$1.89 billion loss hammers FGIC

Bond insurer, seeking reorganization and capital, blames fourth-quarter loss on writedown of securities backed by mortgages.

March 17, 2008: 9:55 AM EDT

NEW YORK (AP) -- Bond Insurer FGIC Corp. said Monday it lost nearly $2 billion in the fourth quarter and continues to seek a reorganization of its insurance operations and to raise capital to shore up its financial position.

The loss resulted primarily from writing down the value of securities guaranteed by FGIC that are backed by subprime and second-lien mortgages, the company said.

The company, which is owned by mortgage insurer PMI Group Inc., also said it continues to seek a "significant restructuring" of its insurance business. In February, FGIC said would like to organize a new domestic financial guarantee insurer in New York to "provide support for public finance obligations previously insured by FGIC." A restructuring would need New York Insurance Department approval and a large amount of capital, according to FGIC.

FGIC said it has hired Goldman Sachs to advise it "in connection with its capital enhancement initiatives."

The bond insurer reported a quarterly loss after preferred dividends of $1.89 billion compared with a profit of $65.5 million in the prior year.

Net investment income, which reflects the net capital gains the company realized in the quarter, climbed to $41.3 million from $36.7 million.

Net premiums written slid to $69.1 million from $83 million.

For the period ended Dec. 31, FGIC said it reported a revenue loss of $1.59 billion compared with sales of $121.1 million a year earlier.

Total expenses surged to $1.28 billion from $27.8 million as recorded losses and loss-adjustment expenses totaling $1.23 billion because of a severe decline in the value of certain securities it guarantees.

FGIC said it had about $750 million in credit impairments during the quarter as well as $960 million related to the widening of credit spreads. The company said it stopped writing new financial guaranty business for now in order to hold onto capital.

FGIC reported an annual loss after preferred dividends of $1.82 billion compared with a profit of $229.4 million in the prior year.

It reported lthe oss on sales of $1.43 billion compared with revenue of $444.8 million a year earlier.

FGIC Corp. is the parent company of Financial Guaranty Insurance Co. Last month Fitch Ratings cut its rating on 24 classes of mortgage bonds insured by Financial Guaranty Insurance.