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AMBAC Inc. Announces Second Quarter Net Income of $135.9 Million, up 267%.

--(BUSINESS WIRE)--

Second Quarter Net Income Includes Gain on Sale of HCIA

Second Quarter Core Earnings Up 18%, Operating Earnings Up 29%

NEW YORK--August 1, 1996--AMBAC Inc. (NYSE: ABK) today announced second quarter 1996 net income of $135.9 million, or $3.89 per share, an increase of 267% from $37.0 million, or $1.05 per share in the second quarter of 1995. The increase in net income was primarily the result of the net realized gain of $155.6 million from the Company's sale of its affiliate, HCIA Inc. This gain was partially offset by realized losses on sales of securities in its investment portfolio of $22.1 million. The net effect of these actions is a net realized gain of $133.5 million, which had a net income per common share effect of $2.47. The increase in net income was also the result of increased premiums earned for the period, higher investment income and higher financial services operating income, partially offset by higher expenses. Net income for the first six months of 1996 was $180.5 million, or $5.16 per share, an increase of 157% from $70.3 million, or $2.00 per share in the first six months of 1995.

Commenting on the results, AMBAC Chairman, President and Chief Executive Officer, Phillip B. Lassiter, stated, "AMBAC's business momentum continues to be strong as evidenced by the robust growth in operating and core earnings for the first half of the year. Looking ahead, I continue to be very positive on our business prospects."

Financial Guarantee Insurance

The Company provides financial guarantee insurance through its principal operating subsidiary, AMBAC Indemnity Corporation (AMBAC Indemnity), which is a leading insurer of municipal and structured finance transactions. AMBAC Indemnity insured $9.2 billion in par value bonds during the second quarter of 1996, more than doubling the $4.5 billion insured in the second quarter of 1995. Par value written for the second quarter of 1996 comprised $7.1 billion from municipal bond insurance and $2.1 billion from structured finance insurance, versus $4.0 billion and $0.5 billion, respectively, in the second quarter of 1995. According to estimates based on industry sources, AMBAC Indemnity's new issue municipal market share for the second quarter of 1996 was approximately 27% versus approximately 24% in the second quarter of 1995.

Gross premiums written for the second quarter of 1996 were $58.1 million, an increase of 60% from the $36.4 million written in the second quarter of 1995. This increase was primarily due to a significant increase in new issue municipal premiums written, partially offset by a decline in secondary market premiums written. Gross premiums written for the first six months of 1996 were $108.4 million, an increase of 42% from the $76.6 million written in the first six months of 1995.

While most of AMBAC Indemnity's premiums written are collected up-front at policy issuance, a growing portion of premiums are collected on an installment basis. The present value of estimated future installment premiums written in the second quarter of 1996 was $22.0 million, an increase of 93% from the $11.4 million written in the second quarter of 1995. The net aggregate present value of estimated future installment premiums was $128.0 million and $110.0 million as of June 30, 1996 and December 31, 1995, respectively.

Ceded premiums written for the second quarter of 1996 were $9.8 million, versus the ($6.5) million written in the second quarter of 1995. Ceded premiums written in the second quarter of 1995 included the collection of $18.1 million in return premiums from the cancellation of reinsurance contracts. Excluding these return premiums, ceded premiums written in the second quarter of 1996 decreased by 16% compared to the second quarter of 1995. The decrease was due to lower premiums ceded under facultative reinsurance agreements in the second quarter of 1996. Ceded premiums written for the first six months of 1996 were $19.4 million, versus ($3.1) million written in the first six months of 1995.

Net premiums written for the second quarter of 1996 were $48.3 million, an increase of 13% from the $42.9 million written in the second quarter of 1995. The increase in net premiums written in the second quarter of 1996 over the comparable prior period is less significant than the increase in gross premiums written. This is because net premiums written in the second quarter of 1995 reflect return premiums from the cancellation of reinsurance contracts in that period. Net premiums written for the first six months of 1996 were $89.0 million, versus $79.7 million written in the first six months of 1995.

