Updated from 6:28 a.m. EST

Ambac Financial


reported a fourth-quarter loss of $2.34 billion, or $8.14 a share, as it recorded a charge of $594.4 million from a drop in the fair value of credit derivatives.

A year earlier, the insurer lost $3.27 billion, or $32.02 a share.

Ambac said over the past 24 months it has recorded "significant" mark-to-market losses on its credit default swap portfolio and has incurred losses in its insured residential mortgage-backed securities insurance portfolio.

Ambac recorded a loss during the quarter of $988.5 million as it reduced its exposure to insurance coverage of risky financial instruments such as collateralized debt obligations. CDOs combine various slices of other debt, often including mortgage-backed securities.

Ratings agencies and investors have been worrying since late 2007 that bond insurers would not have enough spare capital to pay out claims on expected defaults of risky financial instruments such as CDOs while maintaining adequate cash reserves. In an effort to reduce that risk, Ambac has been working to cut its exposure to such products by making payments to end insurance coverage early.

Ambac recorded losses and expenses totaling $916.4 million during the quarter as it set aside more cash to cover potential losses on mortgage-backed securities.

Ambac recorded an operating loss, excluding writedowns and losses on the sale of investment securities, in the fourth quarter of $6.79 a share compared with $6.21 a share a year earlier.

Analysts polled by Thomson Reuters, on average, forecast a loss of 18 cents a share. Analysts don't always include special charges in their estimates.

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