Ambac Surplus Sparks Volume Surge

NEW YORK (TheStreet) -- Ambac Financial (ABK Quote) shares surged Wednesday on above-average volume after the bond insurer reported a statutory capital surplus for its main operating unit at the end of the third quarter and said it expects to see another boost in the fourth quarter.

Ambac said in a regulatory filing that its principal subsidiary, Ambac Assurance Corp., had a surplus with regards to policyholders that amounted to approximately $856 million as of Sept. 30. Ambac also said it settled four collateralized debt obligations of asset-backed securities which were worth more than $5 billion for $520 million in cash payments.

The statutory filing is important for Ambac's survival because it will help keep the company out from under regulatory control. The surplus of $856 million is well above that looked for by Wisconsin insurance regulators, which require a minimum capital base of $2 million, according to Reuters.

Additionally, Ambac said the third-quarter statutory financial results for Ambac Assurance included the impact of other significant non-recurring activities such as reinsurance recaptures amounting $311 million, which had a positive effect on surplus. Ambac also expects to receive $440 million in tax refunds as a result of new legislation which will allow it to carryback 2008 and 2009 losses as far back as 2004.

"The tax refund will have a positive effect on [Ambac Assurance Corporation's] surplus in the fourth quarter 2009," the company said in the filing.

Shares of Ambac leapt 27 cents, or 38.6%, to 97 cents in recent trades. Earlier in the session, the stock touched an intraday high of $1.03. More than 47.8 million shares changed hands by 10:45 a.m. EDT Wednesday, compared to the stock's three-month average daily volume of 23.99 million, according to Yahoo! Finance. Fellow bond insurer MBIA (MBI Quote) jumped 11%.

Ambac has a 285.9 million-share float with a big short interest float of 15.3% as of Oct. 30, according to Yahoo! Finance. Insiders hold less than 1% of the company with another 47.4% owned by institutions.

-- Written by Robert Holmes in New York.

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