Net premiums earned for the second quarter of 1996 were $39.6 million, an increase of 42% from the $27.8 million earned in the second quarter of 1995. This increase was primarily the result of higher premiums earned from refundings and calls in the second quarter of 1996 and the growth in premiums earned from the underlying book of business during the period. Net premiums earned for the second quarter of 1996 included $13.8 million from refundings, calls and other accelerations (which had a net income per common share effect of $0.22) compared to the second quarter of 1995, which included $5.4 million of net premiums earned from refundings, calls and other accelerations (which had a net income per common share effect of $0.08). Net premiums earned for the first six months of 1996 were $67.8 million, an increase of 30% from the $52.1 million earned in the first six months of 1995.

Net investment income for the second quarter of 1996 was $35.5 million, an increase of 10% from $32.3 million in the second quarter of 1995. The increase was primarily due to the growth of the investment portfolio partially offset by lower yields. Net investment income for the first six months of 1996 was $70.3 million, an increase of 10% from $64.0 million in the first six months of 1995. AMBAC Indemnity's investments in tax- exempt securities were 76% of the total market value of the portfolio as of June 30, 1996, as compared to 78% at June 30, 1995.

Net realized losses from investment sales for the second quarter of 1996 was ($22.1) million (net income per common share effect of $0.41) as compared to ($2.2) million (net income per common share effect of $0.04) in the comparable period of 1995. The net realized losses in the second quarter of 1996 were generated to partially offset the realized gain from the sale of HCIA.

Underwriting and operating expenses for the second quarter of 1996 were $10.4 million, an increase of 14% from $9.1 million in the second quarter of 1995. This increase was primarily the result of a non-recurring severance charge of $1.0 million (net income per common share effect of $0.02) as well as increased amortization of deferred acquisition costs. Underwriting and operating expenses for the first six months of 1996 were $19.1 million, an increase of 11% from $17.2 million in the first six months of 1995.

Financial Services

Through its financial services subsidiaries, the Company provides investment contracts, interest rate swaps and investment management principally to states, municipalities and municipal authorities. Financial services operating income (loss) for the second quarter of 1996 was $2.7 million, versus ($0.8) million in the second quarter of 1995. Financial services revenues for the second quarter of 1996 were $5.1 million, versus $1.1 million in the second quarter of 1995. The increase was primarily due to revenues on interest rate swaps during the second quarter of 1996. In the comparable prior period, market fears of broad based tax reform caused the Company to recognize net unrealized losses in the swap portfolio. Financial services expenses for the second quarter of 1996 were $2.4 million versus $1.8 million in the second quarter of 1995. The increased expenses were primarily due to start-up costs associated with the new investment management business which began in late 1995. Financial services operating income for the first six months of 1996 was $7.6 million on revenues of $12.1 million and expenses of $4.5 million, as compared to operating income of $0.8 million on revenues of $4.5 million and expenses of $3.7 million for the corresponding period in 1995.

Corporate Items

As previously announced, on May 6, 1996 the Company sold its 4,159,505 shares of HCIA common stock in a secondary public offering yielding net proceeds to the Company of $202.6 million. The sale resulted in a net realized gain of $155.6 million pre- tax, $100.6 million after-tax, (net income per common share effect of $2.88).

Interest expense for the second quarter of 1996 was $5.2 million, unchanged from the second quarter of 1995. Other income (deductions) increased to $1.4 million in the second quarter of 1996 from ($0.2) million in the comparable period of 1995 due to additional investment income generated by the holding company from the proceeds of the HCIA sale. Income taxes for the second quarter of 1996 were at an effective rate of 31.3%, versus 19.2% in 1995. The increase in the Company's effective income tax rate in the second quarter of 1996 was primarily the result of the realized gain on the sale of its HCIA holdings.

