NEW YORK (Bloomberg) — Bermuda-based Assured Guaranty Ltd., the bond insurer backed by billionaire Wilbur Ross, posted a fourth-quarter net loss as it boosted reserves for souring mortgages.

The net loss narrowed to $243.8 million, or $2.68 a share, from $260 million, or $3.77 cents a share, a year earlier, the company said yesterday in a statement. Excluding adjustments, Assured said it had profit of four cents a share, compared with the average estimate of seven analysts surveyed by Bloomberg for profit of two cents a share.

While the company last year avoided "the catastrophic losses experienced by so many other leading financial institutions", last quarter the company's mortgage-bond "exposures deteriorated at a faster pace than we expected", chief executive officer Dominic Frederico said in the statement.

The company earlier this month disclosed a five-fold rise in pretax loss expenses for the quarter, as the deepening US recession and housing slump boosted home-loan losses. Assured, which three months ago Moody's Investors Service made one of the last two top-rated bond insurers to lose Aaa grades, has agreed to buy Financial Security Assurance Inc., the other, amid shrunken demand for insurance in the municipal-bond market and signs that competition may be revived.

The company fell 57 cents to $4.98 yesterday in New York Stock Exchange composite trading, before the earnings release. The stock is down almost 80 percent since the announcement of Ross's investment a year ago.

While Frederico benefited from his resistance to insuring collateralised debt obligations used to repackage sub-prime-mortgage bonds, other guarantees tied to home loans are boosting Assured's costs. CDOs are the largest single source of the more than $1.1 trillion of write-downs and losses reported by the largest financial firms worldwide since the start of 2007.

Today, Assured said growth in its business that resulted in a 70 percent increase its net earned premiums last quarter to $77.4 million and 25 percent rise in its investment income to $42.3 million wasn't enough to overcome a 24 percent increase in its so-called loss and loss adjustment expenses to $90 million. Those mainly related to Alt-A and second-mortgage bonds.

As five rivals lost AAA ratings last year, Assured took market share from larger competitors MBIA Inc. and Ambac Financial Group Inc. Assured remained the biggest issuer of municipal guarantees after a two-level downgrade in November to its main unit by Moody's, which had said industry turmoil "called into question the extent to which the business fundamentals of financial guaranty insurance are supportive of stand-alone Aaa ratings".

Last month, as the portion of new municipal issues that were insured slid to 15 percent, Assured provided 81 percent of guarantees, according to the company. Last year, municipal borrowers used insurance on 18 percent of sales, down from 47 percent in 2007, as insurer downgrades led to issuer and investor losses, according to Thomson Reuters.

New York-based Ambac, which earlier yesterday reported a $2.34 billion fourth-quarter loss, said that it hoped to start a new municipal-only unit next quarter. Armonk, New York-based MBIA said on February 18 that it had won the right to split its public-finance business and structured-finance guarantees, and will seek to win new municipal business and AAA grades.