Troubled bond insurer Ambac Assurance Corp. posted a gain in its statutory surplus even as its bankrupt parent recorded a net loss in its fourth-quarter filing Wednesday.
Wisconsin-based Ambac Assurance — once the second-largest municipal bond insurer before deep exposure to mortgage debt crippled its resources — said its statutory surplus rose to $1.027 billion at year-end 2010 versus $912 million at the end of the third quarter.
Net income driven by premiums earned and investment results produced the gain, though net premiums in the quarter were $110.7 million — a 40% drop from the same quarter a year ago. Ambac blamed the decline on a lack of new business written and a high level of refundings and terminations.
New claims from residential mortgage-backed securities in the quarter totaled $327.6 million, but payments on Ambac’s riskier holdings have been frozen since March 2010, when state regulators deposited $50 billion worth of its assets into a walled-off account.
Total unpaid claims now equal $1.402 billion, the earnings statement said.
A rehabilitation plan granting distressed policyholders 25% of their claims in cash and the rest in surplus notes maturing in 2020 was accepted by Wisconsin courts Jan. 25, but has yet to be implemented.
The insurer, rated Caa2 by Moody’s Investors Service, held $8 billion of claims-paying resources as of Dec. 31.
The frozen claims include some municipal debt, most notably Las Vegas Monorail Co. bonds. Most holders of those bonds recently agreed to a separate settlement in which Ambac will pay $111 million in cash and $90 million in surplus notes to commute $451 million of the first-tier monorail bonds.
New York-based parent Ambac Financial Group, which filed for Chapter 11 bankruptcy in early November, recorded a net loss of $81.6 million in the quarter versus a gain of $558.1 million in the same quarter last year.
Ambac Financial held $66 million of cash and short-term securities at year-end. Its liabilities subject to compromise in the Chapter 11 proceeding totaled $1.7 billion.
Meanwhile, policyholders of Ambac’s former rival MBIA Inc. continued to fight the insurer’s massive restructuring Wednesday in the New York State Court of Appeals — the state’s highest appellate court.
When the restructuring was approved in February 2009 by the New York Insurance Department, it spawned at least four lawsuits from policyholders who contend the value of their insurance contract was irreparably harmed as MBIA transferred more than $5 billion from its structured-finance book to shelter its half-trillion-dollar public finance portfolio.
A lower appeals court dismissed the lawsuit by a 3-to-2 margin in January. The court said “no breach of a specific contractual provision” had occurred as MBIA had continued to pay all its claims since the restructuring.
Robert Giuffra Jr., lead counsel for the financial institutions, called that decision a violation of due process.
“Through its fraudulent transformation, [MBIA] purposefully and in bad faith deprived plaintiffs of the benefits on their insurance contracts, namely to be paid in the event of default, and credit enhancement,” he told the court Wednesday.
Giuffra also cited previous cases showing that regulatory approval “does not immunize” a company from legal challenges. He also said policyholders cannot be bound by the NYID’s approval because they played no role in the process and were not given notice until it was concluded.