Bond Insurer Ambac announced a surprising fourth quarter profit of $558 million today. That's after a $2.34 billion loss in the fourth quarter of 2008. This news market quite a turnaround for the troubled insurer which has been ailing ever since the housing market's collapse. Like most of its competitors, losses from mortgage-related guarantees have plagued the firm. Does this improvement mark a change for the troubled bond insurance industry?
First, the company reports that the improvement was partially driven by a $472 million tax benefit that allows Ambac to carry back losses. Taking that away, the firm had a much smaller profit -- just $86.1 million. That is still much better than a loss in the billions, however.
Why else did Ambac improve? It incurred fewer residential mortgage-backed security (RMBS) losses. They were $385 million in 2009, down by 58% from its $916 million loss in the final quarter of 2008. The value of its credit derivatives portfolio also increased by $133 million. That compares to a $594 million loss the portfolio incurred in the same quarter a year prior.
Ambac's net investment income also improved -- up 8%. Net premiums declined by 19% year-over-year, however.