Ambac Financial Group, Inc. Announces Second Quarter 2013 Results

Ambac Financial Group, Inc. Announces Second Quarter 2013 Results

NEW YORK, Aug. 14, 2013 (GLOBE NEWSWIRE) -- Ambac Financial Group, Inc.
("Ambac" or the "Company") (Nasdaq:AMBC) today reported second quarter 2013
financial results. Following the Company's emergence from bankruptcy on May 1,
2013, the consolidated financial statements reflect the application of fresh
start reporting ("Fresh Start") incorporating, among other things, the
discharge of debt obligations, issuance of new common stock, and fair value
adjustments. The financial results of the Company for the periods from May 1,
2013 are referred to as "Successor" and the financial results for the period
through April 30, 2013 ("Fresh Start Reporting Date") are referred to as
"Predecessor". The effects of the reorganization and Fresh Start are recorded
in Predecessor Ambac's financial results for the period ended April 30, 2013
and amounted to a gain of $2,747 million.

The Company is reporting Net Income as follows:

($ in millions)   Successor Ambac -   Predecessor Ambac -
                  Period from May 1  Period from April 1   Three Months Ended
                 through June 30,    through April 30,     June 30, 2012
                  2013                2013
Net income (loss) $205.7             $3,066.8             $(811.1)

Additionally, for the Successor Ambac period from May 1 through June 30, 2013,
the Company is reporting earnings per diluted share of $4.42.

Key drivers of results for the Successor Ambac period from May 1 through June
30, 2013 were

  *Net earned premiums of $58.0 million
  *Net investment income of $26.6 million
  *Net change in fair value of credit derivatives of $51.2 million
  *Derivative product revenues of $83.7 million
  *Loss and loss expenses (net benefit) of ($26.1) million
  *Interest and operating expenses of $37.7 million

In addition to the reorganization items noted above, the following
significantly affect the comparability of second quarter results:

Investment Income: The amortized cost basis of Ambac's investment securities
were adjusted to fair value as of the Fresh Start Reporting Date, resulting in
an overall increase in the portfolio's amortized cost and elimination of the
net unamortized discount on the portfolio, which will impact the net
investment income of Successor Ambac.

Interest Expenses: Surplus notes issued by Ambac Assurance and the Segregated
Account and the related accrued interest on such notes were adjusted to fair
value as of the Fresh Start Reporting Date.This resulted in an overall
increase in the combined carrying value of debt and accrued interest expense.
Discounts to the face value of debt are accreted into interest expense based
on the original projected cash flows of the instruments.As a result of Fresh
Start, the unamortized discounts on surplus notes have decreased and the
future cash flows have been re-projected, both of which will impact the amount
of discount accretion recognized in interest expense for Successor Ambac.

Operating Expenses - Deferred Acquisition Costs: Deferred acquisition costs
have been written off as of the Fresh Start Reporting Date and accordingly
amortization of such costs will not be reflected in Successor Ambac's net
income.

Operating Expenses - Insurance Intangible Asset: Insurance and reinsurance
assets and liabilities continue to be measured in accordance with existing
accounting policies and an intangible asset was recorded representing the
difference between the fair value and carrying value of these insurance and
reinsurance assets and liabilities as of the Fresh Start Reporting Date. As a
result, the carrying values of our financial guarantee insurance and
reinsurance contracts have not been adjusted. The intangible asset is
amortized into expense using the level yield method based on par exposure of
the related financial guarantee insurance or reinsurance contracts.

Goodwill: Represents the excess of the reorganization value over the fair
value of identified tangible and intangible assets of Successor
Ambac.Goodwill will be assessed for impairment on an annual basis, and more
frequently if certain indicators of impairment exist.

References to 2013 results combine the two periods when amounts are comparable
to 2012 results.

GAAP Financial Results

Net Premiums Earned

Reporting of net premiums earned was not impacted by the adoption of Fresh
Start.Net premiums earned include accelerated premiums which result from
calls and other policy accelerations recognized during the period, and normal
net premiums. For the second quarter of 2013, as compared to the second
quarter of 2012, net premiums earned declined $15.3 million from $103 million,
accelerated earnings declined $15.8 million from $35.9 million, and normal net
premiums earned increased $0.5 million from $67.1 million. 2012 normal net
premiums earned were adversely affected by the write-off of a premium
receivable from a non-investment grade obligation that was deemed
uncollectible. For the three months ended June 30, 2012, net premiums earned
relating to this obligation were reduced $12.5 million. Excluding the impact
of the premium receivable write-off, normal net premiums earned for the second
quarter of 2013, as compared to the second quarter of 2012, declined $12.0
million due to the continued runoff of the insurance portfolio. The following
table provides a summary of net premiums earned for all periods presented:

                               Successor Ambac - Predecessor Ambac -
                                Period from May 1 Period from    Three Months
($ in millions)                 through           April 1        Ended
                                June 30, 2013     through        June 30, 2012
                                                  April 30, 2013
Public Finance                  $23.6            $11.8         $39.3
Structured Finance              8.9              4.6           6.5
International Finance           12.5           6.2           21.3
Total normal net premiums       45.0             22.6          67.1
earned
Accelerated earnings            13.0             7.1         35.9
Total net premiums earned       $58.0            $29.7         $103.0