Supplemental Analytical Financial Data

Core earnings for the second quarter of 1996 were $41.8 million, an increase of 18% from $35.5 million in the second quarter of 1995. The increase in core earnings was primarily the result of continued growth in net premiums earned and net investment income from financial guarantee insurance operations, as well as increased operating income from financial services. Core earnings for the first six months of 1996 were $82.4 million, an increase of 18% from $70.0 million in the first six months of 1995. Core earnings, which the Company reports as analytical data, exclude the effect on consolidated net income from net realized gains and losses, net insurance premiums earned from refundings and calls and certain non-recurring items. Core earnings is not a substitute for net income computed in accordance with Generally Accepted Accounting Principles (GAAP), but is an important measure used by management, equity analysts and investors to measure the financial results of the Company.

Operating earnings for the second quarter of 1996 were $49.6 million, an increase of 29% from $38.5 million in the first quarter of 1995. Operating earnings for the first six months of 1996 were $92.7 million, an increase of 24% from $74.9 million in the first six months of 1995. The Company defines operating earnings as net income, less the effect of net realized gains and losses and certain non-recurring items. Similar to core earnings, operating earnings is used by management, equity analysts and investors to measure the financial results of the Company, but is not a substitute for net income computed in accordance with GAAP.

Balance Sheet Analysis

Total assets as of June 30, 1996 were $5.69 billion, an increase of 7% from $5.31 billion at December 31, 1995. This increase was primarily due to continuing growth of the Company's financial guarantee insurance operations and the sale of HCIA, partially offset by a decline in market value of the investment portfolio resulting from the increase in interest rates during the six month period ended June 30, 1996.

As of June 30, 1996, the Company's stockholders' equity was $1.47 billion, an increase of 5% from year end 1995, primarily due to the sale of HCIA, partially offset by the decline in market value of the investment portfolio. Book value per common share increased 6% to $42.26 at June 30, 1996, from $40.04 at December 31, 1995.

Adjusted book value (ABV) per common share increased 3% to $57.89 from $56.47 at December 31, 1995. ABV, which is not promulgated under GAAP, is used by management, equity analysts and investors as a conservative and useful measurement of the Company's intrinsic value with no benefit given for ongoing business activity. Management derives adjusted book value by beginning with stockholders' equity (book value) and adding or subtracting the after-tax effect of: the net unearned premium reserve; deferred acquisition costs; the present value of net future installment premiums; the unrealized gain on the investment in HCIA (prior to sale on May 6, 1996); and the unrealized gain or loss on investment contract liabilities. The definition of ABV used by the Company may differ from definitions of ABV used by other public financial guarantors and should be considered in such context. The adjustments described above will not be realized until future periods and may differ materially from the amounts used in determining ABV.

Regular Quarterly Cash Dividend Declared

The Board of Directors of AMBAC Inc. today declared the regular quarterly cash dividend of $0.15 per share of common stock. The dividend is payable on September 4, 1996 to stockholders of record on August 12, 1996.

-0-

AMBAC Inc., headquartered in New York City, is a holding company that provides through its affiliates financial guarantee insurance and financial services to clients in both the public and private sectors. The Company's principal operating subsidiary, AMBAC Indemnity Corporation, a leading insurer of municipal and structured finance obligations, has been assigned triple-A claims-paying ability ratings from Moody's Investors Service, Inc., Standard & Poor's Ratings Group and Fitch Investors Service, L.P.

