A jarring loss at its joint venture C-Bass LLC combined with high claims costs to drive MGIC Investment Corp. to a sharp earnings miss in the first quarter.

The Milwaukee mortgage insurer reported late Wednesday that earnings had fallen 43.5% from a year earlier, to $92.4 million. Earnings per share of $1.12 fell 59 cents short of analysts' average estimate.

A $15 million pretax loss at C-Bass, which invests in risky home loans and is 46% owned by MGIC, took 5 cents away from MGIC's per-share earnings, compared with a 22-cent contribution a year earlier.

C-Bass, which is based in New York, had expected to earn $60 million before taxes. But Bruce Williams, the venture's co-founder and chief executive, who was on hand for a Wednesday conference call on MGIC's results, said, "Like every participant in the [subprime] market, we were surprised at the speed and overreaction of this past quarter's adjustment and have not been immune to these market events."

"A substantial portion of the first-quarter shortfall occurred during the last week of February and in March as the market continued to deteriorate due to announcements relating to" New Century Financial Corp., Fremont General Corp., "and others," Mr. Williams said.

C-Bass's ills were familiar, if of a lower magnitude than those of other subprime mortgage companies.

The venture suffered writedowns because of credit deterioration and widening spreads for risky mortgage securities.

The company's purchases of 2006 originations were half its purchases of 2005 originations, and its assets fell 21.6% from Dec. 31 to March 31, to $6.9 billion. After "absorbing" margin calls of about $200 million, C-Bass' cash reserves fell by a third in the period, to $200 million.

But Mr. Williams said that C-Bass is not a "generic issuer" and that it executed four collateralized debt obligations and a securitization of second liens last quarter.

Mr. Williams said he expects C-Bass to turn a profit in the second quarter and earn $150 million to $200 million before taxes this year, despite prospects for constrained volume.

He said he expects pricing conditions to persist for some time, but not to deteriorate further. "If you think back to '98"  when Russia's debt crisis and the collapse of Long-Term Capital Management roiled the industry  "it took the market a good 12 to 24 months to come back," he said.

"We're not assuming a significant spread widening or spread tightening," he said. "Things have generally calmed down and are more stable."

C-Bass is acquiring the Columbia, Md., subprime mortgage lender Fieldstone Investment Corp., but Mr. Williams said that though he is "seeing lots of opportunities," he had passed on several "well-publicized sales" of assets from pressured lenders.

"We would probably have paid a different price, to be perfectly blunt," he said.

Radian Group Inc. of Philadelphia also owns a 46% stake in C-Bass, which stands for Credit-Based Asset Servicing and Securitization, and has agreed to merge with MGIC.

The companies expect to reduce their combined stake in the venture because of concerns over the credit-rating effect of a unified exposure.

MGIC's losses from insurance claims surged 58.2% from a year earlier, to $181.8 million, but CEO Curt Culver maintained the company's projection for a full-year increase of 10%. Still, a rise in claim sizes from pricey housing markets like California could cause additional problems, he said.

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