Net Investment Income

Net investment income for the Successor Ambac period from May 1 through June
30, 2013 was $26.6 million, and for the Predecessor Ambac period from April 1
through April 30, 2013 was $32.4 million. The following table provides a
summary of net investment income for all periods presented:

                       Successor Ambac - Predecessor Ambac -
                        Period from May 1 Period from April  Three Months
($ in millions)         through           1                  Ended
                        June 30, 2013     through            June 30, 2012
                                          April 30, 2013
Financial Guarantee     $26.4            $32.0             $90.0
Financial Services      0.2            0.4             3.8
Total net investment    $26.6            $32.4            $93.8
income

At the Fresh Start Reporting Date, the amortized cost bases of securities in
the Financial Guarantee investment portfolio were reset to fair value.As a
result, for the Successor Ambac period from May 1 through June 30, 2013,
Financial Guarantee net investment income generally reflects current market
yields for such securities.Since the second quarter of 2012, the collection
of premiums and investment coupons was more than offset by the resumption of
partial claim payments on Segregated Account policies and payments made to
commute certain financial guarantee exposures. This has resulted in a lower
average invested base for Predecessor Ambac in 2013 compared to the second
quarter of 2012. Partially offsetting the impact of this, the Company has
continued to shift the portfolio toward higher yielding assets, including
Ambac Assurance-wrapped securities purchased as part of the Company's loss
remediation strategy. Since the second quarter of 2012, Financial Services
investment income continues to decline, as the investment agreement portfolio
runs off and the balance of investment assets declines accordingly.

Net Realized Investment Gains

Net realized investment gains for the Successor Ambac period from May 1
through June 30, 2013 was $18.5 million, and for the Predecessor Ambac period
from April 1 through April 30, 2013 was $7.2 million. The gains during April
2013 primarily related to the repositioning of Ambac Assurance UK Limited's
("Ambac UK") investment portfolio, and for the May 1 through June 30, 2013
period were primarily the result of sales of Alt-A RMBS in response to
favorable market conditions. The realized investment gains in the second
quarter of 2012 were largely the result of portfolio repositioning and
relative value trades executed in response to market conditions during the
period.The following table provides a summary of net realized investment
gains for all periods presented:

                            Successor Ambac - Predecessor Ambac -
                             Period from May 1 Period from April Three Months
($ in millions)              through           1                 Ended
                             June 30, 2013     through           June 30, 2012
                                               April 30, 2013
Financial Guarantee          $18.4            $7.2             $40.5
Financial Services           0.1              —                26.6
Total net realized           $18.5            $7.2            $67.1
investment gains

Net Change in Fair Value of Credit Derivatives

The fair value of credit derivatives was not impacted by the adoption of Fresh
Start.The loss attributable to the change in fair value of credit derivatives
for the three months ended June30, 2013 increased by $14.5 million from a
loss of $7.4 million for the three months ended June 30, 2012. The increase in
loss during both periods was due to a reduction of the Ambac Assurance credit
valuation adjustment ("CVA"), partially offset by mark-to-market gains
resulting from improvements in reference obligation prices, gains associated
with runoff of the portfolio, and credit derivative fees earned. The
reduction in CVA reflects observed increases in the fair value of Ambac
Assurance's obligations during the periods, and resulted in losses within the
change in fair value of credit derivative liabilities of $14.6 million for the
two months ended June 30, 2013, $91.3 million for April 2013, and $76.4
million for the three months ended June 30, 2012.

Derivative Products

Derivative product revenues were not impacted by the adoption of Fresh
Start.The derivative products portfolio has been positioned to record gains
in a rising interest rate environment in order to provide a hedge against the
impact of rising rates on certain exposures within the financial guarantee
insurance portfolio.Derivative product revenues for the three months ended
June30, 2013 improved $174.6 million from a loss of $124.1 million reported
for the three months ended June 30, 2012.Results in derivative product
revenues for the second quarter of 2013 were primarily driven by
mark-to-market swap gains caused by rising interest rates, offset by declines
in the Ambac CVA on certain swap liabilities.The losses reported for the
second quarter of 2012 resulted primarilyfrom mark-to-market movements caused
by declining interest rates and the impact of changes to the Ambac
CVA.Changes in the CVA included in the fair value of derivative liabilities
contributed gains (losses) of ($30.5) million for the two months ended June
30, 2013, $3.4 million for April 2013, and $28.9 million for the three months
ended June 30, 2012.

Net Realized Losses on the Extinguishment of Debt

During June 2012, Ambac Assurance exercised options to repurchase surplus
notes with an aggregate par value of $789.2 million for an aggregate cash
payment of $188.4 million. Certain of these options were free-standing
derivatives for accounting purposes and were carried at fair value as assets
on the Company's balance sheet. These surplus notes were originally recorded
at their fair value at the date of issuance. The carrying value of the
extinguished surplus notes and accrued interest less the fair value of the
free-standing derivatives were below the call option exercise prices and,
accordingly, for the three months ended June30, 2012, Ambac recognized a
realized loss of $177.7 million.There have been no such losses realized
during 2013. 

