Ambac Says It Will Consider More Reinsurance

Ambac says that they will consider using more reinsurance in the future:

Ambac CFO Sean Leonard said the company will continue to defend its triple A rating, and added that there's a lot of opportunity for the company to reinsure its transactions. He said about 85 percent of the company's portfolio is non-mortgage related.


Go to Ambac's homepage to check out the presentation at the Bank of America conference. A PDF presentation can be found here. Well, the presentation is biased in favour of the bull case (what else is to be expected from management?) The strategies that Ambac will use to meet capital requirements are supposedly:

In order of preference:
  1. Reinsure block of current book
  2. Increase reinsurance on future business
  3. Alter mix of business to less capital-intensive transactions
  4. Debt or soft capital issuance – approximately $600 million of capacity
  5. Equity issuance


It looks like they are going the reinsurance route. It's not going to be cheap and will lower future returns but it is the least dilutive method. Issuing stock or debt will be extremely dilutive right now and I hope they don't go that route. Peak ROE was a market-leading 12% and if you use reinsurance I think ROE will probably decline to 8% to 9%. That number is just a guess on my part and if I were to consider Ambac right now, I would estimate the future based on an ROE of 8%.

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