Ambac Financial Group, Inc. Announces Second Quarter Net Income of
$180.7 Million, Up 11% Second Quarter Net Income Per Diluted Share
of $1.63, up 10%, NEW YORK, July 21 /PRNewswire-FirstCall/ -- Ambac
Financial Group, Inc. (NYSE:ABK) (Ambac) today announced second
quarter 2004 net income of $180.7 million, or $1.63 per diluted
share. This represents an 11% increase from second quarter 2003 net
income of $162.6 million, and a 10% increase in net income per
diluted share from $1.48 per diluted share in the second quarter of
2003. Net Income Per Diluted Share Ambac presents net income and
net income per diluted share. These measures are computed in
accordance with accounting principles generally accepted in the
United States of America (GAAP). However, the research analysts
have not adjusted their reporting of earnings to a strictly GAAP
basis. In order to assist investors in their understanding of
quarterly results, Ambac will provide other useful information.
Earnings measures reported by research analysts typically exclude
net gains and losses from sales of investment securities and
mark-to-market gains and losses on credit derivative contracts and
derivative hedge contracts ("net security gains and losses") and
non-recurring items. Certain research analysts further exclude the
impact of accelerated premiums earned on guaranteed obligations
that have been refunded and other accelerated earnings
("accelerated earnings"). During the second quarter 2004, net
security gains and losses had the effect of increasing net income
by $4.9 million, $0.04 on a per diluted share basis. Accelerated
earnings had the effect of increasing net income by $17.4 million,
or $0.16 per diluted share for the second quarter 2004. Table I,
below, provides second quarter and six-month comparisons for the
years 2004 and 2003. Table I Second Quarter Six Months % % 2004
2003 Change 2004 2003 Change Net income per diluted share $1.63
$1.48 + 10% $3.18 $2.75 + 16% Effect of net security (gains)/losses
($0.04) ($0.16) n.a. ($0.09) ($0.18) n.a. Non-recurring items(1)
$0.00 $0.00 n.a. $0.00 $0.04 n.a. Sub-total excluding effect of net
security gains/losses and non-recurring items(2) $1.59 $1.32 +20%
$3.09 $2.61 +18% Effect of accelerated earnings ($0.16) ($0.11)
n.a. ($0.24) ($0.17) n.a. Total excluding items $1.43 $1.21 +18%
$2.85 $2.44 +17% (1) Six month 2003 amount represents the write off
of previously deferred issuance expenses related to redeemed
debentures. (2) Consensus earnings that are reported by earnings
estimate services, such as First Call, are on this basis, which
excludes net security gains and losses and non-recurring items.
Commenting on the overall results, Ambac President and CEO, Robert
J. Genader, noted, "Ambac generated excellent top-line production
while maintaining our disciplined underwriting standards and
overall consistent pricing. The public finance market, with strong
issuance and high insured penetration, continues to allow us to
lock in attractive returns on long-term transactions." Revenues
Highlights Adjusted gross premiums written(1) in the second quarter
of 2004 were $411.2 million, down 10% from the second quarter of
2003 of $455.2 million. Premium growth in public finance was offset
by declines in structured and international finance. U.S. public
finance continues to experience strong business activity.
Transactions guaranteed during the quarter included strong writings
in the health care, municipal lease and transportation sectors of
the market. U.S. structured finance saw a wide spectrum of
transaction activity but was lower than the second quarter 2003
primarily because of a large commercial asset-backed transaction
that closed in the prior year and lower writings of investor-owned
utilities deals in the second quarter 2004. International finance
writings were lower than the comparable prior period but activity
remains strong with transportation and future flow transactions
highlighting the quarter. Adjusted gross premiums written for the
six months of 2004 of $670.0 million were 14% lower than adjusted
gross premiums written of $777.6 million in the same period of
2003. Table II, below, provides second quarter and six-month
comparisons of adjusted gross premiums written, by market sector,
for the years 2004 and 2003. Table II Adjusted Gross Premiums
Written $-millions Second Quarter Six Months % % 2004 2003 Change
2004 2003 Change Public Finance $ 237.7 $ 217.4 + 9% $ 334.6 $
295.5 + 13% Structured Finance 89.6 149.9 - 40% 166.8 267.5 - 38%
International 83.9 87.9 - 5% 168.6 214.6 - 21% Total $ 411.2 $
455.2 - 10% $ 670.0 $ 777.6 - 14% * Net premiums written in the
second quarter of 2004 of $379.1 million were 10% higher than net
premiums written of $343.7 million in the same period of 2003.
