Ambac Assurance policyholders say Wisconsin OCI failed to protect them

By Caroline Salls

Pittsburgh, Nov. 10 - The RMBS Policyholders Group said the Wisconsin Office of the Commissioner of Insurance has failed to protect Ambac Assurance Corp. policyholders and "actively participated in an arrangement that will divert billions of dollars of tax attributes from the insurance company that it is charged with regulating," according to a policyholders group news release.

Specifically, the group said the bankruptcy filing of Ambac Assurance parent Ambac Financial Group, Inc. reveal that OCI has endorsed a term sheet that allows the parent company to keep its equity interest in Ambac Assurance, while proposing a plan of rehabilitation in Wisconsin that impairs policyholder claims.

The RMBS group said the OCI is "running afoul of the absolute priority rule."

On Monday, the group, along with other parties representing more than $20 billion of insured securities, filed objections to the OCI's plan of rehabilitation in the Wisconsin Circuit Court.

In addition, the group said the term sheet that the OCI endorses proposes to give to Ambac Financial billions of dollars of Ambac Assurance's net operating losses, requiring the subsidiary to compensate Ambac Financial for the use of any NOL even though that asset rightfully belongs to Ambac Assurance.

"The group is dismayed to discover that not only has the OCI failed in its statutory obligation to protect policyholders, but arranged behind closed doors with AFG, its management and creditors to strip policyholders of valuable assets," the group said in the release.

"The group resolves to challenge the OCI's actions."

The objections to the rehabilitation plan are expected to be heard by the Wisconsin court on Nov. 15.

Ambac Financial is a New York-based company that provides financial guarantee insurance for public and structured finance obligations. The company filed for bankruptcy on Nov. 8 in the U.S. Bankruptcy Court for the Southern District of New York, and its Chapter 11 case number is 10-15973.

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