Driven by a favorable change in the fair value of credit derivatives of more than $2 billion, bond insurer Ambac ABK reported a surge in net income and earnings per share of $7.58 for its third quarter. The company also reported a benefit from reinsurance commutations, adding to unearned premiums on the balance sheet offset somewhat by increased loss reserves. Book value remained negative at $9.83 per share, up from negative $13.17 at the beginning of the year. Paid claims in the quarter rose to $315 million from $182 million in the same quarter last year. Though the earnings report is riddled with many moving parts relating to accounting, in the end we still think Ambac will be challenged to outlast the growing tide of claims relative to reserves. Our fair value estimate is unchanged, and we reiterate our extreme uncertainty rating.

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