NEW YORK (Bloomberg) — Bermuda-based Security Capital Assurance Ltd. shares fell the most since the bond insurer went public in August as second-quarter profit declined 29 percent on losses from investments in derivatives.Net income declined to $25.9 million, or 40 cents a share, from $36.4 million, or 79 cents, a year earlier, as reported in The Royal Gazette yesterday. The stock dropped $4.38, or 15 percent, to $24.46 at 4.02 p.m. in New York Stock Exchange composite trading.

Security Capital provides financial guarantees to debt issues and reinsurance to other financial guarantee insurers. The losses on its derivatives portfolio in the last quarter were due to widening credit spreads, the company said in the statement.

While the loss "appears quite sizeable," it doesn't pose a "material concern," JPMorgan Chase & Co. analyst Andrew Wessel, who has an "overweight" rating on the stock, said in a note yesterday. Security Capital's "low level" of exposure to subprime debt should prevent "loss levels in the insured portfolio" from increasing, Wessel said.

Prices on riskier bonds, loans and derivatives based on those securities have declined as surging defaults on US home mortgages to subprime borrowers decrease investor appetite for risk. Subprime loans are made to borrowers with the worst credit records.

Security Capital's operating income, excluding the loss on the derivatives portfolio, fell one percent to $46.4 million, or 72 cents a share, the company said.

The derivatives loss was $22.2 million in the second quarter, compared with a gain of $0.3 million a year earlier. Losses are recorded when the value of securities is adjusted to reflect a change in market prices.