Bermuda-based financial guarantor Syncora Holdings Ltd. last night admitted its management had "substantial doubt" about the company's ability to continue as a going concern after it announced a net loss of $1.34 billion for the third quarter.

In its earnings statement last night, the company formerly known as Security Capital Assurance said the New York State Insurance Department (NYID) had allowed it to alter its accounting to use other reserves in order to maintain the minimum required policyholders' surplus.

The regulator's permission allowed Syncora to release reserves related to cancelled policies to bulk up its policyholders' surplus to $83.3 million at September 30, 2008. The minimum required under New York state law is $65 million.

Policyholders' surplus is defined as the amount over and above liabilities available for an insurer to meet future obligations to its policyholders.

During the third quarter XL Capital Ltd., the company that founded and span off Syncora, agreed a $1.9 billion deal with the bond insurer to rid XL of virtually all its exposure to reinsurance contracts and guarantees with Syncora.

The deal allowed Syncora to pay $500 million to Merrill Lynch & Co. to cancel $3.7 billion of default protection on collateralised debt obligations (CDOs).

Syncora has suffered substantial losses through its guarantees of CDOs — securities backed by pools of assets including sub-prime mortgage debt — and last night's results illustrated how the value of those CDOs continued to deteriorate in the third quarter.

Syncora's net loss broke down to $29.28 per share, compared to $1.40 per share for the third quarter of 2007, or $89.9 million.

The company said a net loss of $1.06 billion in the fair value of derivatives was the main reason for the huge loss. Another $213 million in losses emanated from the insurance policies related to securities backed by residential mortgages (RMBS).

And net realised losses of $64.7 million in the investment portfolio added to the company's tale of woe.

Operating expenses soared to $84.1 million, compared to $58.5 million in the same period in 2007, mostly because of an increase in professional services needed to help with the company's restructuring.

JP Morgan Securities was brought in during the third quarter to advise Syncora on actions to take regarding its portfolio of credit default swaps and financial guarantee contracts and continues to work with Syncora in its negotiations with counterparty banks.

Syncora said if it was not successful in negotiating termination or restructuring of agreements made with counterparties, then "management has concluded that there is substantial doubt about the ability of the company to continue as a going concern".

Syncora also faces being delisted by the New York Stock Exchange (NYSE). Last Thursday, the NYSE warned the Bermuda company that it was in non-compliance with listing standards, because its share price had fallen to an average of less than $1 for the previous 30-day period. Two days earlier the NYSE had warned Syncora that it was in breach of another listing standard, in that its market capitalisation had fallen below $75 million over a period of 30 consecutive days and its most recently reported shareholders' equity was less than $75 million.

Syncora said last night it expects to notify the NYSE that it will try to cure the deficiencies and maintain its listing, but added there was no guarantee of success.

The company will not hold its traditional quarterly investor conference call, but will publish the earnings statement, plus financial supplements on its website at www.syncora.com.