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Ambac identifies material weakness in internal control over financial reporting

Ambac FinancialGroup Inc. has identified a material weakness in its internalcontrol over financial reporting.

According to an amended Form 10-K, the material weakness isassociated with design of controls over the estimate of loss reserves andsubrogation recoverables, investment income and assessing other than temporaryimpairment for purchased residential mortgage-backed securities.

Ambac outsourced, to a third-party service organization, themodeling of residential mortgage-backed collateral losses within certainsecuritizations that have insurance policies issued by Ambac. The companyconcluded that it did not sufficiently evaluate controls over the modelingmaintained by that service organization through the timely receipt andevaluation of an annual service organization control report.

However, Ambac insisted that the consolidated financialstatements and other financial information included in the Form 10-K for theperiod ended Dec. 31, 2015, fairly present its financial condition.