A Wisconsin Circuit Court affirmed the rehabilitation of a segregated account of mortgage bond insurance policies at Ambac Assurance Corp. (AAC), the principal operating subsidiary of Ambac Financial Group (ABK). Judge William Johnston rejected motions by a group of hedge funds and securities broker-dealers to stop the Office of the Commissioner of Insurance (OCI) from approving the settlement between the bond insurer and 17 financial institutions as part of the wind-down efforts. Wisonsin insurance commissioner Sean Dilweg is the court-appointed rehabilitator of AAC's segregated account. The company in March established a segregated account to hold insurance policies related to residential mortgage-backed securities (RMBS) and other structured finance transactions for their orderly runoff and settlement. “The steps we’re taking are aimed at avoiding billions of dollars of losses, and will provide the best way toward a durable solution for all policyholders,” Dilweg said in an e-mail. “There are very real and dramatic risks, if the orderly process we are pursuing is not preserved.” The OCI said it has been monitoring AAC’s capital position and financial health for more than two years. Ambac’s substantial investment in and insurance of certain mortgage-related exposures seriously damaged the company's financial position and reduced its claims-paying resources to an extent that created a financial hazard to policyholders and creditors. The OCI also said that finding a compromise solution with the 17 financial institutions was important to the financial condition of Ambac and the interests of policyholders. Failure to do so, according to the OCI, could escalate the total amount of claims needed to be treated in the rehabilitation by more than $8bn. Write to Diana Golobay. Disclosure: the author holds no relevant investments.