Gross premiums written in the second quarter of 2004 and 2003 were
(credited)/offset by ($15.9) million and $42.3 million in ceded
premiums, respectively. Ceded premiums written in the second
quarter of 2004 included the collection of $64.8 million in return
premiums from the cancellation of certain reinsurance contracts, as
discussed below under "Reinsurance Cancellations." Excluding the
return premiums, ceded premiums in the second quarter of 2004
increased by 16% to $48.9 million during the period. Ceded premiums
as a percentage of gross premiums written were 13.5% and 11.0% for
the second quarter of 2004 (exclusive of the return premiums) and
2003, respectively. Net premiums written for the six months of 2004
of $571.7 million were 12% higher than net premiums written of
$509.7 million in the same period of 2003. * Net premiums earned
and other credit enhancement fees for the second quarter of 2004
were $201.4 million, which represented a 23% increase from the
$164.3 million earned in the second quarter of 2003. Net premiums
earned increased for all market segments. Public finance, our most
mature market segment, continues to exhibit a strong growth trend
as its earned premium, before accelerations, grew 20%, enhanced by
the company's continued focus on structured municipal transactions.
Structured finance earned premium, before accelerations, grew 15%
while international earned premiums, before accelerations, grew
20%. In structured finance, reduced writings of mortgage-backed
securities over recent quarters and the continued high level of
run-off negatively impacted the growth in earned premiums. While
this quarter was encouraging in the mortgage-backed securities
area, overall during the last few quarters the insured
mortgage-backed securities market has faced increased competition.
Similarly, in international, the pooled debt obligation market has
been impacted by tight corporate credit spreads and, as a result,
insured volume has decreased significantly, impacting earned
premium growth in that segment. Credit cycles such as the ones we
are currently experiencing in domestic mortgage-backed securities
and international pooled debt obligations are a normal part of our
business. The mortgage-backed securities and pooled debt obligation
exposures have relatively short average lives. As a result, the
earnings from those types of exposures are recognized quickly and
can bring some volatility to the traditionally stable earned
premium line. A significant portion of the recent premium writings
in public finance and for certain bond types within structured
finance and international are for longer-term transactions. While
the earned premium impact from such writings is not as immediate as
the mortgage-backed or pooled debt obligations, they do contribute
to stability and predictability of the earned premium stream over
the long term. Net premiums earned include accelerated premiums,
which result from refundings, calls and other accelerations
recognized during the quarter. Accelerated premiums were $33.1
million in the second quarter of 2004 (which had a net income per
diluted share effect of $0.16), up 57% from $21.1 million ($0.11
per diluted share) in accelerated premiums in the second quarter of
2003. Accelerated premiums in the second quarter of 2004 include
the impact of the reinsurance cancellations, as discussed below
under "Reinsurance Cancellations." Net premiums earned and other
credit enhancement fees for the first half of 2004 were $378.3
million, which represented a 22% increase from the $309.4 million
earned in the first half of 2003. Accelerated premiums were $48.3
million for the first half 2004 (which had a net income per diluted
share effect of $0.24), up 45% from $33.2 million ($0.17 per
diluted share) in accelerated premiums for the first half of 2003.
