Assured Guaranty Ltd. suffered a 26 percent loss in profit due to a decline in the market value of subprime mortgage-backed securities.

They reported a drop of almost $12 million from $44.5m or 60 cents per diluted share for the second quarter in 2006 to $32.8m or 47 cents per diluted share this year.

The decline was due to $12.7m or 18 cents per diluted share of after-tax unrealised losses on derivatives in the second quarter of 2007 versus a gain of $4.3m or six cents per diluted share last year.

This increase in unrealised losses, in turn, was down to a downturn in the value of subprime mortgage-backed securities and pooled corporate obligations resulting from the widening of credit spreads during the quarter.

Operating income for the second quarter of 2007 rose by 14 percent to $46.7m or 68 cents per diluted share compared to $41m or 55 cents per diluted share the same time last year. This growth is reflected in operating higher financial guaranty direct net earned premiums and consolidated net investment income, partially offset by increased total expenses.

President and chief executive officer Dominic Frederico said the results pointed to the company's continued success in building their financial guaranty direct franchise.

"We also achieved one of our longest-standing goals: receiving a Aaa insurance financial strength rating for Assured Guaranty Crp. and Assured Guaranty (UK) Ltd from Moody's Investors Service in July 2007," he said.

"The receipt of this rating at a time of significant stress in the credit markets affirms our prudent approach to credit and risk management."

New business production as measured by present value of gross written premiums totaled $125.3m in the second quarter of 2007, down by 16 percent from $148.4m last year.

Net earned premiums rose from $48.2m in 2006 to $54.2m this year, representing an 16 percent increase, largely due to the 53 percent rise in financial guaranty direct net earned premiums.

Other highlights from the report concluded that Assured's total expenses for the second quarter were $28m, up seven percent from $26.2m in 2006.

Meanwhile the company's consolidated loss and loss adjustment expense benefit was $9.1m this year, an increase of $2.6m compared to the prior year. This was largely due to a portfolio reserve release in the financial guaranty reinsurance segment related to a European infrastructure transaction.