(Bloomberg) ? MBIA Inc., the world?s biggest bond insurer, will lower profit from the past seven years by $54 million to correct accounting for two reinsurance agreements bought to limit losses from a failed hospital network.

The restatement will cut net income from 1998 through 2002 by $60 million, and raise 2003 and 2004 profit by $6 million, the Armonk, New York-based company said yesterday in a statement.

New York Attorney General Eliot Spitzer and the Securities and Exchange Commission sent MBIA subpoenas about the policies in November.

The reinsurance, purchased from Converium Holding AG in 1998, reduced MBIA?s losses from guaranteeing payments on $265 million of bonds sold by hospital operator Allegheny Health, Education and Research Foundation.

MBIA is at least the third insurer to reverse transactions since Spitzer and the SEC began probing policies that may help companies smooth earnings.

?It?s always better to come clean,? said Chris Watters, an analyst at Chicago-based Ariel Capital Management, which oversees more than $18 billion and was MBIA?s third largest shareholder as of yearend. ?Across the entire insurance industry you might see a whole number of companies take a closer look at these kind of transactions.?

MBIA said the restatement won?t have a ?material effect? on its financial position or credit ratings.

The company also bought reinsurance from Axa SA and Munich Re to limit its losses from the hospitals. Those policies didn?t require an accounting correction, MBIA said.

The restatement represents about 1.3 percent of MBIA?s $4.05 billion in net income during the seven-year period. The largest restatement is for 1998; profit will be reduced that year by $47 million, or 11 percent, to $385.7 million.

Shares of MBIA fell 35 cents, or 0.6 percent, to $59 in New York Stock Exchange composite trading. The stock has fallen 11 percent in the past 12 months, compared with a 0.4 percent decline in the Standard & Poor?s 500 Financials Index.

Reinsurers help insurance companies manage their risks. At least ten insurers and reinsurers have received subpoenas amid regulatory probes on income-smoothing policies, also known as non- traditional or finite insurance.

The policies sometimes transfer little risk to the reinsurer and permit buyers to postpone paying losses, regulators said.

Zurich Financial Services AG, Switzerland?s largest insurer, had a $140 million fourth-quarter expense to cancel finite policies.

Bermuda-based Platinum Underwriters Holdings Ltd. in November cancelled a policy with Warren Buffett?s Berkshire Hathaway Inc.

In MBIA?s case, the policies were bought after Allegheny Health?s Philadelphia hospitals filed for bankruptcy in July 1998.

Converium agreed to assume about $70 million of MBIA?s losses in exchange for a commitment to share in some of MBIA?s new business, the company said in the statement.

Converium spokeswoman Esther Gerster declined to comment.

?We questioned why they bothered to do it,? said David Veno, an analyst at Standard & Poor?s in New York.

?They had sufficient claims-paying resources at the time to absorb the loss without any impact on their capital position.?

MBIA said it decided to restate after finding that the transactions with Converium didn?t transfer enough risk to justify recording them as insurance.

The decision came after company executives in October 2004 asked the board?s audit committee to review the transactions.

The committee hired a law firm and determined that there may have been an oral agreement that minimized the transfer of risk to Converium.

In a complicated chain of transactions, Converium reduced its risks assumed from MBIA by passing some of them to Paris-based Axa, MBIA said.

MBIA said Axa, in turn, appears to have obtained an oral commitment from MBIA to compensate any Converium losses above a certain level.

That created a loop that brought the risk back to MBIA, according to today?s statement.

MBIA will now account for Converium?s $70 million payment in 1998 as a deposit, rather than insurance proceeds.

Axa spokesman Christophe Dufraux didn?t return calls to his mobile telephone after regular business hours.