Accelerated premiums in the first half of 2004 includes the impact
of the reinsurance cancellations, as discussed below under
"Reinsurance Cancellations." A breakdown of net premiums earned and
other credit enhancement fees by market sector are included below
as Table III. Normal net premiums earned exclude accelerated
premiums that result from refundings, calls and other
accelerations. Table III Net Premiums Earned and Other Credit
Enhancement Fees $-millions Second Quarter Six Months % % 2004 2003
Change 2004 2003 Change Public Finance $ 50.7 $ 42.4 + 20% $ 99.8 $
83.7 + 19% Structured Finance 67.6 59.0 + 15% 133.2 112.4 + 19%
International 50.0 41.8 + 20% 97.0 80.1 + 21% Total Normal
Premiums/Fees 168.3 143.2 + 18% 330.0 276.2 + 19% Accelerated
Premiums 33.1 21.1 + 57% 48.3 33.2 + 45% Total $ 201.4 $ 164.3 +
23% $ 378.3 $ 309.4 + 22% * Net investment income for the second
quarter of 2004 was $88.1 million, representing an increase of 10%
from $79.9 million in the comparable period of 2003. This increase
was due primarily to the growth in the investment portfolio from
ongoing collection of financial guarantee premiums and the $134
million capital contribution from Ambac Financial Group, Inc. to
Ambac Assurance in December 2003. Net investment income for the six
months of 2004 was $174.8 million, representing an increase of 12%
from $156.5 million in the comparable period of 2003, primarily as
a result of the reasons provided above. * Financial services
revenues, which is composed of gross interest income less gross
interest expense from investment and payment agreements plus
revenue from derivative products and excludes net realized
investment gains and losses, were $12.8 million in the second
quarter of 2004, compared to ($4.2) million in revenues for the
second quarter of 2003. The increase was primarily driven by a
($12.0) million mark-to-market adjustment in the second quarter
2003 resulting from the increase in the ratio of tax-exempt
interest rates to taxable interest rates. During the second quarter
last year, the ratio had risen higher than historical averages,
impacted by the historically low interest rate environment and
large supply of municipal debt. The ratio has largely come back
down to historical levels since that time and the mark-to- market
loss was largely reversed in later periods. Financial services
revenues were $29.8 million in the first half of 2004, up over 300%
from the $6.9 million of revenues in the first half of 2003
primarily due to the mark-to-market adjustment recorded in the
second quarter 2003, discussed above. Expenses Highlights *
Financial guarantee expenses of $47.4 million for the second
quarter of 2004 increased by 49% over the $31.9 million of expenses
for the same quarter of 2003. This increase was primarily due to
additions to the loss provision, higher compensation expense and
the impact on net reinsurance commissions in connection with the
cancellation of reinsurance during the period, as discussed below
under "Reinsurance Cancellations." The loss provision increased
from $10.9 million in the second quarter of 2003, to $17.5 million
in the second quarter of 2004, reflecting credit migration on
certain exposures in the financial guarantee portfolio. The loss
provision was flat to the first quarter 2004 provision. The higher
compensation expense is reflective of the global opportunities as
we continue to expand our resources to meet demand for our product.
Financial guarantee expenses of $91.5 million for the first six
months of 2004 increased by 43% over the $63.9 million of expenses
for the same period of 2003 primarily as a result of the reasons
provided above. * Financial services other expenses, which
represent the actual operating expenses for the segment, amounted
to $3.4 million for the second quarter of 2004, up 31% from $2.6
million for the second quarter of 2003 primarily due to increased
business activity in the derivative products business. Financial
services expenses for the first half of 2004 of $7.1 million
increased by 29% from $5.5 million in expenses for the first half
of 2003. Other Items * Total net securities gains/(losses) for the
second quarter of 2004 were $6.5 million, or $0.04 per diluted
share, consisting of net realized gains on investment securities of
$3.2 million and net mark-to-market gains on credit derivatives of
$3.3 million. For the second quarter of 2003, net securities
gains/(losses) were $27.5 million, or $0.16 per diluted share,
consisting of net realized gains on investment securities of $17.4
million, net mark-to-market gains on credit derivatives of $10.0
million and net mark-to-market gains on derivative hedge contracts
of $0.1 million. Total net securities gains/(losses) for the first
half of 2004 were $17.2 million, consisting of net realized gains
on investment securities of $21.0 million, mark-to-market gains on
credit derivatives of $10.2 million and net mark-to-market losses
on derivative hedge contracts of ($14.0) million. The losses on
derivative hedge contracts relate almost entirely to a
mark-to-market adjustment on interest rate hedge contracts in
Ambac's medium-term note funding conduit recorded in the first
quarter of 2004. The results from the medium-term note funding
conduit are included in "Other (loss)/income" in the Consolidated
Statements of Operations. For the first half of 2003 net gains were
$30.2 million, consisting of net realized gains on investment
securities of $31.7 million, mark-to-market losses on credit
derivatives of ($2.2) million and net mark-to-market gains on
derivative hedge contracts of $0.7 million. * Interest expense for
the second quarter of 2004 was $13.5 million, down 7% from $14.5
million for the second quarter of 2003 primarily related to
interest expense on debentures that were called in late April 2003.
