Capital Guaranty Insurance Co.'s third-quarter net income fell to $3.3 million, or 37 cents per share, from $5.2 million, or 59 cents per share, a year earlier.

For the first nine months of the year, the San Francisco-based insurer's profits slid to $10.8 million, or $1.17 per share, from $13.3 million, or $1.51 per share.

Capital Guaranty attributed the earnings decline mainly to a slowdown in refunding. Core earnings, which exclude the effects of refunding activity, rose in both the quarter and the first nine months.

Because of the way refundings are treated on an insurer's balance sheet, they can dramatically affect financial results.

Insurers receive an up-front premium from an issuer to guarantee a transaction, but the premium is written down over the life of the deal. When a bond is refunded before maturity, the so-called "unearned premium" goes directly to the insurer's bottom line.

Capital Guaranty said earnings from refundings fell to $100,000 in the third quarter from $2.6 million in the third quarter of last year. In the first nine months of the year, refunding earnings fell to $1 million, or 12 cents per share, from $4.8 million, or 56 cents per share, in the same period last year.

Excluding refundings, core earnings in the third quarter rose 23% to $3.2 million, or 36 cents per share, from $2.6 million, or 86 cents per share, in the third quarter of last year.

For the first nine months of this year, core earnings rose 21% to $9.3 million, or $1.00 per share, from $7.7 million, or 86 cents per share, in the first nine months of 1993.

"These production results are encouraging, particularly since the bond insurance market is very soft and volume considerably down this year," Michael Djordjevich, Capital Guaranty's chairman and chief executive officer said in an earnings statement released on Tuesday.

In contrast to the overall insurance industry, Capital Guaranty's activity was down only slightly in the third quarter, and actually rose over the first nine months of the year. A major reason for that is because the firm's activity was muted in much of 1993, ahead of its initial public offering in late September.

In the third quarter, Capital Guaranty had net premiums written of $5.4 billion, down 6.9% from $5.8 billion in the third quarter last year. Net premiums written increased 49.5% in the first nine months of the year, to $15.1 million from $10.1 billion last year.

Capital Guaranty's qualified statutory capital base rose to $193.2 million at Sept. 30 from $190.9 million at the end of last year.

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