Bermuda-based bond insurer Security Capital Assurance Ltd. (SCA) last night said it would stop writing new business after it announced a fourth-quarter loss of $1.2 billion.

The loss, which amounted to $18.67 per share, was put down to its exposure to the US sub-prime mortgage crisis.

SCA has been hit by its guarantee of mortgage-linked securities that have plummeted in value as a wave of delinquencies has swept the US in the midst of a slump in property values.

The loss compared with a net income of $35.8 million, or 56 cents a share, a year earlier, the company said.

SCA was also releasing its full-year results, which showed a $1.2 million loss for 2007, compared to a $117.4 million profit in 2006.

"The extraordinary and rapid deterioration in US residential mortgage-related credits led us to incur record levels of case reserves in the fourth quarter of last year," SCA's president and chief executive office Paul Giordano said. "We are continuing to explore our strategic options to generate or raise capital and improve our ratings.

"In the interim, we are in the process of realigning our cost structure to reflect the current business conditions and have made the strategic decision to cease writing new business for a period of time to preserve capital."

The scale of the loss was not a surprise, since SCA announced last week that it expected to take a charge of $1.5 billion for the fourth quarter on sub-prime mortgage related obligations.

And it also said it had hired Rothschild Inc. to help map options for the company's future.

SCA was founded by Bermuda commercial insurer XL Capital Ltd., which still owns a 46-percent stake in the bond insurer.

Before SCA's results were announced yesterday, the company fell five cents to 66 cents in New York Stock Exchange composite trading. The share price has dipped about 98 percent over the past year.

XL shares also fell 2.7 percent to close on $31.76 and are down by 52 percent over the last 12 months. XL also lost more than $1 billion in the fourth quarter, largely because of write-downs connected with its investment in and reinsurance of SCA.

Many of SCA's rivals in the financial guaranty business have also struggled as a result of branching out beyond their traditional business of insuring municipal bonds against debt default.

Acting as guarantors for complex financial instruments such as collateralised debt obligations (CDOs) has caused them problems. CDOs are securities backed by pools of assets, including mortgage debt. Some of those mortgages were sub-prime, that is taken out by borrowers with poor credit profiles.

As housing values have fallen in the US, defaults have soared. Foreclosures in February were up 60 percent on the same month last year, it was revealed yesterday. The scenario has caused the mortgage-linked CDOs to fall rapidly in value and has meant losses for those bond insurers who have guaranteed them.

The company estimated that in the fourth quarter it would pay $651.5 million to cover claims on CDOs, and $37.2 million on securities backed by home equity loans.

The vicious cycle for SCA continued with crippling downgrades from credit ratings agencies that have severely hampered the company's ability to write new business.

Having a rating of AAA is of huge importance to bond insurers. On January 24, Fitch Ratings cut SCA's XL Capital Assurance and XL Financial Assurance ratings five levels to A. Moody's followed on February 7, cutting the rating to A3, and Standard & Poor's reduced its rating on February 25 to A-.