Bermuda-based Security Capital Assurance Ltd. yesterday announced that second-quarter profits had fallen 36 percent to $25.9 million. In the same three-month period, SCA's net income totalled $36.4m.

The company's performance looks better when viewed over the first six months of 2007, when net income rose 19 percent to $63.2m, compared to $53.1m in the prior year period.

SCA is a Bermuda-based holding company, whose subsidiaries provide credit enhancement and protection products to the public finance and structured finance markets, chiefly in the US.

In an earnings statement yesterday, SCA put the decline in net income during the quarter down to a decline in refunding activity, an increase in unrealised losses on derivative financial instruments caused by widening credit spreads and the impact of additional shares issued during the company's initial public offering (IPO) in August 2006.

SCA's operating income increased 24 percent to $90.5 million, or $1.40 per share, compared to $73.1 million, or $1.58 per share, in the second quarter in 2006, with operating income per share being impacted by the additional shares issued in the IPO.

"We are pleased with our performance in the second quarter as we delivered solid results in a challenging environment," said Paul S. Giordano, SCA's president and chief executive officer.

"Our insured portfolio continues to perform well despite market concerns over subprime mortgages. Unsettled conditions in the credit markets reinforce the value of our financial guarantee products, and we are well positioned to take advantage of better credit and pricing opportunities as they emerge in the sectors where we are active.

"The recent addition of key transaction, credit and other professionals to our team will help us grow and deliver greater value to our customers and shareholders."