Bermuda-based bond insurer Assured Guaranty is coming through the sub-prime mortgage crisis stronger than ever, while its rivals have been hit with ratings downgrades and collapsing share prices.

The company that was spun off by Ace Ltd. in 2004 has managed to steer clear of the level of exposure to the crisis sweeping the financial markets that has blighted companies like Ambac and Bermuda-based Security Capital Assurance (SCA).

As mortgage delinquencies have soared in the US, the value of investments linked to them has plummeted. And the bond insurers who have provided financial guarantees on those structured investments have suffered.

While Assured has taken a few knocks, its portfolio has ridden the storm impressively so far and the company is now poised to take much larger slice of the financial guaranty pie.

"If you look back to the middle of 2007, there were seven companies in the public finance arena that had triple-A ratings from all the credit rating agencies," Assured's chief executive officer Dominic Frederico told The Royal Gazette yesterday. "Now there are only two and Assured Guaranty is one of them."

Assured is taking full advantage of the wounds of competitors. In December, it claimed a seven-percent share of the municipal bond insurance market, a massive improvement on the one-percent share the company had maintained over previous quarters. In January Mr. Frederico said that share grew further.

During the last quarter of 2007, Assured generated record new business in both its direct and reinsurance segments as its ability to maintain its triple-A ratings from Standard & Poor's, Fitch and Moody's, reaped rewards.

In a release of selected fourth-quarter information, ahead of publication of full results on February 11, Assured said new business in the last three months of 2007, measured by present value of gross written premiums (PVP) was $477 million, up 311 percent on the same period in 2006. The surge in new business late in the year came as Ambac, the world's second-biggest bond insurer, lost its triple-A rating from Fitch, as did SCA.

Not that Assured is coming through the still unravelling sub-prime crisis completely unscathed. Last month, it warned of a fourth-quarter $303 million mark-to-market loss (that is, based on current market value), some of it based on the fall in value of mortgage-backed securities. The company's downgrades of its direct home-equity line of credit (HELOC) also caused a loss and loss adjustment expense of $20.1 million for the last three months of 2007.

But Mr. Frederico is comfortable with Assured's sub-prime exposure. "We feel fairly confident about what sub-prime means to us," Mr. Frederico said. "We don't expect any real losses because of the nature of the portfolio we have written. Our sub-prime exposure is very well protected and we have disclosed every detail on our website.

"Looking back to 2005, we looked at the real estate market and we were concerned at the time about the housing bubble inflating and a general loosening of underwriting standards. So we started to back out of writing sub-prime business."

When it came to insuring collateralised debt obligations (CDOs, securities backed by a pool of bonds, loans and other assets), Mr. Frederico said the company became uncomfortable with the weight of real estate exposure contained in some CDOs and the lack of diversification of assets. Also, he felt rates to guarantee those CDOs were not commensurate with the risk.

Assured continues to monitor and stress test its sub-prime exposures in light of the continuing turbulence in the US housing market.

New York state insurance superintendent Eric Dinallo has led attempts to raise capital from the major banks for the more beleaguered bond insurers, whose ratings have already slipped or are in danger of doing so.

"We are all aware that it is important to bring back stability to the marketplace," Mr. Frederico said. "The more important thing is, there is no shortage of capital out there. The issue is, is it going to be a bailout? Is this capital going to be paid for? As MBIA (the world's biggest bond insurer) has shown, if you are trying to save your ratings, it's a matter of paying for the capital you have to raise."

SCA was a case of a company which did not raise capital and so lost its top rating. Fitch required SCA to raise $2 billion in new capital in four to six weeks. When the company said it would not do so, Fitch pushed down SCA's rating by five grades from AAA to A, thereby limiting the new business it could write.

Mr. Frederico feels the fears over the state of the bond insurance industry, which guarantees more than $2 trillion in municipal and corporate bonds, and whose problems have been a major factor in recent market instability, have been exaggerated.

"I've seen headlines that claim the financial guaranty industry stands to lose $200 billion and that's not even in the realms of possibility," Mr. Frederico said. "And I don't think the general public fully appreciates that there's a big difference between being downgraded and going bankrupt. A company which has been downgraded to AA still has a very high credit rating. It's not such a fall from grace. And it can still write a lot of business."

Downgraded bond insurers could continue to operate, he said, adding that Assured itself had managed to expand fromthe time of its spin-off by Ace in 2004 with just one triple-A rating from S&P. Only in July last year did it acquire its third triple-A rating, from Moody's.

Investment guru Warren Buffet has spotted an opportunity and his company Berkshire Hathaway has set up a bond insurer.

"These events are going to reshape the industry and we hope Assured Guaranty is going to be a significant part of it," Mr. Frederico added.