May 12 (Bloomberg) -- MBIA Inc., the bond insurer whose market value tumbled 87 percent in the past year, posted a net loss that was wider than analysts estimates as the slump in mortgage securities deepened.

The first-quarter loss was $2.4 billion as the value of derivatives tumbled $3.58 billion, Armonk, New York-based MBIA said in a statement today. The operating loss of $3.01 a share was more than twice the $1.21 average estimate of analysts surveyed by Bloomberg.

The loss was MBIA's third straight and comes less than three months after the bond insurer successfully retained its AAA credit rating. MBIA, Ambac Financial Group Inc. and the rest of the industry posted record losses after misjudging the value of collateralized debt obligations and securities backed by home- equity loans they guaranteed. Chief Executive Officer Jay Brown said today the company expects to pay more than $1 billion in additional claims.

``Earnings pressure will remain for several quarters as writedowns continue,'' Peter Plaut, senior vice president at Imperial Capital, wrote in an e-mail today. ``This is no longer a AAA industry for the players that diversified into volatile financial derivatives.''

`Ample Liquidity'

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 $323 billion of losses at banks since the beginning of 2007.

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 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.

MBIA raised $2.6 billion in capital to help convince Moody's Investors Service and Standard & Poor's to preserve its AAA rating. The company today said it will move $900 million of capital to its insurance unit. Regulators last week said they were concerned that the money remained at the parent company.

Brown said the company 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.

Shares Drop

MBIA rose 54 cents to $9.97 at 9:34 a.m. in early 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.

``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.''

MBIA estimates it will have $827 million of actual losses from paying claims on nine CDO transactions.

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.

Credit-Default Swaps

Credit-default swaps on the company traded upfront at 18.5 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 $1,850,000 in advance and $500,000 a year to protect $10 million in MBIA bonds from default for five years.

New York-based Ambac, the second-largest bond insurer, reported a first quarter net loss of $1.66 billion on April 23, wider than analysts estimated, after $3.1 billion of charges related to mortgage securities. New business at Ambac slumped 87 percent after municipalities balked at buying its insurance and sales of CDOs dried up. Ambac shares tumbled 43 percent on the day of the announcement.

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.

Home-Equity Loans

MBIA had $265 million in additional loss expenses related to home loans in the first quarter. The company insured bonds backed by home equity lines of credit and closed-end second loans totaling $21 billion at the end of 2007, according to the company's Web site. Almost $9 billion of those securities were originated in 2007.

Ambac set aside $1 billion during the first quarter to cover claims on second lien mortgages. Hamilton, Bermuda-based Assured Guaranty Ltd. reserved $59 million, mainly for two deals backed by Countrywide Financial Corp. loans.

MBIA, once a dominant provider of municipal bond insurance, had 2.5 percent of the market in the quarter, according to Thomson Financial data. Net premiums written dropped 43 percent to $97.3 million in the first quarter, MBIA said today.

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.

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.

``It's up to the market,'' Larkin said. ``Either it's going to give MBIA another shot or not.''

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

Last Updated: May 12, 2008 09:35 EDT