MBIA Inc.’s (MBI) first quarter net loss of $1.5 billion or $7.22 per share compares unfavorably with a net gain of $696.7 million or $3.34 per share in the prior-year quarter. Results were negatively affected by $2.2 billion of unrealized loss on insured credit derivatives contract.

Premiums earned during the quarter totaled $156.8 million, down 31% year over year. Net investment income dropped 23% to $121.9 million.

During the quarter, MBIA posted $2.2 million pre-tax unrealized loss on its insurance of credit derivatives and a pre-tax loss of $74.2 million on investments.

During the quarter, the company paid a total of $461.4 million in net claims, primarily related to its second-lien residential mortgage exposures. Net claims payment has been on a downward trend from the second half of 2009.

MBIA’s business model is largely dependent upon its overall credit rating. Credit ratings provide objective judgments about the insurer’s ability to pay insured parties when necessary, and declines in the credit quality of the company will shrink its potential customer pool. MBIA receives insurance premiums by guaranteeing the coupon and principal of bonds. This premium is almost entirely based on MBIA’s financial strength.

Since April 2008, when MBIA first lost its AAA rating, its credit rating has been downgraded to B3, which is below investment grade. Thus the company has not written any new business since 2009.

However, given the long-tailed nature of its business, its U.S. Public Finance Insurance segment and Structured Finance and International Insurance segments have posted earned premiums of $114.3 million (down 24% year over year) and $100.0 million (down 34% year over year), respectively.

Depressed new business and lower net investment income have led to operating cash outflows of $297 million, compared with $474 million for the same period of 2009.

Adjusted book value, a non-GAAP measure of book value, was $36.01 per share, compared with $36.35 per share on December 31, 2009.
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