Reinsurance Cancellations Late in the second quarter Ambac
completed the cancellation of certain reinsurance contracts with
two reinsurers that had been downgraded by the rating agencies in
2003. The net par that was recaptured as a result of the
cancellation totaled approximately $8.5 billion. Included in ceded
premiums in our Consolidated Statement of Operations is $64.8
million in returned premiums from the cancellation, of which
approximately $54.4 million was deferred. The difference, $10.4
million, included in accelerated premiums, results from the
difference between the negotiated amount of returned premiums and
the associated unearned premium remaining on the underlying
guarantees. Offsetting the accelerated earnings are approximately
$3.5 million of reinsurance commissions paid in excess of the
unamortized reinsurance commissions previously deferred. The net
impact of this cancellation, presented in Table I, above, as part
of accelerated earnings, amounted to approximately $7.0 million,
$4.5 million after-tax, or $0.04 per diluted share. In addition to
the $54.4 million of deferred premiums collected, approximately
$50.0 million net present value of future installment premiums is
expected to be recognized in future earned premiums over the
remaining life of the guarantees. Balance Sheet Highlights * Total
assets as of June 30, 2004 were $16.85 billion, up 1% from total
assets of $16.75 billion at December 31, 2003. This increase was
due primarily to cash generated from business written during the
period partially offset by a decline in the unrealized gains in the
investment portfolio driven by higher interest rates during the
period. As of June 30, 2004, stockholders' equity was $4.46
billion, a 5% increase from year-end 2003 stockholders' equity of
$4.25 billion. The increase stemmed primarily from net income
during the period, partially offset by the reduction in
"Accumulated Other Comprehensive Income," driven by higher interest
rates during the period. Increased Cash Dividend Declared At its
July 2004 Board meeting, the Board of Directors of Ambac Financial
Group Inc. approved a 13.6% increase in the regular quarterly cash
dividend from $0.11 to $0.125 per share of common stock. The
dividend is payable on September 1, 2004 to stockholders of record
on August 10, 2004. Ambac has declared an increased cash dividend
in every year since going public in 1991. Forward-Looking
Statements This release, in particular the President and Chief
Executive Officer's remarks, contains statements about our future
results that may be considered "forward-looking statements" under
the Private Securities Litigation Reform Act of 1995. These
statements are based on current expectations and the current
economic environment. We caution you that these statements are not
guarantees of future performance. They involve a number of risks
and uncertainties that are difficult to predict. Our actual results
could differ materially from those expressed or implied in the
forward-looking statements. Among the factors that could cause
actual results to differ materially are (1) changes in the
economic, credit, or interest rate environment in the United States
and abroad; (2) the level of activity within the national and
worldwide debt markets; (3) competitive conditions and pricing
levels; (4) legislative and regulatory developments; (5) changes in
tax laws; (6) the policies and actions of the United States and
other governments; and (7) other risks and uncertainties that have
not been identified at this time. We undertake no obligation to
publicly correct or update any forward-looking statement if we
later become aware that it is not likely to be achieved, except as
required by law. ******************* Ambac Financial Group, Inc.,
headquartered in New York City, is a holding company whose
affiliates provide financial guarantees and financial services to
clients in both the public and private sectors around the world.
Ambac's principal operating subsidiary, Ambac Assurance
Corporation, a leading guarantor of public finance and structured
finance obligations, has earned triple-A ratings, the highest
ratings available from Moody's Investors Service, Inc., Standard
& Poor's Ratings Services, Fitch, Inc. and Rating and
Investment Information, Inc. Ambac Financial Group, Inc. common
stock is listed on the New York Stock Exchange (ticker symbol ABK).
******************** Footnotes (1) Adjusted gross premiums written,
which is not promulgated under GAAP, is used by management, equity
analysts and investors to measure Ambac's financial results.
