ABK - AMBAC soaring

Ambac Financial Group Inc. (ABK) swung to a third-quarter profit thanks to large mark-to-market gains on credit derivatives, which had cost the bond insurer billions in losses a year earlier.
Shares surged 27% premarket to $1.41. The stock, which has tripled from an all-time low in March, remained down 15% for the year through Tuesday.
A foray into insuring mortgage-backed securities, which soured along with the housing market and home loans, combined with weak consumer sentiment and economic contraction sent the bond-insurance industry into a tailspin. But the housing market has shown signs of stabilization and Ambac has been terminating some contracts with counterparties to reduce risk exposure.
Ambac, the nation's No. 2 bond insurer behind MBIA Inc. (MBIA), posted a profit of $2.19 billion, or $7.58 a share, compared to a year-earlier loss of $2.43 billion, or $8.45 a share. The latest results included $2.13 billion of mark-to-market gains on credit derivatives and $303 million in gains from reinsurance cancellations. The prior year had $2.71 billion in derivative losses.
Revenue was $2.69 billion, compared to year-earlier negative revenue of $2.32 billion. Both results are skewed by the derivative impacts. Meanwhile, earned net premiums fell 16% and net investment income rose 6.5%.
Loss and loss expenses fell 24% while claims paid surged 73% amid the continued credit-rating downgrades on residential mortgage-backed securities.
The company's loss and loss-expense reserve nearly doubled to $4.52 billion.