Balance Sheet and Liquidity
Total assets increased during the third quarter of 2010, from $30.1 billion at June 30, 2010 to $31.3 billion at September 30, 2010, primarily due to the increase in VIE assets by approximately $1.1 billion, related primarily to foreign currency translation gains as well as net increases in the fair value of VIE assets measured in their functional currency.
The fair value of the consolidated non-VIE investment portfolio increased from $6.6 billion (amortized cost of $6.3 billion) as of June 30, 2010 to $6.8 billion (amortized cost of $6.4 billion) as of September 30, 2010. The increase was primarily driven by net cash inflow resulting from premium collections and net investment income and the claim moratorium imposed by the OCI as well as generally increased market values of securities in the financial guarantee investment portfolio.
The financial guarantee non-VIE investment portfolio had a fair value of $5.6 billion (amortized cost of $5.2 billion) as of September 30, 2010. The portfolio consists of high quality municipal bonds, corporate bonds, Treasuries, U.S. Agencies and Agency MBS as well as mortgage and asset-backed securities.
Cash, short-term securities and bonds at the holding company amounted to $44.3 million as of September 30, 2010. In addition, in late October, Ambac (Bermuda) Ltd, a direct subsidiary of Ambac, returned capital amounting to $36.5 million.
Overview of AAC Statutory Results
As of September 30, 2010, AAC reported statutory capital and surplus of approximately $912 million, down from $1.5 billion as of June 30, 2010. AAC’s statutory financial statements include the results of AAC’s general account and the Segregated Account (formed on March 24, 2010). Statutory capital and surplus was negatively impacted by the statutory net loss recorded during the third quarter 2010. The primary drivers of the statutory net loss were statutory loss and loss expenses related primarily to AAC’s first-lien RMBS financial guarantee portfolio for both initial defaults and continued deterioration in previously defaulted credits and the initial default of one public finance transportation transaction, partially offset by revenues (primarily premiums earned and investment income) generated during the quarter.