Income on Variable Interest Entities (VIEs)

Income on VIEs was not significantly impacted by the adoption of Fresh
Start.VIE income for the three months ending June 30, 2013 increased $387.3
million from $5.5 million for the three months ending June 30, 2012.Income on
VIEs for April 2013 includes the net income related to a newly consolidated
VIE. Consolidation of this VIE resulted in a gain of $385.3 million,
representing the difference between net assets of the VIE at fair value as of
the consolidation date and the previous carrying value of Ambac's net
insurance liabilities associated with the VIE. VIE income on variable interest
entities for the second quarter of 2012 reflects the positive change in the
fair value of net assets of VIEs during that period.

Loss and Loss Expenses, and Loss Reserves

Reporting of loss and loss expenses was not impacted by the adoption of Fresh
Start. Loss and loss expenses for the second quarter of 2013 declined $754.4
millionfrom $741.4 million for the second quarter of 2012. Second quarter
2013 results were driven by lower estimated losses in the RMBS, asset backed
securities, and international portfolios. The following table provides a
summary of loss and loss expenses for all periods presented:

($ in millions)       Successor Ambac -    Predecessor Ambac -
                      Period from May 1  Period from April  Three Months
                     through June 30,     1                  Ended
                      2013                 through April 30,  June 30, 2012
                                           2013
Loss and loss         $(26.1)             $13.1             $741.4
expenses

During the second quarter of 2013, loss and loss expenses paid, net of
recoveries and reinsurance from all policies, decreased $6.5 million from a
net recovery of $18.4 million during the second quarter of 2012.The amount of
actual claims paid during the period was impacted by the claims payment
moratorium imposed on March 24, 2010 as part of the rehabilitation proceedings
for the Segregated Account of Ambac Assurance ("Segregated Account"). On
September 20, 2012, in accordance with certain rules published by the
rehabilitator of the Segregated Account (the "Policy Claim Rules"), the
Segregated Account commenced paying 25% of each permitted policy claim that
arose since the commencement of the claims payment moratorium.At June 30,
2013, a total of $3.8 billion of presented claims remain unpaid because of the
Segregated Account rehabilitation proceedings and related court orders.

Loss reserves (gross of reinsurance and net of subrogation recoveries)
decreased $0.5 billion at June 30, 2013 from $6.0 billion at March 31, 2013,
primarily due to the newly consolidated VIE. The following table provides
loss reserves by bond type:

($ in millions)                               June 30, 2013 March 31, 2013
RMBS                                          $3,448        $3,425
Student Loans                                 1,064         1,081
Domestic Public Finance                       236           185
Ambac UK (including loss adjustment expenses) 604           657
All other credits                             79            565
Loss adjustment expenses (excluding Ambac UK) 111           132
Totals                                        $5,542        $6,045

RMBS loss reserves, including unpaid claims, increased $23 million from $3.4
billion at March 31, 2013. Reserves as of June 30, 2013, are net of $2.4
billion of estimated representation and warranty breach remediation
recoveries.Ambac Assurance is pursuing remedies and enforcing its rights,
through lawsuits and other methods, to seek redress for breaches of
representations and warranties and fraud related to various RMBS transactions.

Expenses

Underwriting and operating expenses consist of gross operating expenses, which
were unaffected by Fresh Start, plus the amortization of previously deferred
insurance acquisition costs.All deferred acquisition costs were written off
in Fresh Start and accordingly no amortization is reported in Successor Ambac.
The following table provides a summary of underwriting and operating expenses
for all periods presented:

                               Successor Ambac - Predecessor Ambac -
                                Period from May 1 Period from    Three Months
($ in millions)                 through           April 1        Ended
                                June 30, 2013     through        June 30, 2012
                                                  April 30, 2013
Underwriting and operating:                                    
Gross Operating Expenses        $16.0            $9.6          $27.0
Reinsurance commissions, net    0.6              0.1           —
Amortization of deferred        —                1.2           6.6
acquisition costs
Total                           $16.6            $10.9         $33.6

Gross operating expenses for the three months ended June30, 2013 decreased by
$1.4 million from $27.0 million for the three months ended June 30, 2012.The
decrease was primarily due to lower consulting fees, legal expenses,
subscription and data access, and insurance costs, partially offset by higher
premium tax and compensation expenses. 

At the Fresh Start Reporting Date, an insurance intangible asset was recorded
which represents the difference between the fair value and aggregate carrying
value of the insurance and reinsurance assets and liabilities.The insurance
intangible asset is amortized using the level yield method based on par
exposure of the related financial guarantee insurance or reinsurance
contracts. The insurance intangible amortization expense for the two months
ended June 30, 2013 was $25.0 million.

