Proving that bad news can be good news, MBIA Inc. (MBI: 6.81 -6.07%) saw investors reward it for posting better-than-expected results during the first quarter — although the results weren’t exactly the sort of thing to cheer over. The troubled bond insurer said that it lost $2.4 billion, or $13.03/share, during the first three months of 2008, primarily due to $3.6 billion in unrealized losses on credit default swaps.

“[W]hile the size of this mark-to-market adjustment is attention-getting, the Company does not believe it is representative of actual expected impairments,” MBIA said in a press statement Monday morning.

Analysts has expected a much wider loss, according to Bloomberg News. Further, the company also said it pushed $900 million into its ailing insurance unit, quelling concerns from the insurer’s regulator last week that the company might decide against capitalizing its insurance business after raising $2.6 billion in new capital during the quarter.

A narrower loss, and news of capitalization at it insurance unit, led MBIA shares on a surge that nearly reached 10 percent in early trading; shares were up more than 5 percent at $9.92 when this story was published.

“We have ample liquidity, our balance sheet is built to withstand credit stress levels many multiples of what we’re experiencing now, and our business model is proving that we are adequately capitalized to satisfy any potential claims on our insured portfolio,” said Jay Brown, MBIA’s chairman and CEO. He said the results were “consistent” with the direction of the overall credit markets.

The company has $4.2 billion in direct exposure to subprime mortgages, and acknowledged Monday that “like many market participants, [MBIA] made some underwriting assumptions that have proved inaccurate and led to losses.” In the first quarter, those losses amounted to $1.34 billion of pre-tax impairments and loss reserves on its housing-related insured portfolio, the company said.

MBIA is still rated AAA by Standard & Poor’s and Moody’s Investors Service, although it lost its AAA standing at Fitch Ratings in early April and has since asked Fitch to withdraw its ratings, as a result. Both S&P and Moody’s affirmed MBIA in March, with a negative outlook.

MBIA voluntarily suspended writing new structured finance business — including RMBS and related securities — in February.

For more information, visit http://www.mbia.com.

Disclosure: The author held no positions in MBI when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.