 AMBAC Inc. and Subsidiaries
 Consolidated Statements of Operations
 (Unaudited)
 For The Periods Ended June 30, 1996 and 1995
 (Dollars in Thousands Except Common Share Data)


 Three Months Ended Six Months Ended
 June 30, June 30,
 --------------------- --------------------
 1996 1995 1996 1995
 --------------------- --------------------
Financial guarantee
 insurance operations:


 Gross prems. written $58,115 $36,402 $108,402 $76,598
 Ceded prems. written (9,836) 6,514 (19,448) 3,055
 ------- ------- -------- -------
 Net prems. written 48,279 42,916 88,954 79,653


 Incr. in unearned prem. (8,634) (15,069) (21,116) (27,589)
 ------- ------- ------- -------
 Net prems. earned 39,645 27,847 67,838 52,064


 Net investment income 35,498 32,292 70,325 64,047
 Net realized losses (22,100) (2,202) (19,744) (6,876)
 Other income 2,236 1,628 3,628 3,189
 ------- ------- ------- -------
 55,279 59,565 122,047 112,424
 ------- ------- ------- -------


 Losses & loss
 adjustment expenses 1,700 341 2,510 1,369
 Underwriting & oprtg. exp. 10,351 9,130 19,099 17,175
 ------- ------- ------- -------
 12,051 9,471 21,609 18,544
 ------- ------- ------- -------
 Financial guarantee
 ins. operating income 43,228 50,094 100,438 93,880
 Financial services
 operating income (loss) 2,737 (752) 7,612 775
 Equity in income of
 of affiliate - 1,867 627 2,093
 Interest expense (5,167) (5,221) (10,425) (10,208)
 Other inc. (deductions),net 1,366 (209) 919 (436)
 Other net realized gains 155,613 - 155,613 -
 ------- ------- ------- -------
 Income bef. inc. taxes 197,777 45,779 254,784 86,104
 ------- ------- ------- -------
Income tax expense:


 Current taxes 66,939 5,789 79,913 11,230
 Deferred taxes (5,109) 3,005 (5,629) 4,588
 ------- ------- ------- -------
 Total income taxes 61,830 8,794 74,284 15,818
 ------- ------- ------- -------


 Net income $135,947 $36,985 $180,500 $70,286
 ======== ======= ======== ========


Per share amounts -
 Net income per common share $3.89 $1.05 $5.16 $2.00
 ===== ===== ===== =====
Weighted average no. of
 common shs. outstanding 34,915,449 35,091,221 34,984,680 35,090,641
 ========== ========== ========== ==========


-0-


 AMBAC Inc. and Subsidiaries
 Consolidated Balance Sheets
 June 30, 1996 and December 31, 1995
 (Dollars in Thousands)




 June 30, December 31,
 1996 1995
 ----------- ------------
 (unaudited)
ASSETS


Investments:


Bonds held in available-for-sale account,
 at fair value (amortized cost of
 $4,782,496 in 1996 and $4,082,791 in 1995) $4,814,547 $4,264,904
Short-term investments, at cost
 (approximates fair value) 230,975 176,689
 ----------- -----------
 Total investments 5,045,522 4,441,593


Cash 5,386 12,167
Sec. purchased under agreements to resell 148,586 240,280
Receivable for municipal investment contracts 47,968 204,797
Receivable for securities 65,688 14,523
Investment income due and accrued 62,684 56,370
Investment in affiliate - 45,019
Deferred acquisition costs 88,107 82,620
Prepaid reinsurance 162,166 153,372
Other assets 64,835 58,538
 ----------- -----------
 Total assets $5,690,942 $5,309,279
 =========== ===========


LIABILITIES AND STOCKHOLDERS' EQUITY


Liabilities:


Unearned premiums $932,935 $903,026
Losses and loss adjustment expenses 59,429 65,996
Ceded reinsurance balances payable 6,765 14,654
Obligations under municipal investment
 contracts 2,382,653 2,185,746
Obligations under municipal investment
 repurchase contracts 302,939 241,112
Deferred income taxes 42,969 103,697
Current income taxes 60,874 5,125
Debentures 223,765 223,732
Accrued interest payable 29,300 25,494
Accounts payable and other liabilities 47,121 44,578
Payable for securities 129,988 92,131
 ----------- -----------
 Total liabilities 4,218,738 3,905,291
 ----------- -----------