Interest expense was $21.1 million for the Successor Ambac period from May 1
through June 30, 2013, $7.9 million for the Predecessor Ambac period from
April 1 through April 30, 2013, and $31.9 million for the quarter ending June
30, 2012.Interest expense includes accrued interest and accretion of the
discount on surplus notes issued by Ambac Assurance and the Segregated
Account, plus interest expense relating to investment agreements, and a
secured borrowing transaction. As a result of Fresh Start, the unamortized
discounts on surplus notes have decreased as carrying values were reset to
fair value at the Fresh Start Reporting Date, and future cash flows on the
surplus notes have been re-projected. Both of these items have impacted the
amount of discount accretion recognized in interest expense for Successor
Ambac. Accretion of surplus note discounts included within overall interest
expense was $8.3 million and $1.4 million for the two months ended June 30,
2013, and April 2013, respectively, as compared to $3.7 million for the
quarter ending June 30, 2012.The following table provides a summary of
interest expense for all periods presented:

                     Successor Ambac - Predecessor Ambac -
                      Period from May 1 Period from April 1 Three Months Ended
($ in millions)       through           through             June 30, 2012
                      June 30, 2013     April 30, 2013
Interest expense:                                         
Surplus notes         $20.7            $7.5               $29.4
Investment agreements 0.3          0.3                1.7
Secured borrowing     0.1          0.1                0.8
Total                 $21.1          $7.9              $31.9

Reorganization Items, Net

Reorganization items primarily relate to expenses directly attributed to the
Company's Chapter 11 reorganization process.The following table provides a
summary of reorganization items for all periods presented:

                         Successor Ambac  Predecessor Ambac -
                          -
                          Period from May  Period from April 1 Three Months
($ in millions)           1                through             Ended
                          through          April 30, 2013      June 30, 2012
                          June 30, 2013
Reorganization items:                                        
Professional advisory     $0.4            $2.4               $0.8
fees
Fresh Start Adjustments   —             (2,749.6)          —
Total                     $0.4            $(2,747.2)         $0.8

Balance Sheet

As a result of the application of Fresh Start, Successor Ambac re-measured all
tangible and intangible assets and all liabilities, other than deferred taxes
and liabilities associated with post-retirement benefits, at fair value, and
recorded goodwill representing the excess of reorganization value of Successor
Ambac over the fair value of net assets being re-measured. Total assets
increased by approximately $1.3 billion from March 31, 2013 (Predecessor
Ambac) to $27.5 billion at June 30, 2013 (Successor Ambac). The increase is
primarily the result of (i) Fresh Start adjustments of $2.0 billion; and
(ii)higher invested assets at fair value, partially offset by lower (i)
variable interest entity assets; (ii)premium receivables; (iii)derivative
assets; and (iv) subrogation recoverable.Fresh Start adjustments primarily
related to the recording of an insurance intangible asset of $1.6 billion and
goodwill of $515 million, partially offset by the write-off of deferred
acquisition costs.Total liabilities declined by approximately $2.1 billion
from March 31, 2013 (Predecessor Ambac) to $26.9 billion at June 30, 2013
(Successor Ambac). The decline was primarily the result of (i) Fresh Start
and Reorganization adjustments of $1.1 billion; (ii)lower variable interest
entity liabilities; and (iii)lower unearned premium reserves.Fresh Start
Adjustments were primarily due to the elimination of liabilities subject to
compromise of $1.7 billion, partially offset by fair value adjustments
increasing the carrying value of outstanding surplus notes issued by Ambac
Assurance Corporation and the Segregated Account by $786 million.

Overview of Ambac Assurance Statutory Results

During the second quarter of 2013, Ambac Assurance generated a statutory net
loss of $139.8 million. Second quarter 2013 results were primarily
attributable to a $350.0 million expense (no impact on Ambac Assurance
policyholder surplus) related to the issuance of junior surplus notes by the
Segregated Account to Ambac as per the Mediation Agreement, dated September
21, 2011, between Ambac, Ambac Assurance and the Segregated Account (among
others), and net loss and loss expenses of $95.3 million.This was offset by
realized gains of $105.8 million, premiums earned of $90.4 million, net
investment income of $72.9 million, and a reduction in impairments of $48.3
million relating to intercompany loans and guarantees of subsidiary
liabilities.

As of June 30, 2013, Ambac Assurance reported policyholder surplus of $393.7
million, up from $159.5 million at March 31, 2013. The Segregated Account
reported policyholder surplus of $443.3 million as of June 30, 2013, up from
$101.5 million as of March 31, 2013.Ambac Assurance policyholder surplus
increased from March 2013 due to earned premiums, net investment income,
realized gains on securities sold, in addition to an increase in fair value of
below investment grade securities held.

Ambac Assurance's claims-paying resources amounted to approximately $5.8
billion as of June 30, 2013, up approximately $0.2 billion from $5.6 billion
at March 31, 2013. This excludes AUK's claims-paying resources of
approximately $1.1 billion. The increase in claims paying resources was
primarily attributable to principal and interest received on investments and
consideration received on sales of securities that were in an unrealized gain
position. 

Non-GAAP Financial Data

In addition to reporting the Company's quarterly financial results in
accordance with U.S. GAAP, the Company is reporting two non-GAAP financial
measures: Operating Earnings and Adjusted Book Value. A non-GAAP financial
measure is a numerical measure of financial performance or financial position
that excludes (or includes) amounts that are included in (or excluded from)
the most directly comparable measure calculated and presented in accordance
with U.S. GAAP.We are presenting these non-GAAP financial measures because
they provide greater transparency and enhanced visibility into the underlying
profitability drivers of our business and the impact of certain items that the
Company believes will reverse from GAAP book value over time through the GAAP
statements of comprehensive income.Operating Earnings and Adjusted Book Value
are not substitutes for the Company's GAAP reporting, should not be viewed in
isolation and may differ from similar reporting provided by other companies,
which may define non-GAAP measures differently because there is limited
literature with respect to such measures.

