UBS AG has agreed to pay an initial US$358 million to Assured Guaranty Ltd. to settle a lawsuit over money-losing residential mortgage-backed securities transactions.
The Swiss bank has also agreed to reimburse portions of future losses under a new loss-sharing reinsurance pact, according to Assured.
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Both parties have filed an agreement in Manhattan federal court dismissing the lawsuit.
Dominic Frederico, president and chief executive officer of Assured, the Bermuda-based insurer is "pleased to have reached a settlement with UBS that further reduces our exposure to RMBS losses".
In February 2012, Assured sued UBS for breaching promises about the quality of the loans underlying US$1.5 billion worth of the securities, which Assured had agreed to insure.
According to claims made by Assured, UBS had gotten inflated assessments for the investments from ratings companies.
The mortgage-backed securities included a "massive number" of defective loans, Assured claimed in its complaint.
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By GlobalDataAssured plans to supply more information on the financial consequences of the settlement in its first-quarter earnings statement, due on May 9. Megan Stinson, a UBS spokeswoman, told Bloomberg in an e-mailed statement that the financial effect of the settlement on UBS is "insignificant due to provisions that we had previously established".
