Second-quarter earnings show FSA gaining strength, AMBAC cooling off.

AMBAC Inc.'s second-quarter profits declined significantly from 1993's performance, while Financial Security Assurance Holdings Ltd. registered a sharp improvement, the companies reported separately late Wednesday.

AMBAC Inc. reported net income of $35.3 million, or $1 per share, in 1994's second quarter, a 24% decrease from $46.4 million, or $1.32 per share, in the second quarter last year.

The holding company for AMBAC Indemnity Corp. said net income for the first half of the year was $73.2 million, or $2.08 per share, an 18% drop from $89.1 million, or $2.53 per share, in the first six months of 1993.

Financial Security Assurance Holdings Ltd. reported net income of $16.1 million, or 62 cents per share, in the second quarter compared with a net loss of $105.8 million, or negative $4.63 per share, the year before. For the first six months of this year, the firm had net income of $34.2 million, or $1.32 per share, compared with a loss of $87.3 million, or negative $3.82 per share, in the same period in 1993.

The differing profit results for AMBAC and FSA reflect as much their varied experiences in 1993 as their performances thus far this year. AMBAC's declining profits belie the company's strong core earnings and result from the inevitable slowdown after a record-setting year in 1993. FSA, meanwhile, has emerged from a difficult and time-consuming corporate restructuring and is now returning to more normal day-to-day operations.

AMBAC's announcement of its earnings attributed the decrease to "lower accelerated premiums earned from refundings" and "net realized investment losses," while noting that core earnings -- which exclude refundings -- increased for both the quarter and first half of the year over the comparable periods in 1993.

"As broadly anticipated, the extra-ordinary benefit of accelerated earnings from refundings has continued its decline from 1993's record pace," said Phillip B. Lassiter, AMBAC's chairman, president, and chief executive officer. "Core earnings, generally viewed as the most meaningful indicator of ongoing business results, grew 25% for the quarter, well in excess of AMBAC's long-term target of 14%."

Lassiter also noted the increasing contributions of AMBAC's new products -- investment contracts, health care information services, and asset-backed securities -- in the firm's core earnings growth.

FSA's negative 1993 results stemmed from losses that the company absorbed for three troubled commercial real estate transactions and a $121.6 million write-off associated with a restructuring, the firm said in a press release.

Last October, FSA announced a corporate restructuring designed to separate the three deals from its bond insurance unit, Financial Security Assurance Inc. The restructuring was in preparation for FSA's initial public offering, which occurred this past May.

Due to the slowdown in overall issuance of municipal bonds, both firms reported a drop in net premiums written for the second quarter and first six months of 1994.

AMBAC said net premiums written totaled $37.3 million in the second quarter, down 62% from $98.7 million in the second quarter of 1993. For the first two quarters, AMBAC reported net premiums written of $79.8 million, a 48% drop from $153 million in the first six months of 1993.

FSA reported net premiums written of $18.8 million in the second quarter, down 27.1% from $25.7 million the year before. In the first six months of 1994, FSA had net premiums written of $41 million, a 3.5% drop from $42.5 million the year before.

"We expect fluctuations in quarter-to-quarter and year-to-year business volume," said Robert P. Cochran, FSA's president and chief executive officer in statements similar to those from AMBAC officials. "But volatility of originations tends to be cushioned by our participation in a number of different markets, including asset-backed and international markets, as well as municipal bonds. In each of these markets, the earned premium trend is positive."

At June 30, AMBAC had a qualified statutory capital base of $1.2 billion, up from $1.1 billion at yearend 1993.

FSA's qualified statutory capital base also rose in the first six months of the year, to $475.8 million at June 30 from $454 million at Dec. 31.

On the New York Stock Exchange yesterday, the first full day of trading since the earnings were released, AMBAC Inc. closed at 39, down 1/4 points. Shares of FSA closed unchanged at 21 3/8.

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