Last week, Ambac Financial Group (ABK) announced that its chief operating unit Ambac Assurance expects to report estimated impairment losses on credit derivatives of $4.9 million. This will be an increase of $1.6 billion during the quarter. The expected write downs on the credit derivatives portfolio is a result of falling values of underlying collateral within the collateralized debt obligations of asset-backed securities.

The unit will also incur about $800 million in statutory loss and loss expenses in the period. The statutory loss and loss expenses relate primarily to deterioration in Ambac Assurance’s second-lien and Alt-A mortgage-backed securities financial guarantee portfolios. The impairment loss is expected to reduce Ambac's statutory capital and surplus.

At the end of March, Ambac Assurance had $372.8 million in statutory capital and surplus. With $1.6 billion in extra impairments from the second quarter, the unit would have negative statutory capital and surplus of

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MBIA's rating slashed to deep junk status, litigation worries continuesOn Thursday, June 25, bond insurer MBIA's (MBI) senior debt rating was lowered by Moody's Investors Service to Ba3 -- three levels below investment grade -- from Ba1. The downgrade cited expectations of further portfolio deterioration due to its exposure to risky mortgage-backed securities coupled with the uncertainties associated with the ongoing litigation over the company's restructuring that happened last February.Moody's also changed the rating outlook of MBIA Insurance Corp. to negative. Additionally, Moody's affirmed the investment-grade Baa1 rating of National Public Finance Guarantee Corp., MBIA's dedicated municipal-bond insurance company.Investors and world's 18 largest banks, including JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) have sued MBIA, claiming a fraudulent restructuring in February this ...