Wisconsin Insurance Commissioner Approves Ambac’s Exercise of Surplus Note Call Options; Seeks Rehabilitation Court Approval

  Wisconsin Insurance Commissioner Approves Ambac’s Exercise of Surplus Note
  Call Options; Seeks Rehabilitation Court Approval for Call Exercise, Interim
  Partial Claim Payments, and IRS Settlement Offer

Business Wire

NEW YORK -- May 16, 2012

Ambac Assurance Corporation (“Ambac Assurance”) today announced that it has
received approval from its regulator, the Wisconsin Office of the Commissioner
of Insurance (“OCI”), and the Commissioner in his capacity as the
Rehabilitator of the Segregated Account of Ambac Assurance Corporation
(“Segregated Account”) to exercise call options to purchase approximately $939
million in aggregate par amount of surplus notes issued by Ambac Assurance on
June7, 2010, for an aggregate cash payment of approximately $278 million. As
previously announced on May 10, 2012, Ambac Assurance’s board of directors
approved the exercise of such surplus note call options. The approvals of OCI
and the Rehabilitator are conditioned upon receipt of approval of the Circuit
Court of the State of Wisconsin in Dane County (“Rehabilitation Court”). The
Rehabilitator has, today, submitted a motion to the Rehabilitation Court
seeking such approval.

The Rehabilitator also announced today that he is seeking approval from the
Rehabilitation Court to make partial interim policy claim payments to
Segregated Account policyholders. If the interim payments are approved by the
Rehabilitation Court, the Segregated Account will, upon the direction of the
Rehabilitator, begin paying 25% of each permitted policy claim that has arisen
since the commencement of the rehabilitation proceedings for the Segregated
Account, and 25% of each policy claim submitted and permitted in the future.
Ambac Assurance expects to begin making such payments no sooner than the third
quarter 2012. As of March 31, 2012, approximately $3.2 billion in Segregated
Account policy claims were outstanding. Although the Plan of Rehabilitation,
confirmed by the Rehabilitation Court in January 2011, also contemplated
payment of 25% of each policy claim in cash and 75% in surplus notes, such
Plan has not yet been put into effect. No decision has been announced with
respect to effectuating or amending such Plan or whether surplus notes will be
issued with respect to the remaining balance of unpaid claims. The
Rehabilitator has previously announced that more specific information
regarding the status of the Plan, including possible modifications, will be
provided as soon as appropriate.

Lastly, the Rehabilitator is also seeking Rehabilitation Court approval of a
settlement on terms set forth in an offer made to the United States on behalf
of the Internal Revenue Service (“IRS”) with respect to pending disputes over
the tax treatment of credit default swap contracts and related matters
(“Offer”). The Offer was jointly made by the Rehabilitator, OCI, Ambac
Assurance, Ambac Financial Group, Inc. (“Ambac”) and the Official Committee of
Unsecured Creditors of Ambac on February 24, 2012. The settlement contemplated
by the Offer will resolve all related litigation with the IRS, eliminating
uncertainty on several tax issues important to the rehabilitation, and allow
Ambac to satisfy one of the conditions required for the consummation of
Ambac’s Fifth Amended Plan of Reorganization.

A hearing in the Rehabilitation Court relating to the motions described herein
(other than the last motion relating to the IRS settlement) is scheduled for
June 4, 2012. A hearing in the Rehabilitation Court relating to the motion
concerning the IRS settlement is scheduled for June 13, 2012. The motions
filed with the Rehabilitation Court and supporting affidavits and exhibits
have been made available by the Rehabilitator at www.ambacpolicyholders.com.

About Ambac Assurance

Ambac Assurance is a guarantor of public finance and structured finance
obligations, and is the principal operating subsidiary of Ambac Financial
Group, Inc.

Ambac, headquartered in New York City, is a holding company whose affiliates
provided financial guarantees and financial services to clients in both the
public and private sectors around the world. On November 8, 2010, Ambac filed
for a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code (“Bankruptcy Code”) in the United States Bankruptcy Court for
the Southern District of New York (“Bankruptcy Court”). The Bankruptcy Court
entered an order confirming Ambac’s plan of reorganization on March 14, 2012.
Ambac is not currently able to estimate when it will be able to consummate
such plan. Until the plan of reorganization is consummated and Ambac emerges
from bankruptcy, Ambac will continue to operate in the ordinary course of
business as “debtor-in-possession” in accordance with the applicable
provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.

Contact:

Ambac Assurance Corporation
Michael Fitzgerald, 212-208-3222
mfitzgerald@ambac.com