Mar. 30–In a move drawing national attention, Wisconsin Insurance Commissioner Sean Dilweg has taken control of more than $40 billion worth of risky mortgage-related liabilities and other troubled contracts from the insurance unit of Ambac Financial Group, as part of a restructuring plan intended to save the company.
The move, which regulators hope will stabilize the company and protect policyholders, must be approved in court under a final rehabilitation plan to be submitted within the next five to six months, said Mike VanSicklen of Foley & Lardner, which is representing the commissioner’s office.
There is no cost to state taxpayers, VanSicklen said, because payments of claims on the $40 billion in risky securities revolves around getting those policyholders to agree to accept less than they’re owed.
And VanSicklen believes most will agree to the terms, because the alternative means the company could collapse and they’d receive nothing, he said.
“It could bring down the whole company, to the disadvantage of all policyholders, including themselves,” VanSicklen said.
The insurance company has consented to the rehabilitation plan, he noted.
Claims from the $40 billion in risky contracts are threatening the company’s core business, which includes $310 billion worth of municipal bond policies.
The insurance unit, known as Ambac Assurance Corp., operates out of New York City, but is regulated in Wisconsin because it was founded here. It is the second-largest bond insurer in the world, founded in 1970, but it’s facing financial ruin after expanding from the relatively safe public-finance bond market into guaranteeing riskier investments such as mortgage-backed securities in the 1990s.
Under the plan, claims made by the holders of defaulted mortgage-related securities insured by the company would be paid at a rate of only 25 cents for every dollar of coverage, with an IOU that could mean more money later if business improves.
“I am taking action to protect policyholders, including investors in thousands of state and local municipal bond issues and other public finance securities, who rely on AAC’s guaranty,” Dilweg said in a news release.
The OCI has been monitoring the company’s financial health since the subprime mortgage crisis began devastating the economy more than two years ago, driving up claims made with the company to about $120 million a month, according to a Reuters column in the March 25 New York Times.
The court case is being handled in Lafayette County, where Judge William D. Johnston has 20 years’ experience in insurance matters. The court also approved a temporary stay in claims payments while the restructuring plan is developed.
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