Stockholders' equity:


Preferred stock - -
Common stock, Class A - -
Common stock 353 353
Additional paid-in capital 493,501 492,495
Unrealized gains (losses) on investments,
net of tax 12,918 102,470
Retained earnings 989,431 819,479
Common stock held in treasury at cost (23,999) (10,809)
 ----------- -----------
 Total stockholders' equity 1,472,204 1,403,988
 ----------- -----------
 Total liabilities and stockholders' equity $5,690,942 $5,309,279
 =========== ===========


Number of common shares outstanding
(net of treasury shares) 34,839,706 35,063,573
 =========== ===========
Book value per common share $42.26 $40.04
 =========== ===========
Adjusted book value per common share $57.89 $56.47
 =========== ===========


-0-


 AMBAC Inc. and Subsidiaries
 Components of Core Earnings
 (Unaudited)
 For The Periods Ended June 30, 1996 and 1995


 Three Months Ended Six Months Ended
 June 30, June 30,
 ------------------ ------------------
 1996 1995 1996 1995
 ------------------ ------------------
Net income $135,947 $36,985 $180,500 $70,286
Adjustments:
 Net realized (gains) losses (86,300) 1,466 (87,832) 4,631
 ------- ------- ------- -------
Operating earnings 49,647 38,451 92,668 74,917
 Refundings, calls and
 other accelerations (7,833) (2,915) (10,236) (4,870)
 ------- ------- ------- -------
Core earnings $41,814 $35,536 $82,432 $70,047
 ======= ======= ======= =======


-0-


 AMBAC Inc. and Subsidiaries
 Components of Adjusted Book Value Per Share (1)
 June 30, 1996 and December 31, 1995




 June 30, December 31,
 1996 1995
 ------------ ------------
 (unaudited)


Book value $42.26 $40.04
After-tax value of:
 Net unearned premium reserve less
 deferred acquisition costs 12.74 12.35
 Present value of installment premiums 2.38 2.05
 Unrealized gain on investment in HCIA - 2.77
 Unrealized gain (loss) on investment
 contract liabilities 0.50 (0.74)
 ------ ------
Adjusted book value $57.89 $56.47
 ====== ======
(1) Numbers may not add due to rounding.


-0-


 AMBAC Indemnity Corporation
 Selected Statutory Data
 June 30, 1996 and December 31, 1995
 (Dollars in Thousands, Except Ratios)


 June 30, December 31,
 1996 1995
 ----------- ------------
 (unaudited)


Balance Sheet:
 Contingency reserve $529,798 $495,793
 Capital and surplus 854,479 862,976
 ---------- ----------
 Qualified statutory capital 1,384,277 1,358,769


 Unearned premium reserve 939,520 904,873
 Losses and loss adjustment
 expenses 28,496 39,249
 ---------- ----------
 Policyholders' reserves 2,352,293 2,302,891


 Present value of installment premiums 128,000 110,000
 Third party capital support (1) 300,000 300,000
 ---------- ----------
 Total $2,780,293 $2,712,891
 ========== ==========


 Net insurance in force $209,314,091 $199,078,405


 Capital ratio (2) 151:1 147:1


 Financial resources ratio (3) 75:1 73:1




 (1) Third party capital support represents a limited recourse
 irrevocable line of credit with AAA/Aaa-rated Deutsche Bank,
 individually and as Agent.


 (2) Capital ratio is net insurance in force divided by qualified
 statutory capital.


 (3) Financial resources ratio is net insurance in force divided by
 the aggregate of total policyholders' reserves, third party
 capital support and net present value of installment premiums.




CONTACT: Investor Contact:

David J. Weissman

(212) 208-3244

or

Media Contact:

John M. Cathey

(212) 208-3490

or

Website:

http://www.ambac.com
COPYRIGHT 1996 Business Wire
No portion of this article can be reproduced without the express written permission from the copyright holder.
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