Armonk, N.Y.-based MBIA Inc., the holding company for rating-challenged bond insurer MBIA Insurance Corp., reported today that second quarter net income shot up nearly 800 percent.

For the period, net income was $1.7 billion ($7.14 per share), compared with $211.8 million ($1.61 per share) for the same quarter of 2007, the company said.

Net income in the quarter was driven primarily by unrealized gains on insured credit derivatives, which totaled $3.3 billion on a pre-tax basis, MBIA said.

For the first half of 2008, the insurer said it had a net loss of $706.4 million ($3.37 per share), compared with net income of $410.4 million ($3.07 per share) during the same period in 2007.

The company did not materially alter its projection of ultimate loss on mortgage-related exposures. As a result, it said loss reserves had an insignificant impact on net income.

MBIA, like other bond insurers, has been struggling with negative ratings and market worries, and as a result has virtually halted the writing of new business.

Last month, Standard & Poor's put the company on a negative CreditWatch and dropped its financial strength rating from “AAA” to “AA,” while Moody's said MBIA had a negative outlook and dropped the “AAA” rating to “A2.” Uncertainty about the performance of MBIA's mortgage-related exposures was cited as a reason.

However, it was also noted that MBIA is strongly capitalized, and has substantial embedded earnings in its existing insurance portfolio. Management said today during a conference call that it expects to be in business for another 40 years, “even if we never write another policy.”

A statement accompanying the firm's financial figures said that during the first six months of 2008, the company estimates that the capital position of MBIA Insurance Corp. steadily improved.

It said that in the second quarter, the improvement was driven by a decline in capital requirements for terminated, matured and amortized exposures, as well as a decline in the capital required for the insurance of investment management liabilities.

The capital position improvement was partially offset by increased capital requirements for downgraded credits and downgraded reinsurers, MBIA explained.

Net income, it said, was also affected by $742 million of pre-tax realized losses, resulting from the rebalancing of the asset/liability portfolio in the company's Asset/Liability Management (ALM) business.

The $742 million in realized losses consisted of $306 million on asset sales related to the rating downgrades of MBIA Insurance Corp. during the second quarter, and $436 million of impairments on assets sold or that are expected to be sold in the third quarter to further enhance liquidity in the ALM business, MBIA said.

Company management said during the conference call that ratings change rapidly, and rating shifts are a temporary phenomenon. In the meantime, it was stressed that the company is paying all its claims. Executives indicated they expect ratings will change in their favor and there will be opportunities for MBIA.

The market reacted positively to the results, and at noontime the stock had gained more than 8 percent in trading on the New York Stock Exchange.

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MBIA Quarterly Net Income Soars

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