After the closing bell on Thursday, Ambac Financial Group (ABK) reported fourth quarter earnings of $1.93 per share. Last year, the company reported a loss of $8.14 per share. Earnings were aided by tax benefit of $472 million and $133.2 million gain on credit derivatives.
Net premiums earned from the Financial Guarantee segment declined 19% year-over-year to $184.4 million. Ambac has not written any new business in more than a year and continues to exist in the runoff mode.
Total net loss and loss expenses for the quarter was $385.4 million, substantially down from $916.4 million in the prior year period. Total net claims paid were $489.5 million, up from $287.7 million in the prior year quarter, related primarily to residential mortgage backed securities (RMBS) transactions and claims paid on other asset-backed securities.
Net investment income increased 8% year-over-year to $118.7 million due to an improvement in yields, which resulted from higher portfolio allocation to taxable securities, compared with tax free securities, partially offset by decreased asset base.
Ambac benefited from the legislation passed by the Congress during the fourth quarter regarding tax recovery, which enabled it to carry back losses incurred in 2008 and 2009 back to 2003. This contributed about $787 million to total assets, which increased to $18.9 billion from $17.3 billion in the year ago quarter.
Ambac was scheduled to release fourth quarter results on Mar 16, 2009; however, the filing was delayed due to ongoing talks with regulators who were considering a restructuring of Ambac’s structured finance portfolio consisting of credit default swaps and mortgage-backed securities.
Ambac has been neck deep in trouble for quite some time. The company suffered multiple rating downgrades since June 2008. The financial strength rating downgrades have adversely impacted Ambac’s ability to generate new business and have negatively affected its operating and financial results.
During March, the rating agency Standard & Poor’s slashed the rating of Ambac Assurance, a unit of Ambac Financial Group, to “R” from “CC” following the rehabilitation announcement by the OCI.
Business prospects for Ambac remains unclear, given the slow improvement in housing market coupled with falling home prices. In the past five months, the company had twice declared that it may file for bankruptcy protection.
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