Ambac Financial Group, Inc. (ABK), a provider of title insurance and financial guarantees, Thursday revealed that its principal operating subsidiary Ambac Assurance Corp., or AAC, has established a segregated account for certain of its liabilities as directed by the Office of the Commissioner of Insurance, or OCI, of the State of Wisconsin. The company's action was based on OCI's view that immediate action is necessary to address bond insurer AAC's financial position.
The liabilities mainly include policies related to credit derivatives, residential mortgage-backed securities, or RMBS, and other structured finance transactions.
According to Ambac, AAC's segregated account is supported by a secured note of $2 billion issued by AAC and an aggregate excess of loss reinsurance agreement provided by AAC. The segregated account will contain certain policies relating to credit default swaps, all of its RMBS obligations, certain other identified policies insuring troubled credits, certain student loan policies, and certain other contingent liabilities.
Further, Ambac stated that the OCI has initiated rehabilitation proceedings on the liabilities contained in the segregated account to assist an orderly run-off and/or settlement of those liabilities. The OCI filed a verified petition on March 24 in connection with the rehabilitation proceedings. The OCI will seek the rehabilitation court's approval within about six months for a rehabilitation plan in connection with the segregated account. As per the OCI's verified petition, policies in the segregated account shall receive a combination of cash and surplus notes in respect of claims made. The claims will not be paid before the approval of the rehabilitation plan, Ambac noted.
Ambac also said that policy obligations not transferred to the segregated account remain in the general account of AAC. Such policies are not directly impacted by the rehabilitation plan. Further, AAC itself is in rehabilitation proceedings.
Ambac has also entered into a non-binding deal with several counterparties on the terms of a proposed settlement agreement to commute substantially all of its remaining collateralized debt obligations of asset-backed securities, or CDOs of ABS. The proposed settlement deal provides that AAC will pay a total of $2.6 billion in cash and $2 billion of newly issued surplus notes of AAC. These notes will have a maturity date of ten years from the date of the closing. Interest on the surplus notes will be paid at an annual rate of 5.1%.
Further, Ambac stated that all payments of principal and interest on the surplus notes will be subject to the prior approval of the OCI. If the OCI does not approve the payment of interest on the surplus notes, such interest will accrue and compound annually until paid. The company indicated that the terms of the proposed settlement deal may change before the closing or the transactions under the proposed settlement agreement may not close at all.
Additionally, Ambac said counterparties have agreed to temporarily forebear from accelerating the obligations of AAC or asserting any claims against AAC or any affiliate of AAC on the basis of the segregated account rehabilitation proceedings.
Commenting on the rehabilitation plan, Michael Callen, Chairman of the Board of Directors of Ambac, stated, "The actions taken today, together with the proposed settlement if effected, commute substantially all of our CDO of ABS exposure at a substantial discount to the expected present value of potential claims."
In a separate communique, ACC's subsidiary Ambac Assurance UK Ltd., or AUK, commented on the implications for the rehabilitation plan and said that it is not in rehabilitation or any other insolvency proceedings.
AUK said it is a separate legal entity, regulated by the UK Financial Services Authority. AUK also stated that it has sent a notice of termination of its reinsurance agreement with AAC. The company is also reviewing all its contractual relationships with AAC.
Further, AUK stated that it will continue to be able to meet all of its obligations. The company's rights and obligations on its financial guarantees are unaffected, and it remains staffed to continue to actively manage its current insured portfolio, AUK added.
ABK closed Wednesday's trading at $0.80, up $0.07, on a volume of 26.83 million shares. In pre-market trading, the company's shares dropped 15.84% or $0.13, to $0.67.
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December 19, 2025 15:10 ET U.S. inflation data and interest rate decisions by major central banks were the highlights of this busy week for economics news flow. Employment data and survey results on the housing markets also gained attention in the U.S. In Europe, the European Central Bank and Bank of England announced their policy decisions and macroeconomic projections.