FGIC, the world's third-largest bond insurer, unveiled a survival plan yesterday that will split the business in two.

Like its key rivals, such as MBIA and MBAC, the bond insurer faces a jump in claims relating to the sub-prime homeloan securities that it underwrites as a result of the mortgage meltdown.

FGIC's plan seeks to ringfence its healthier insurance portfolio of low-risk municipal local government securities that it underwrites.

Spinning off the division that guarantees local government bonds, which are used to finance infrastructure projects such as bridges, would protect the company from contamination by FGIC's crisis-stricken sub-prime liabilities.

Moody's, which on Thursday became the third mainstream agency to take away FGIC's top AAA credit rating, estimates that the insurer is about $4billion (£2billion) short of the $9billion of sub-prime mortgage bond claims that it faces.

FGIC notified Eric Dinallo, New York's chief insurance regulator, of its intention to split the company a day after Eliot Spitzer, the state's Governor, told key bond insurers that they may need to spin off their healthy municipal securities businesses if they failed to secure new capital in the course of the next three to five working days.

Meanwhile, Mr Dinallo, Mr Spitzer and Wall Street are also working furiously to arrange capital injections in a last-ditch attempt to save the largest bond insurers' sub-prime underwriting units.

FGIC insures about $314billion of debt, including $220billion in municipal bonds. The group declined to comment on the restructure, but Mr Dinallo confirmed that he had received an application from the group to split its operation.

As FGIC, Ambac and other bond insurers scrabbled to raise new capital, the housing market and broader economic outlook continued to decline.

Ambac shook up its management structure yesterday by appointing David Wallis, who joined the firm's London office in 1996, as its new New York-based group chief risk officer.

Meanwhile, Radian Group, a mortgage insurer, said yesterday that it had swung to a $618million loss in the fourth-quarter, from $158.4million profit a year ago, as credit costs and insurance claims soared.

The group, which sells policies to cover partial payment of mortgages in the event of a default, said that the percentage of its insured loans in default had risen to 6.8 per cent, from 5.43 per cent a year earlier. This pushed up the company's provision for losses from $84.4million to $687.9million.

S. A. Ibrahim, Radian's chief executive, said: “We have come through a difficult year and the environment continues to be very challenging. These challenges will remain with us for the near-term and may intensify, so we are looking at various scenarios and responses.”

Separately, Countrywide, America's largest mortgage lender, revealed that foreclosures and late payments on the loans that it has made, together with those that its servicing business collects for other lenders, hit a record in January.

Countrywide, which collects and processes payments on 9.02million mortgages, representing $1,480billion of loans, reported that late payments nearly doubled in January to 1.48 per cent, from the year before. This represented a slight increase on the 1.44 per cent figure for December, which was a record at the time. Delinquencies rose from 4.32 per cent a year earlier, to 7.47 per cent in January. In December, they stood at 7.20 per cent.

Countrywide said that it funded $21.9billion of home loans in January, down 41 per cent from $37.1billion a year earlier, and 6 per cent lower than December's $23.4billion.

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