Ambac Takes On Reinsurance from Assured Guaranty

Ambac announced today that it is going to use reinsurance from Assured Guaranty. Some details:

The portfolio totals approximately $29 billion of net par outstanding and will be ceded under an existing master facultative reinsurance agreement with AG Re. Pursuant to the commitment, AG Re has agreed to provide reinsurance under the terms of Ambac’s current surplus share treaty program that expires March 31, 2008. Ambac has also agreed to offer AG Re the opportunity to provide reinsurance under the terms of Ambac’s surplus share treaty programs that commence April 1, 2008, 2009 and 2010.


There isn't much information in that press release but I would guess that the $29 billion reinsured is from their high quality municipal bond portfolio. I don't know how the rating agencies calculate these reinsurance contracts when determining capital requirements. The way I look at it, Ambac will end up holding all the high risk CDOs (it's hard to insure them at good prices and it's not worth it for shareholders) and its future will largely be dictated by that. I still see Ambac holding onto its AAA rating.

Fitch reaffirmed Assured Guaranty's AAA rating on Wednesday so there is little risk of it losing its rating and causing any problems in the future for Ambac. Assured Guaranty issued $300 million in stock to fund these reinsurance transactions. Anyone sitting on the sidelines can certainly consider Assured Guaranty (AGO) as an investment (they stopped writing CDOs in 2004 if I'm not mistaken and have low exposure to risky MBS) but they don't have the brand strength of Ambac or MBIA.

Expect more moves from Ambac... new stock or preferred issuance still likely IMO... Estimates have them needing between $1 billion and $4 billion. My guess is somewhere around $2 billion.

Comments

  1. AnonymousDecember 13, 2007 at 8:18 PM

    If they are going to issue more stocks, they sure seems to be taking their sweet time about it. Hopefully, money could be raised some where. As for SCA, I think they are a goner.

    John

    ReplyDelete

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