For all periods presented, the Company is reporting Operating Earnings as
follows:

($ in millions)    Successor Ambac -  Predecessor Ambac -
                  Period from May 1 Period from April 1 Three Months Ended
                  through            through             June 30, 2012
                   June 30, 2013      April 30, 2013
Operating Earnings $203.1            $(2.1)             $(853.5)

The following table reconciles Net Income attributable to common shareholders
to the non-GAAP measure, Operating Earnings, for all periods presented:

($ in millions)                      Successor    Predecessor Ambac -
                                     Ambac-
                                     Period from Period from   Three Months
                                    May 1        April 1       Ended June 30,
                                     through June through April 2012
                                     30, 2013     30, 2013
                                                             
Net income attributable to common    $205.7      $3,066.8     $(811.1)
shareholders
Adjustments:                                                  
Non-credit impairment fair value     (50.1)      77.5         21.7
(gain) loss on credit derivatives
Effect of consolidating financial    (15.3)      (386.6)      4.5
guarantee VIEs
Insurance intangible amortization    25.0        —           —
Foreign exchange (gain) loss from
re-measurement of premium            7.3         (6.7)        (0.7)
receivables and loss and loss
expense reserves
Fair value (gain) loss on            30.5        (3.4)       (28.9)
derivatives from Ambac CVA
Mark-to-market (gain) loss on stand  —           —            (39.0)
alone derivative surplus note calls
Fresh Start accounting adjustments   —           (2,749.7)    —
Operating Earnings                   $203.1      $(2.1)       $(853.5)

As of the dates presented, the Company is reporting Adjusted Book Value as
follows:

                   Successor Ambac – Predecessor Ambac –
($ in millions)     June 30, 2013     December 31, 2012
Adjusted Book Value $ (424.9)        $(2,841.5)

The following table reconciles Total Ambac Financial Group, Inc. stockholders'
equity (deficit) to the non-GAAP measure Adjusted Book Value as of each date
presented:

                                       Successor Ambac – Predecessor Ambac –
                                        June 30, 2013      December 31, 2012
($ in millions)
                                                         
Total Ambac Financial Group, Inc.       $287.2            $(3,907.5)
stockholders' equity (deficit)
Adjustments:                                              
Non-credit impairment fair value losses 188.5             167.1
on credit derivatives
Effect of consolidating financial       (481.2)           (146.6)
guarantee variable interest entities
Insurance intangible asset and goodwill (2,136.1)         —
Ambac CVA on derivative product
liabilities (excluding credit           (64.6)            (121.9)
derivatives)
Net unearned premiums in excess of      1,690.3           1,818.7
expected losses
Net unrealized investment (gains)
losses in Accumulated Other             91.0              (651.3)
Comprehensive Income
Adjusted Book Value                     $(424.9)          $(2,841.5)

Explanation of Non-GAAP Measures

Operating Earnings.Operating Earnings eliminates the impact of certain U.S.
GAAP accounting requirements and includes certain items that the Company has
realized or expects to realize in the future, but that are not reported under
U.S. GAAP.Operating earnings is defined as net income attributable to common
shareholders, as reported under U.S. GAAP, adjusted on an after-tax basis for
the following:

  *Elimination of the non-credit impairment fair value gains (losses) on
    credit derivatives, which is the amount in excess of the present value of
    the expected estimated credit losses.Such fair value adjustments are
    heavily affected by, and in part fluctuate with, changes in market factors
    such as interest rates and credit spreads, including the market's
    perception of Ambac's credit risk, and are not expected to result in an
    economic gain or loss.These adjustments allow for all financial guarantee
    segment contracts to be accounted for consistent with the Financial
    Services – Insurance Topic of ASC, whether or not they are subject to
    derivative accounting rules.
  *Elimination of the effects of VIEs that were consolidated as a result of
    benefiting from Ambac's financial guarantee.These adjustments will
    eliminate the VIE consolidation and ensure that all financial guarantee
    segment contracts are accounted for consistent with the provisions of the
    Financial Services – Insurance Topic of the ASC, whether or not they are
    subject to consolidation accounting rules.
  *Elimination of the amortization and/or impairment of the financial
    guarantee insurance intangible asset and goodwill that arose as a result
    of Ambac's emergence from bankruptcy and the implementation of Fresh Start
    reporting.The amount reported in net income attributable to common
    shareholders represents the amortization of Fresh Start adjustments
    relating to financial guarantee contracts. These adjustments will ensure
    that all financial guarantee segment contracts are accounted for
    consistent with the provisions of the Financial Services – Insurance Topic
    of the ASC.
  *Elimination of the foreign exchange gains (losses) on re-measurement of
    net premium receivables and loss and loss expense reserves. Long-duration
    receivables constitute a significant portion of the net premium receivable
    balance and represent the present value of future contractual or expected
    collections. Therefore, the current period's foreign exchange
    re-measurement gains (losses) are not necessarily indicative of the total
    foreign exchange gains (losses) that the Company will ultimately
    recognize.
  *Elimination of the gains (losses) relating to Ambac's CVA on derivative
    contracts other than credit derivatives.Similar to credit derivatives,
    fair values include the market's perception of Ambac's credit risk and
    this adjustment only allows for such gain or loss when realized.
  *Elimination of the gains (losses) on call options on certain surplus notes
    of Ambac Assurance.Under U.S. GAAP accounting, Ambac recorded only a
    portion of its call options as derivatives.This adjustment allows for all
    such call options to be accounted for consistently.All call options were
    either exercised or expired in June 2012. Gain (losses) on call option
    exercises are not being adjusted for within operating earnings, consistent
    with other gains and losses.
  *Elimination of non-recurring U.S. GAAP Fresh Start reporting adjustments.

