Ambac Financial Group Inc. last week terminated all its reinsurance transactions with RAM Reinsurance Co., citing its ongoing effort to reduce reinsurance exposure.

The transaction represents $7 billion of par outstanding - including two-thirds related to public finance - and future installment premiums with a present value of $60 million. Ram Re will pay Ambac a settlement of $97 million, Ambac said.

"In doing so, we are reducing our counterparty risk, enhancing liquidity and earned premiums, and improving our risk-based capital positions," Ambac chief risk officer Gregory Raab said in a statement.

Ambac also said the move will improve its rating agency capital position because of the haircuts to reinsurance with ratings below the BBB and Baa levels. Standard & Poor's rates Ram Re A-plus, and Moody's Investors Service rates it Baa3.

Bond insurer Ambac Assurance Corp. is rated Baa1 on review for downgrade by Moody's and A with a negative outlook by Standard & Poor's.

Ambac is currently trying to re-enter the public finance markets through the re-activation of Everspan Financial Guaranty Corp., the old Connie Lee Insurance Co. Ambac is currently looking for a third-party investor to inject capital into the muni-only subsidiary.

Ambac will also ask Wisconsin regulators to allow it to distribute capital from Ambac Assurance to Everspan, but the regulators have signaled they would need to be assured Everspan could earn at least a AA rating from Standard & Poor's and an A2 rating from Moody's.

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