Ambac Posts $2.2Bn Profit on Mark-to-Market Gains

Bond insurer Ambac Financial Group (ABK: 0.90 -10.00%) posted net income of $2.2bn, or $7.58 per share, in Q309, compared with a net loss of $2.4bn in the year-ago quarter.

Quarterly results were impacted by unrealized mark-to-market gains in the New York City-based financial services and insurance firm’s credit derivatives portfolio and gains from Q309 reinsurance cancellations.

The firm experienced a positive $2.1bn change in fair value of credit derivatives, driven by the adjustment made under Financial Accounting Standard (FAS) 157 relating to Ambac’s widening credit spread.

Net investment income increased 7% from $123.3m in Q308 to $132.3m in Q309. But that gain was offset by an overall decrease in the firm’s asset base, as claim payments on insured residential mortgage-backed securities (RMBS) transactions, along with commutations and settlements of collateralized debt obligations (CDOs) of asset-backed securities (ABS) transactions were greater than cash inflows.

“We continue to make progress in de-risking the balance sheet via negotiated reinsurance buy-backs, CDO of ABS commutations, settlements related to defaulted RMBS transactions as well as expanded analysis of expected recoveries relating to RMBS representation and warranty breaches,” said president and CEO David Wallis.

Total net claims paid in Q309 was $315.1m compared to claims in Q308 of $182.4m, primarily related to RMBS transactions.

Other than temporary impairment losses totaled $32.5m, including an unspecified loss on the sale of Alt-A-backed RMBS that were downgraded below investment grade.

Write to Austin Kilgore.