May 12 (Bloomberg) -- MBIA Inc., the ailing bond insurer, rose in New York Stock Exchange trading after saying it will pump $900 million into its insurance unit and reporting a first- quarter loss that was narrower than some analysts' estimates.

MBIA, whose market value has slumped 87 percent in the past year, gained as much as 9.8 percent as the company reported a net loss of $2.4 billion and an operating loss of $3.01 a share. Bank of America analyst Tamara Kravec yesterday revised her estimate to a loss of $5.02 a share, from 99 cents.

The Armonk, New York-based company's net loss, which including $3.58 billion in unrealized losses on derivatives, was less than some analysts had anticipated because its biggest competitor, Ambac Financial Group Inc., said last month that it took $3.1 billion of charges. MBIA also gave capital to its insurance subsidiary and said it has enough money to cover claims from the credit-market seizure that caused the world's biggest banks to record $329 billion in losses.

``Anything less than catastrophic is deemed to be good in this market,'' Greg Peters, director of credit strategy at Morgan Stanley in New York said in an interview.

MBIA raised $2.6 billion in capital to help persuade Moody's Investors Service and Standard & Poor's to preserve its AAA rating. MBIA agreed to move money to the insurance unit following discussions with regulators. The New York Insurance Department last week said it was concerned that the money remained at the parent company.

Ample Liquidity

Chief Executive Officer Jay Brown said in a statement today that MBIA won't need to raise more.

``We have ample liquidity, our balance sheet is built to withstand credit stress levels many multiples of what we're experiencing now,'' Brown said in the statement.

MBIA rose 42 cents, or 4.5 percent, to $9.85 in New York Stock Exchange Composite trading. The stock traded above $70 a year ago. MBIA's book value slumped to $8.70 a share on March 31 from $29.16 at Dec. 31, in part because of new shares sold in the capital raising.

MBIA reported adjusted direct premiums, a non-GAAP measure of new business, of $43.5 million, an 84 percent decline, saying it ''had very little new business production until its AAA ratings were affirmed.'' MBIA, once a dominant provider of municipal bond insurance, had 2.5 percent of the market in the quarter, according to Thomson Financial data.

Expansion Falters

The bond insurers faltered after expanding beyond municipal debt into subprime-mortgage securities and CDOs, which package pools of debt into new pieces with varying ratings and risk. As subprime defaults soared to records, MBIA and Ambac were forced to write down their value.

During the first quarter MBIA increased its expectations for paying claims on nine CDO transactions by $827 million and boosted forecast payouts on bonds backed by home equity loans an additional $495 million.

``This is clearly the most challenging credit environment we have seen in our history,'' Brown said during a conference call to discuss earnings.

MBIA reported losses totaling $4.74 billion in the past three quarters, mainly on CDOs it guaranteed through credit- default swap contracts. CDOs, backed by the repayment of subprime mortgages, have contributed to bank losses since the beginning of 2007.

`Not Surprising'

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

The first-quarter net loss was $13.03 a share. The company reported a profit of $198.6 million, or $1.46 a share, a year earlier. So-called Level 3 assets, those that are most difficult to value, totaled $7.3 billion, in the first quarter, MBIA said.

The ``loss and impairment charges are large but not surprising in terms of damage done,'' Peter Plaut, senior vice president at Imperial Capital, wrote in an e-mail today. This quarter ``could witness some improvement if credit markets continue their improving trend.''

MBIA said it reduced its derivative liability by $3.6 billion to reflect an increase in risk premiums on MBIA's credit default swaps. The reduction reflects ``the company's own nonperformance risk,'' according to a regulatory filing.

Competition

Credit-default swaps on the company traded upfront at 19 percent plus 5 percent a year, from 17.3 percent upfront and 5 percent a year on March 9, according to CMA Datavision. That means it costs $1.9 million in advance and $500,000 a year to protect $10 million in MBIA bonds from default for five years.

Competition from companies with stable AAA credit ratings has eaten into MBIA's municipal bond business.

Financial Security Assurance Holdings Ltd., owned by Dexia SA, insured 65 percent of the $22.2 billion of municipal bonds sold in the first quarter, according to data from Thomson Financial. Assured Guaranty had a 30 percent share.

Billionaire Warren Buffett, who created a bond insurance company to insure municipal securities, told attendees at Berkshire Hathaway Inc.'s annual meeting earlier this month that an insurer forced to borrow at a 14 percent yield doesn't deserve AAA credit ratings. MBIA sold $1 billion of surplus notes with a 14 percent yield to raise capital in January.

``We're not out of the woods yet,'' said Richard Larkin, senior vice president at Herbert J. Sims & Co. in Iselin, New Jersey. ``I'm not sure AAA bond insurers will ever be viewed the same way as in the past.''

To contact the reporter on this story: Christine Richard in New York at crichard5@bloomberg.net

Last Updated: May 12, 2008 17:38 EDT