Armonk, N.Y.-based MBIA Inc., the holding company forrating-challenged bond insurer MBIA Insurance Corp., reported todaythat 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 quarterof 2007, the company said.

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

For the first half of 2008, the insurer said it had a net lossof $706.4 million ($3.37 per share), compared with net income of$410.4 million ($3.07 per share) during the same period in2007.

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

MBIA, like other bond insurers, has been struggling withnegative ratings and market worries, and as a result has virtuallyhalted the writing of new business.

Last month, Standard & Poor's put the company on a negativeCreditWatch and dropped its financial strength rating from “AAA” to“AA,” while Moody's said MBIA had a negative outlook and droppedthe “AAA” rating to “A2.” Uncertainty about the performance ofMBIA'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 insuranceportfolio. Management said today during a conference call that itexpects to be in business for another 40 years, “even if we neverwrite another policy.”

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

It said that in the second quarter, the improvement was drivenby a decline in capital requirements for terminated, matured andamortized exposures, as well as a decline in the capital requiredfor the insurance of investment management liabilities.

The capital position improvement was partially offset byincreased capital requirements for downgraded credits anddowngraded reinsurers, MBIA explained.

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

The $742 million in realized losses consisted of $306 million onasset sales related to the rating downgrades of MBIA InsuranceCorp. during the second quarter, and $436 million of impairments onassets sold or that are expected to be sold in the third quarter tofurther enhance liquidity in the ALM business, MBIA said.

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

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