While bond insurer Ambac Assurance Corp. has been paying policyholder claims for the last several years, its related segregated account branch has not been doing so. On Wednesday the Wisconsin Commissioner of Insurance applied to a Wisconsin court for the segregated account to make cash payments to policyholders for 25% of claims.

After the economic downturn the segregated account was created to hold poorly performing Ambac assets. Most of these were mortgage-backed securities. The account also holds bonds connected with the now-bankrupt Las Vegas Monorail.

The monorail, structured as a nonprofit enterprise, sold $650 million in bonds in 2000.

In early 2011 a Wisconsin court approved a rehabilitation plan for the segregated account. However, the plan was not carried out pending the resolution of several matters.

The commissioner is now seeking court approval to make the cash payments on all policy claims on the segregated account since the commencement of the rehabilitation proceeding. The commissioner is also seeking approval for 25% cash payments for future claims to the segregated account.

While there have been some plans to cover the remaining 75% as surplus notes payable in 2020, that has not been decided on, according to knowledgeable sources.

As of the end of March there were about $3.2 billion in policy claims on the segregated account since the start of the rehabilitation proceedings.

Additionally, the commissioner “is seeking court approval of AAC’s proposed purchase of approximately $939 million in principal amount of surplus notes issued by AAC on June 7, 2010, for an aggregate cash payment of approximately $278 million,” according to a press release from the commissioner.

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