Wisconsin Regulator Takes Action To Protect Against Ambac Troubles

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COLUMBUS, Ohio-The Ambac bankruptcy filing will have little bearing on claims paid to corporates for losses insured by Ambac Assurance Corp., according to the head of Corporate One FCU.

"The company that declared bankruptcy, Ambac Financial, and its subsidiary company, Ambac Assurance, are two separate entities," Butke explained, noting the Wisconsin Commissioner of Insurance has a plan to preserve the claims-paying ability of Ambac Assurance.

Plan Of Rehabilitation Creates Segregated Account

Ambac Assurance has been placed under a Plan of Rehabilitation by the insurance commissioner. Under the plan, a segregated account was established for Ambac Assurance in March 2010 to segregate certain liabilities of the company "that presented serious financial hazards to Ambac Assurance Corp. and its policy holders," according to information on www.ambacpolicyholders.com, a website established by the Wisconsin Insurance Commissioner's office. Aproximately 700 in-force policies covering a net par outstanding of approximately $50 billion are allocated to the segregated account.

In a statement on ambacpolicyholders.com, Wisconsin Insurance Commissioner Sean Dilweg said the goal is to maximize Ambac's claims-paying resources, limit damage to policyholders, and provide "a clear framework to address claims in an orderly and reasonable manner." The Plan of Rehabilitation is awaiting final approval from the Wisconsin Circuit Court in Dane County.

If the court approves the plan, claims will be paid through 25% cash and 75% surplus notes with a scheduled maturity of June 7, 2020, at 5.1% interest. Dilweg stated that the decision to adopt a 25%/75% split was guided by the need to preserve sufficient cash to pay all valid policy claims, including those that exist today and those that may arise in the future.

Tom Becker, spokesperson for the Office of Insurance, told Credit Union Journal, "We have every expectation that all valid claims will be able to be compensated under this plan."

Two Independent Third-Party Analyses Performed

Butke explained that Corporate One performed two independent third-party analyses on the segregated account and on Corporate One's $30.5 million investment portfolio insured by Ambac. Both analyses determined the exposure to be $1.5 million, based on a conservative estimate that the Ambac segregated account will pay back at 75 cents on the dollar, and on the projected performance of Ambac-insured bonds held by Corporate One. Corporate One booked the projected exposure in October. "We have 15 bonds insured by Ambac, with most performing as expected," said Butke.

Butke said details on the segregated account were in court documents outlining the specifics of the segregated account were released in October. Throughout 2010 Corporate One has been communicating with members through town hall meetings and monthly financial statements that it places "reliance on Ambac for full repayment of all claims." Butke added that Corporate One, after analyzing the segregated account, sees only the very limited exposure to its bonds wrapped by Ambac.

"When we talked with members in the past about FGIC, that was a very different situation," Butke said. "We wrote off 100% of our projected losses on bonds insured by FGIC. That is not the case with Ambac. The Wisconsin Insurance Commissioner's office has taken significant steps to preserve Ambac's claims-paying ability."

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