NEW YORK (Bloomberg) ? MBIA Inc., the world's biggest bond insurer, reported a 54 percent rise in third-quarter profit, mostly because of a $75 million charge in the year-ago period to cover anticipated penalties from a regulatory investigation.

Net income rose to $217.9 million, or $1.59 a share, from $141.8 million, or $1.04, a year earlier, the Armonk, New York-based company said in a statement yesterday. Profit excluding investment gains was $1.55 a share, while total new business, or adjusted direct premiums, fell ten percent to $210.1 million.

MBIA is being investigated by state and federal regulators including New York Attorney General Eliot Spitzer and the Securities and Exchange Commission for potential accounting and regulatory disclosure violations. MBIA restated seven years of earnings twice last year after the probes began to change its accounting for a series of reinsurance contracts.

The gain in earnings was also helped by demand from issuers to refund outstanding bonds. Refundings allow bond insurers to accelerate the recognition of premiums on insured bonds into the quarter in which those deals are refinanced.

Analysts largely discount refundings because the boost in income is offset by a reduction in future earnings. Minus the refundings, the company reported profit from operations of $1.55 a share. The median estimate of analysts surveyed by Thomson Financial was for profit of $1.45 a share.

MBIA's shares have risen about 1.2 percent so far this year. The stock fell 44 cents to $60.86 yesterday on the New York Stock Exchange. MBIA said share buybacks are on hold until the regulatory investigation is completed.

The company also said it paid $900,000 to cover obligations on Eurotunnel debt, though it said it expects to be reimbursed for these payments. The operator of the UK-France rail link under the English Channel filed for bankruptcy on July 11. MBIA lists $1.4 billion of exposure to Eurotunnel on a list of its biggest below-investment grade credits.

MBIA's asset management business expanded 16.4 percent through the first nine months of the year to $50.3 billion. Moody's Investors Service began a review of the bond insurers' non-core operations last year and said recently that significant growth in such businesses could add risk to the operations of the triple-A-rated companies.

MBIA also said it was selling its MuniServices operations to a management group. The unit is a vestige of MBIA's expansion in the late 1990s into businesses that provided services to municipalities and invested in tax liens. The company that invested in tax liens, Capital Asset Research Management, also issued bonds that MBIA insured. Those bonds have resulted in the second largest loss for MBIA's insurance unit to date.

The bond insurance industry is awaiting a draft proposal from the Financial Accounting Standards Board which will give guidance on how insurers should recognise premiums and reserve against potential losses. Practices vary widely, making comparisons between companies difficult.

The accounting board at its last meeting on September 13 in Norwalk, Connecticut, also reached a preliminary decision to require bond insurers to report premium income at the same pace as the bonds they insure pay down. Currently, bond insurers recognise premiums more rapidly.

The new rule, for example, would mean that bond insurers wouldn't be permitted to recognise any income on a zero coupon bond until the final maturity date. Currently, bond insurers recognise income over the life of the bond even though no payments are made.

FASB is still working on a final proposal which is expected to be released in the fourth quarter.

Ambac Financial Group Inc., the world's second-largest bond insurer, said yesterday third-quarter profit rose 22 percent to $213.5 million, or $1.98 a share, even amid a drop in new business as a reduction in reserves related to Hurricane Katrina bolstered results.