driven mainly by increased new policies in U.S. public finance and asset-backed business.

Gross par insured in the quarter for municipal debt fell to $16.7 billion, from $17 billion in the fourth quarter of 2006. The value of the premiums earned on those deals, however, increased to $139.6 million in the quarter, as the company capitalized on its market position as the largest and safest triple-A rated bond insurer. It was a 50% increase over the $92.8 million in business the company did in the fourth quarter of 2006.

For the year, FSA increased its new business production in U.S. public finance by 25%, to $388.2 million from $309.6 million the year before. Gross par for all insured transactions increased to $57 billion from $46.4 billion in 2006.

The increased business in U.S. public finance also led FSA's parent, Dexia SA, last week to inject $500 million in capital into the company.

"Beginning in the fourth quarter of 2007, we saw a growing preference for FSA-insured bonds across our markets, especially in U.S. municipal finance," chief executive officer Robert Cochran said in the earnings release.

The market's other gilt-edged bond insurer also reported fourth quarter and year-end earnings this week.

On Monday, Assured Guaranty Ltd., parent of triple-A rated monoline Assured Guaranty Corp., reported a net loss of $260.1 million for the fourth quarter, and a $303.3 million net loss for the entire year. It was a 713% drop for the quarter, from a gain of $42.4 million last year, and a 290% fall, from a $159.7 million gain, for the year.

The losses were primarily a result of falling values in the credit derivatives the company guarantees, including a loss of $297.5 million in the quarter and $480 million in the year.

Like FSA, Assured Guaranty began to capitalize on its solid triple-A ratings in the fourth quarter, after receiving its third and final triple-A rating from Moody's Investors Service in July.

The company reported a 311% increase in its present value of gross written premiums - a non-GAAP measure used to keep track of new business production - to $477 million, over the $116 million the company wrote in the fourth quarter of 2006. For the year, Assured saw a 93% increase in new production to $874.6 million, from $453.6 million the year before.

The new business production was led by a 184% increase in U.S. structured finance during the quarter to $92.3 million, from $32.5 million in the year-ago quarter.

The fourth-quarter totals also include $25.6 million in business for the U.S. public finance market, a 97% increase over last year's $13 million in business, and $320.7 million in financial guaranty reinsurance, a 610% increase over last year's fourth quarter total of $45.2 million. In December, Assured reinsured $29 billion of the book for Ambac Assurance Corp. in the latter company's effort to keep its triple-A rating.

"Our franchise continues to build, particularly in the U.S. public finance market," CEO Dominic Frederico said in a statement. "We produced record new business volume in both fourth quarter and full year 2007 consistent with our strategy of growing our financial guaranty direct franchise and maintaining our position as the leading financial guaranty reinsurer." e_SRitq

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