SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-12644

Financial Security Assurance Holdings Ltd.

(Exact name of registrant as specified in its charter)

New York	13-3261323
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

31 West 52nd Street
New York, New York 10019

(Address of principal executive offices)

(212) 826-0100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

At May 10, 2005, there were 33,263,259 outstanding shares of Common Stock of the registrant (excludes 254,736 shares of treasury stock).

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Financial Statements
	Financial Security Assurance Holdings Ltd. and Subsidiaries
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Income	2
	Condensed Consolidated Statement of Changes in Shareholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29
PART II	OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders	31
Item 6.	Exhibits	31
SIGNATURES		32

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	March 31,			December 31,
	2006			2005
ASSETS
Bonds at fair value (amortized cost of $4,201,193 and $4,219,344)	$	4,318,035			$	4,382,037
Equity securities at fair value (cost of $54,392 and $54,370)	54,404				54,370
Short-term investments	81,854				182,645
Variable interest entities’ bonds at fair value (amortized cost of $1,154,963 and $1,155,832)	1,155,519				1,155,992
Variable interest entities’ short-term investment portfolio	2,545				2,674
Financial products bond portfolio at fair value (amortized cost of $12,124,791 and $11,754,330)	12,149,378				11,827,824
Financial products short-term investment portfolio	1,130,938				1,015,509
Total investment portfolio	18,892,673				18,621,051
Assets acquired in refinancing transactions:
Bonds at fair value (amortized cost of $49,234 and $52,840)	48,920				55,396
Securitized loans	284,242				296,965
Other	75,853				115,512
Total assets acquired in refinancing transactions	409,015				467,873
Total investments	19,301,688				19,088,924
Cash	55,304				20,117
Deferred acquisition costs	342,795				335,129
Prepaid reinsurance premiums	867,972				865,192
Reinsurance recoverable on unpaid losses	35,008				36,339
Other assets	1,352,868				1,655,941
TOTAL ASSETS	$	21,955,635			$	22,001,642
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
Deferred premium revenue	$	2,372,075			$	2,375,059
Losses and loss adjustment expense	206,414				205,718
Guaranteed investment contracts and variable interest entities’ debt	14,534,176				14,947,118
Deferred federal income taxes	239,351				231,265
Notes payable	430,000				430,000
Minority interest in variable interest entities	143,162				180,406
Accrued expenses and other liabilities	1,173,462				809,174
TOTAL LIABILITIES AND MINORITY INTEREST	19,098,640				19,178,740
COMMITMENTS AND CONTINGENCIES
Common stock (200,000,000 shares authorized; 33,517,995 issued; par value of $.01 per share)	335				335
Additional paid-in capital—common	905,190				905,190
Accumulated other comprehensive income (net of deferred income taxes of $50,149 and $84,123)	92,629				156,229
Accumulated earnings	1,858,841				1,761,148
Deferred equity compensation	20,177				20,177
Less treasury stock at cost (254,736 and 254,736 shares held)	(20,177		)		(20,177		)
TOTAL SHAREHOLDERS’ EQUITY	2,856,995				2,822,902
TOTAL LIABILITIES AND MINORITY INTEREST AND SHAREHOLDERS’ EQUITY	$	21,955,635			$	22,001,642

The accompanying Notes to Condensed Consolidated Financial Statements are an integral
part of these statements.

FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME

(in thousands)

	Three Months Ended March 31,
	2006			2005
REVENUES
Net premiums written	$	88,732		$	109,502
Net premiums earned	$	94,496		$	94,881
Net investment income	53,046			49,446
Net realized gains (losses)	(918		)	(1,095		)
Net interest income from financial products and variable interest entities	176,289			85,351
Financial products net realized gains (losses)	77			(155		)
Net realized and unrealized gains (losses) on derivative instruments	58,105			(70,812		)
Income from assets acquired in refinancing transactions