Shares in Ambac continued their descent today, falling 28 per cent in morning trading after the US bond insurer reported a larger than expected first-quarter net loss of $1.66 billion (£838 million).

Ambac, which had already recorded a 95 per cent share price decline in the past year, suffered the loss after taking $2.7 billion of charges on the portfolio of high-risk sub-prime mortgage bonds that it underwrites.

Bond insurers such as Ambac guarantee the payment of interest and principal on the securities that they underwrite in the event of a default.

The claims bill that bond insurers face has risen dramatically in the wake of the US housing crisis, as defaults on the underlying mortgages have increased.

Shares in Ambac fell by $1.33, or 28 per cent, to $4.70 in early trading.

MBIA, the world’s largest bond insurer, also lost about 10 per cent of its market value this morning amid fears that the securities underwriting industry may be hit even harder than previously expected.

Michael Callen, the interim chief executive of Ambac, said: "The housing market crisis continues to disrupt the global credit markets and our credit derivatives and direct mortgage portfolios were severely impacted once again.

"While we realise that these are disappointing credit results, we continue to believe that the capital raise and strategic business actions taken during the quarter will enable us to get beyond this credit market."

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