Adjusted gross premiums written, which Ambac reports as analytical
data, are defined as gross (direct and assumed) up-front premiums
written plus the present value of estimated installment premiums
written on insurance policies and structured credit derivatives
issued in the period. The definition of adjusted gross premiums
written used by Ambac may differ from definitions of adjusted gross
premiums written used by other public holding companies of
financial guarantors. The following table reconciles adjusted gross
premiums written to gross premiums written calculated in accordance
with GAAP: $-millions Second Quarter Six Months 2004 2003 2004 2003
Adjusted gross premiums written $ 411 $ 455 $ 670 $ 778 Present
value of estimated installment premiums written on insurance
policies and structured credit derivatives issued in the period
(175) (172) (314) (393) Gross up-front premiums written $ 236 $ 283
$ 356 $ 385 Gross installment premiums written on insurance
policies 127 103 234 198 Gross premiums written $ 363 $ 386 $ 590 $
583 Ambac Financial Group, Inc. and Subsidiaries Consolidated
Statements of Operations (Unaudited) For the Three and Six Months
Ended June 30, 2004 and 2003 (Dollars in Thousands Except Share
Data) Three Months Ended Six Months Ended June 30, June 30, 2004
2003 2004 2003 Revenues: Financial Guarantee: Gross premiums
written $363,196 $386,005 $589,630 $583,224 Ceded premiums written
15,949 (42,313) (17,937) (73,481) Net premiums written $379,145
$343,692 $571,693 $509,743 Net premiums earned $189,593 $151,992
$355,028 $286,744 Other credit enhancement fees 11,809 12,294
23,245 22,658 Net premiums earned and other credit enhancement fees
201,402 164,286 378,273 309,402 Net investment income 88,081 79,892
174,785 156,487 Net realized investment gains 3,294 12,777 15,165
26,720 Net mark-to-market gains (losses) on credit derivative
contracts 3,256 10,002 10,218 (2,174) Variable interest entity 839
-- 1,900 -- Other income (loss) 1,355 1,931 (10,864) 2,756
Financial Services: Interest from investment and payment agreements
45,740 55,476 98,090 114,472 Other revenue (loss) 7,698 (9,544)
15,118 (3,997) Net realized investment (losses) gains (108) 4,641
5,843 4,949 Net mark-to-market gains on derivative hedge contracts
41 51 104 728 Corporate: Net investment income 386 2,108 756 3,039
Net realized investment gains 42 -- 18 -- Total revenues 352,026
321,620 689,406 612,382 Expenses: Financial Guarantee: Losses and
loss expenses 17,500 10,900 35,000 20,700 Underwriting and
operating expenses 29,246 21,013 54,900 43,179 Variable interest
entity 701 -- 1,605 -- Financial Services: Interest from investment
and payment agreements 40,678 50,160 83,370 103,592 Other expenses
3,381 2,557 7,076 5,514 Interest 13,461 14,537 27,086 26,991
Corporate 2,601 2,227 4,790 10,500 Total expenses 107,568 101,394
213,827 210,476 Income before income taxes 244,458 220,226 475,579
401,906 Provision for income taxes 63,562 57,469 122,928 101,087
Income from continuing operations 180,896 162,757 352,651 300,819
Discontinued operations: Loss from discontinued operations (310)
(312) (550) (543) Income tax benefit (124) (126) (220) (218) Net
loss from discontinued operations (186) (186) (330) (325) Net
income $180,710 $162,571 $352,321 $300,494 Earnings per share:
Income from continuing operations $1.67 $1.53 $3.26 $2.83
Discontinued operations $0.00 $0.00 $0.00 $0.00 Net income $1.67
$1.53 $3.26 $2.83 Earnings per diluted share: Income from
continuing operations $1.63 $1.48 $3.18 $2.75 Discontinued
operations $0.00 $0.00 $0.00 $0.00 Net income $1.63 $1.48 $3.18
$2.75 Weighted average number of common shares outstanding: Basic
108,412,326 106,428,045 108,090,945 106,246,887 Diluted 110,924,314
109,417,451 110,673,431 109,005,885 Ambac Financial Group, Inc. and
Subsidiaries Consolidated Balance Sheets June 30, 2004 and December
31, 2003 (Dollars in Thousands Except Share Data) June 30, 2004
December 31, 2003 (unaudited) Assets Investments: Fixed income
securities, at fair value (amortized cost of $12,877,989 in 2004
and $12,403,247 in 2003) $13,057,681 $12,860,068 Fixed income
securities pledged as collateral, at fair value (amortized cost of
$648,126 in 2004 and $662,046 in 2003) 656,938 661,422 Short-term
investments, at cost (approximates fair value) 238,184 250,382
Other, at fair value (cost of $4,196 in 2004 and $4,528 in 2003)
4,208 4,417 Total investments 13,957,011 13,776,289 Cash 33,164
24,449 Securities purchased under agreements to resell 43,000
54,015 Receivable for securities sold 152,192 4,425 Investment
income due and accrued 142,361 159,439 Reinsurance recoverable on
paid and unpaid losses 2,183 3,030 Prepaid reinsurance 290,234
325,461 Deferred acquisition costs 190,299 175,296 Loans 835,429
837,981 Derivative product assets 978,679 1,146,408 Variable
interest entity 150,779 189,482 Other assets 76,175 51,039 Total