Adjusted Book Value.Adjusted Book Value eliminates the impact of certain U.S.
GAAP accounting requirements and includes the addition of certain items that
the Company has realized or expects to realize in the future, but that are not
reported under U.S. GAAP.Adjusted Book Value is defined as Total Ambac
Financial Group, Inc. stockholders' equity (deficit) as reported under U.S.
GAAP, adjusted for after-tax impact of the following:

  *Elimination of the non-credit impairment fair value loss on credit
    derivatives, which is the amount in excess of the present value of the
    expected estimated economic credit loss.U.S. GAAP fair values are heavily
    affected by, and in part fluctuate with, changes in market factors such as
    interest rates, credit spreads, including Ambac's CVA that are not
    expected to result in an economic gain or loss. These adjustments allow
    for all financial guarantee segment contracts to be accounted for within
    Adjusted Book Value consistent with the provisions of the Financial
    Services – Insurance Topic of the ASC, whether or not they are subject to
    derivative accounting rules.
  *Elimination of the effects of VIEs that were consolidated as a result of
    benefiting from Ambac's financial guarantee.These adjustments will
    eliminate VIE consolidation and ensure that all financial guarantee
    segment contracts are accounted for within Adjusted Book Value consistent
    with the provisions of the Financial Services – Insurance Topic of the
    ASC, whether or not they are subject to consolidation accounting rules.
  *Elimination of the financial guarantee insurance intangible asset and
    goodwill that arose as a result of Ambac's emergence from bankruptcy and
    the implementation of Fresh Start reporting.These adjustments will ensure
    that all financial guarantee segment contracts are accounted for within
    Adjusted Book Value consistent with the provisions of the Financial
    Services – Insurance Topic of the ASC.
  *Elimination of the gain relating to Ambac's CVA embedded in the fair value
    of derivative contracts other than credit derivatives.Similar to credit
    derivatives, fair values include the market's perception of Ambac's credit
    risk and this adjustment only allows for such gain when realized.
  *Addition of the value of the unearned premium reserve on financial
    guaranty contracts and fees on credit derivative contracts in excess of
    expected loss to be expensed, net of reinsurance. This amount represents
    the expected future net earned premiums and credit derivative fees, net of
    expected losses to be expensed, which are not reflected in GAAP equity.
  *Elimination of the unrealized gains and losses on the Company's
    investments that are recorded as a component of accumulated other
    comprehensive income ("AOCI"). The AOCI component of the fair value
    adjustment on the investment portfolio will differ materially from
    realized gains and losses ultimately recognized by the Company based on
    the Company's investment strategy.This adjustment only allows for such
    gains and losses in Adjusted Book Value when realized.

Ambac has a significant tax net operating loss ("NOL") that is offset by a
full valuation allowance in the U.S. GAAP consolidated financial
statements.As a result, for purposes of Adjusted Book Value, we utilized a 0%
effective tax rate.Otherwise we maintain a full valuation allowance and
accordingly, further recognition of the value of the NOL would be reflected in
Adjusted Book Value when realized.

About Ambac

Ambac Financial Group, Inc. ("Ambac"), headquartered in New York City, is a
holding company whose subsidiaries, including its principal operating
subsidiary, Ambac Assurance Corporation ("Ambac Assurance"), Everspan
Financial Guarantee Corporation, and Ambac Assurance UK Limited, provided
financial guarantees and other financial services to clients in both the
public and private sectors globally.Ambac Assurance, including the Segregated
Account of Ambac Assurance (in rehabilitation), is a guarantor of public
finance and structured finance obligations.Ambac is also exploring
opportunities involving the development or acquisition of new financial
services businesses. Ambac's common stock trades on the NASDAQ Global Select
Market (Nasdaq:AMBC).

Additional information regarding Ambac's second quarter 2013 financial
results, including its quarterly report on Form 10-Q for the quarter ended
June 30, 2013, can be found on Ambac's website at www.ambac.com under the
Investor Relations tab.

Forward-Looking Statements

This press release contains statements that may constitute "forward-looking
statements" within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Words such as "estimate,"
"project," "plan," "believe," "anticipate," "intend," "planned," "potential"
and similar expressions, or future or conditional verbs such as "will,"
"should," "would," "could," and "may," or the negative of those expressions or
verbs, identify forward-looking statements. We caution readers that these
statements are not guarantees of future performance. Forward-looking
statements are not historical facts but instead represent only our beliefs
regarding future events, which, may by their nature be inherently uncertain
and some of which may be outside our control. These statements may relate to
plans and objectives with respect to the future, among other things which may
change. We are alerting you to the possibility that our actual results may
differ, possibly materially, from the expected objectives or anticipated
results that may be suggested, expressed or implied by these forward-looking
statements. Important factors that could cause our results to differ, possibly
materially, from those indicated in the forward-looking statements include,
among others, those discussed under "Risk Factors" in Part I, Item 1A of the
2012 Annual Report on Form 10-K and in Part II, Item 1A of the Second Quarter
2013 Form 10-Q.

Any or all of management's forward-looking statements here or in other
publications may turn out to be incorrect and are based on management's
current belief or opinions. Ambac's actual results may vary materially, and
there are no guarantees about the performance of Ambac's securities. Among
events, risks, uncertainties or factors that could cause actual results to
differ materially are: (1)adverse events arising from the rehabilitation
proceedings for the Segregated Account of Ambac Assurance Corporation (the
"Segregated Account"), including the failure of the injunctions issued by the
Wisconsin rehabilitation court to protect the Segregated Account and Ambac
Assurance from certain adverse actions; (2)litigation arising from the
Segregated Account rehabilitation proceedings; (3)decisions made by the
rehabilitator of the Segregated Account for the benefit of policyholders may
result in material adverse consequences for Ambac's security holders;
(4)intercompany disputes or disputes with the rehabilitator of the Segregated
Account; (5)uncertainty concerning our ability to achieve value for holders
of Ambac securities; (6)potential of a full rehabilitation proceeding against
Ambac Assurance; (7)material changes to the Segregated Account rehabilitation
plan or to current rules and procedures governing the payment of permitted
policy claims, with resulting adverse impacts; (8)inadequacy of reserves
established for losses and loss expenses, including our inability to realize
the recoveries or future commutations included in our reserves; (9)market
risks impacting assets in our investment portfolio or the value of our assets
posted as collateral in respect of investment agreements and interest rate
swap transactions; (10)risks relating to determinations of amounts of
impairments taken on investments; (11)credit and liquidity risks due to
unscheduled and unanticipated withdrawals on investment agreements;
(12)market spreads and pricing on insured CLOs and other derivative products
insured or issued by Ambac or its subsidiaries; (13)Ambac's financial
position and the Segregated Account rehabilitation proceedings may prompt
departures of key employees and may impact our ability to attract qualified
executives and employees; (14)the risk of litigation and regulatory inquiries
or investigations, and the risk of adverse outcomes in connection therewith,
which could have a material adverse effect on our business, operations,
financial position, profitability or cash flows; (15)credit risk throughout
our business, including but not limited to credit risk related to residential
mortgage-backed securities, student loan and other asset securitizations,
CLOs, public finance obligations and exposures to reinsurers; (16)default by
one or more of Ambac Assurance's portfolio investments, insured issuers or
counterparties, including as a result of bankruptcy (including municipal
bankruptcy) proceedings; (17)the risk that our risk management policies and
practices do not anticipate certain risks and/or the magnitude of potential
for loss as a result of unforeseen risks; (18)factors that may influence the
amount of installment premiums paid to Ambac, including the Segregated Account
rehabilitation proceedings; (19)changes in prevailing interest rates;
(20)the risk of volatility in income and earnings, including volatility due
to the application of fair value accounting, required under the relevant
derivative accounting guidance; (21)changes in accounting principles or
practices that may impact Ambac's reported financial results; (22)legislative
and regulatory developments; (23)operational risks, including with respect to
internal processes, risk models, systems and employees; (24)changes in tax
laws, tax disputes and other tax-related risks; and (25)other risks and
uncertainties that have not been identified at this time.

Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2013 and December 31, 2012
(Dollars in Thousands)
                                                           
                                              Successor     Predecessor
                                              June 30, 2013 December 31, 2012
                                              (unaudited)   
Assets                                                      
                                                           
Investments:                                                
Fixed income securities, at fair value                      
(amortized cost of $5,676,216 in 2013 and      $5,585,275    $5,402,395
$4,751,824 in 2012)
Fixed income securities pledged as collateral,              
at fair value
(amortized cost of $164,340 in 2013 and        164,295      265,779
$265,517 in 2012)
Short-term investments, at fair value
(amortized cost of $611,174 in 2013 and        611,177       661,658
$661,219 in 2012)
Other investments, at fair value               240,417       100
Total investments                              6,601,164     6,329,932
                                                           
Cash                                           20,515        43,837
Receivable for securities                      2,221         761
Investment income due and accrued              35,718        39,742
Premium receivables                            1,464,898     1,620,621
Reinsurance recoverable on paid and unpaid     154,964       159,086
losses
Deferred ceded premium                         159,165       177,893
Subrogation recoverable                        501,087       497,346
Deferred acquisition costs                     --          199,160
Loans                                          7,053         9,203
Derivative assets                              91,178        126,106
Current taxes                                  4,224         --
Insurance intangible assets                    1,621,612    --
Goodwill                                       514,511      --
Other assets                                   33,738        39,715
Variable interest entity assets:                            
Fixed income securities, at fair value         2,242,989     2,261,294
Restricted cash                                22,994        2,290
Investment income due and accrued              1,224         4,101
Loans                                          13,820,878    15,568,711
Intangible assets                              162,012      --
Other assets                                   13,222        5,467
Total assets                                  $27,475,367   $27,085,265
                                                           