assets $16,851,506 $16,747,314 Liabilities and Stockholders' Equity
Liabilities: Unearned premiums $2,727,315 $2,545,490 Losses and
loss expense reserve 238,091 189,414 Ceded reinsurance balances
payable 23,134 15,383 Obligations under investment and payment
agreements 6,388,408 6,545,759 Obligations under investment
repurchase agreements 342,801 530,644 Securities sold under
agreement to repurchase 223,200 225,500 Deferred income taxes
110,304 171,058 Current income taxes 39,385 43,176 Debentures
791,807 791,775 Accrued interest payable 56,917 73,941 Derivative
product liabilities 796,363 946,178 Other liabilities 233,663
222,126 Variable interest entity 150,779 189,482 Payable for
securities purchased 265,126 2,830 Total liabilities 12,387,293
12,492,756 Stockholders' equity: Preferred stock -- -- Common stock
1,088 1,073 Additional paid-in capital 670,293 606,468 Accumulated
other comprehensive income 120,035 266,919 Retained earnings
3,698,656 3,380,098 Common stock held in treasury at cost (25,859)
-- Total stockholders' equity 4,464,213 4,254,558 Total liabilities
and stockholders' equity $16,851,506 $16,747,314 Number of shares
outstanding (net of treasury shares) 108,432,358 107,144,148 Book
value per share $41.17 $39.71 Ambac Financial Group, Inc. and
Subsidiaries Supplemental Analytical Data: Components of Adjusted
Book Value Per Share(1) June 30, 2004 and December 31, 2003 June
30, December 31, 2004 2003 Book value $41.17 $39.71 After-tax value
of: Net unearned premium reserve less deferred acquisition costs
13.47 12.41 Present value of future installment premiums 10.15 9.44
Unrealized loss on investment agreement liabilities (0.17) (0.29)
Adjusted book value $64.62 $61.27 (1) Adjusted book value (ABV),
which is not promulgated in accordance with accounting principles
generally accepted in the United States of America (GAAP), is used
by management, equity analysts and investors as a measurement of
the Company's intrinsic value with no benefit given for ongoing
business activity. Management derives ABV by beginning with
stockholders' equity (book value) and adding or subtracting the
after-tax value of: the net unearned premium reserve; deferred
acquisition costs; the present value of estimated net future
installment premiums; and the unrealized gain or loss on investment
agreement liabilities. These adjustments will not be realized until
future periods and may differ materially from the amounts used in
determining ABV. The definition of ABV used by the Company may
differ from definitions of ABV used by other public holding
companies of financial guarantee insurers. Ambac Assurance
Corporation Statutory Accounting, Financial and Capital Information
(1) June 30, 2004 and December 31, 2003 (Dollars in Thousands,
Except Ratios) June 30, December 31, 2004 2003 Capital and
Claim-Paying Resources: Contingency reserve $1,927,422 $1,786,316
Capital and surplus 2,935,016 2,739,675 Qualified statutory capital
4,862,438 4,525,991 Unearned premiums 2,897,572 2,649,273 Losses
and loss adjustment expenses 85,187 54,698 Policyholders' reserves
7,845,197 7,229,962 Third party capital support (2) 800,000 800,000
Present value of future installment premiums 1,693,905 1,555,611
Total claims paying resources $10,339,102 $9,585,573 Net financial
guarantees in force $652,024,839 $625,563,637 Capital ratio (3)
134:1 138:1 Financial resources ratio (4) 63:1 65:1 (1) Information
for Ambac Assurance Corporation, Connie Lee Insurance Company and
Ambac Assurance UK Limited are combined for purposes of this
schedule. (2) Third party capital support represents pre-funded
capital which provides for the unconditional ability to issue up to
$800 million of preferred stock to high quality asset-backed
investment vehicles. (3) Capital ratio is net financial guarantees
in force divided by qualified statutory capital. (4) Financial
resources ratio is net financial guarantees in force divided by
total claims paying resources. Ambac Assurance Corporation and
Subsidiaries Capitalization Table - GAAP June 30, 2004 and December
31, 2003 (Dollars in Millions) The following table sets forth Ambac
Assurance's consolidated capitalization as of June 30, 2004 and
December 31, 2003, respectively, on the basis of accounting
principles generally accepted in the United States of America. June
30, December 31, 2004 2003 (unaudited) Unearned premiums $2,733
$2,553 Notes payable to affiliate 90 84 Other liabilities 2,253
2,197 Total liabilities 5,076 4,834 Stockholder's equity: Common
stock 82 82 Additional paid-in capital 1,157 1,144 Accumulated
other comprehensive income 97 243 Retained earnings 3,754 3,430
Total stockholder's equity 5,090 4,899 Total liabilities and
stockholder's equity $10,166 $9,733 DATASOURCE: Ambac Financial
Group, Inc. CONTACT: Investor - Media: Peter R. Poillon of Ambac
Financial Group, Inc., +1-212-208-3333, or Web site:
http://www.ambac.com/
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