Liabilities and Stockholders' Equity (Deficit)              
                                                           
Liabilities:                                                
Liabilities subject to compromise              $0            $1,704,904
Unearned premiums                              2,372,807    2,778,401
Losses and loss expense reserve                6,042,649     6,619,486
Ceded premiums payable                         89,435        94,527
Obligations under investment agreements        358,610       356,091
Obligations under investment repurchase        5,926        5,926
agreements
Deferred taxes                                 1,564         1,586
Current taxes                                  --          96,778
Long-term debt                                 945,940       150,170
Accrued interest payable                       249,387       228,835
Derivative liabilities                         451,790       531,315
Other liabilities                              86,663        102,488
Payable for securities purchased               42,901       25
Variable interest entity liabilities:                       
Accrued interest payable                       724          3,618
Long-term debt                                 14,268,493   15,436,008
Derivative liabilities                         1,989,783    2,221,781
Other liabilities                              6,628        293
Total liabilities                              26,913,300    30,332,232
                                                           
Stockholders' equity (deficit):                             
Successor preferred stock, par value $0.01 per share;        
authorized shares - 20,000,000;
issued and outstanding shares - none at June   --          --
30, 2013
Predecessor preferred stock, par value $0.01 per share; authorized shares -
4,000,000;
issued and outstanding shares - none at        --          --
December 31, 2012
Successor common stock, par value $0.01 per share;           
authorized shares - 130,000,000;
issued and outstanding shares - 45,002,456 at  450           --
June 30, 2013
Predecessor common stock, par value $0.01 per share; authorized shares -
650,000,000;
issued and outstanding shares - 308,016,674 at --          3,080
December 31, 2012
Additional paid-in capital                     184,565       2,172,027
Accumulated other comprehensive (loss) income  (103,507)    625,385
Retained earnings (accumulated deficit)        205,681      (6,297,264)
Predecessor common stock held in treasury at   --          (410,755)
cost, 5,580,657 shares at December 31, 2012
Total Ambac Financial Group, Inc.              287,189       (3,907,527)
stockholders' equity (deficit)
                                                           
Non-controlling interest                       274,878       660,560
Total stockholders' equity (deficit)           562,067       (3,246,967)
Total liabilities and stockholders' equity     $27,475,367   $27,085,265
(deficit)




Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(Dollars in Thousands Except Share Data)
                                                              
                                  Successor Ambac Predecessor Ambac
                                  Period from May Period from   Three Months
                                   1               April 1       Ended
                                  through June    through April June 30, 2012
                                   30, 2013        30, 2013
                                                              
Revenues:                                                     
                                                              
Net premiums earned               $58,039         $29,744       $103,042
                                                              
Net investment income:                                         
Securities available-for-sale and 29,581          31,499        93,836
short-term
Other investments                 (3,015)        912          --
Total net investment income:      26,566         32,411       93,836
                                                              
Other-than-temporary impairment                               
losses:
Total other-than-temporary        (2,004)         (467)         (7,492)
impairment losses
Portion of loss recognized in     2              --          5,164
other comprehensive income
Net other-than-temporary
impairment losses recognized in    (2,002)        (467)        (2,328)
earnings
                                                              
Net realized investment gains     18,472          7,245         67,067
                                                              
Change in fair value of credit                                
derivatives:
Realized gains and other          6,074           935           3,073
settlements
Unrealized gains (losses)         45,146         (74,106)     (10,488)
Net change in fair value of       51,220         (73,171)     (7,415)
credit derivatives
                                                              
Derivative products               83,713          (33,166)      (124,091)
Net realized losses on            --            --          (177,745)
extinguishment of debt
Other income                      2,179           (1,135)       36,137
Income on variable interest       4,598          388,240      5,536
entities
Total revenues before expenses    242,785         349,701       (5,961)
and reorganization items
                                                              
Expenses:                                                     
Losses and loss expenses          (26,117)        13,079        741,411
Insurance intangible amortization 24,952          --          --
Underwriting and operating        16,587          10,877        33,567
expenses
Interest expense                  21,144         7,860        31,855
Total expenses before             36,566          31,816        806,833
reorganization items
                                                                
Pre-tax income (loss) from
continuing operations              206,219        317,885      (812,794)
beforereorganization items
                                                              
Reorganization items               424             (2,747,239)   767
                                                              
Pre-tax income (loss) from         205,795        3,065,124    (813,561)
continuing operations
                                                              
Provision (benefit) for income     513            98           (211)
taxes
Net income (loss)                  205,282        3,065,026    (813,350)
Less:net loss attributable to the  (399)          (1,724)      (2,232)
noncontrolling interest
Net income (loss) attributable to  $205,681        $3,066,750    ($811,118)
common shareholders
                                                              
Net income (loss) per share        $4.57           $10.14        ($2.68)
Net income (loss) per diluted      $4.42           $10.14        ($2.68)
share
                                                              
Weighted-average number of common                              
shares outstanding:
                                                              
Basic                             45,000,653     302,469,626  302,469,196
Diluted                           46,575,717     302,579,219  302,469,196

CONTACT: Michael Fitzgerald
         (212) 208-3222
         mfitzgerald@ambac.com

Ambac Financial Group, Inc.
 
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