Ambac Financial Group, Inc. Announces Third Quarter 2013 Results

Ambac Financial Group, Inc. Announces Third Quarter 2013 Results

NEW YORK, Nov. 13, 2013 (GLOBE NEWSWIRE) -- Ambac Financial Group, Inc.
("Ambac" or the "Company") (Nasdaq:AMBC) today reported a third quarter 2013
net profit of $231.0 million and operating earnings of $193.4 million, as
compared to a net profit of $157.5 million and operating earnings of $113.6
million for the third quarter of 2012. For the third quarter of 2013, the
Company is also reporting earnings per diluted share of $4.98.

Key drivers of third quarter 2013 results were

  *Net earned premiums of $70.9 million
  *Net investment income of $52.1 million
  *Other than temporary impairment losses of $38.0 million
  *Net change in fair value of credit derivatives of $31.2 million
  *Derivative products revenue of $12.4 million
  *Income from Variable Interest Entities ("VIEs") of $55.1 million
  *Loss and loss expenses (net benefit) of ($154.3) million
  *Interest and operating expenses of $56.9 million
  *Insurance intangible amortization of $37.5 million

"We are making good progress on our two strategic priorities – realizing the
maximum return on our investment in Ambac Assurance and seeking to diversify
and grow our business focus and broaden our revenue base," said Diana Adams,
President and Chief Executive Officer. "We are committed to driving value
through the execution of these strategies and to providing transparency
regarding our progress and performance."

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 relating to periods from May 1, 2013 are
referred to as "Successor" and the financial results relating to periods
through April 30, 2013 ("Fresh Start Reporting Date") are referred to as
"Predecessor".

In addition to the reorganization items noted above, the following
significantly affect the comparability of third 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 impacted the net investment
income of Successor Ambac.

Interest Expenses: Surplus notes issued by Ambac Assurance Corporation ("Ambac
Assurance") and the Segregated Account of Ambac Assurance (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 impacted 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.

GAAP Financial Results

Net Premiums Earned

Net premiums earned include normal net premiums, and accelerated premiums,
which result from calls and other policy accelerations recognized during the
period. For the third quarter of 2013, net premiums earned were $70.9 million,
as compared to $113.1 million in the third quarter of 2012. Normal premium
earnings were $51.2 million in the third quarter of 2013 as compared to $78.7
million in the third quarter of 2012. Accelerated premium earnings were $19.7
million in the third quarter of 2013 as compared to $34.4 million in the third
quarter of 2012. Structured finance net premiums earned were adversely
affected by the write-off of premiums receivable on certain distressed
structured finance credits that were deemed uncollectible. The following table
provides a summary of net premiums earned for the three month periods ending
September 30, 2013 and September 30, 2012:

                                                       
                            SuccessorAmbac–  PredecessorAmbac–
($ in millions)              Three Months Ended ThreeMonthsEnded
                             September30, 2013 September30, 2012
Public Finance               $33.0             $ 37.9
Structured Finance           (0.5)             20.0
International Finance        18.7              20.8
Total normal premiums earned 51.2              78.7
Accelerated earnings         19.7              34.4
Total net premiums earned    $70.9             $113.1

Net Investment Income

Net investment income for the third quarter of 2013 was $52.1 million, as
compared to $84.1 million for the third quarter of 2012.The decline in net
investment income was driven primarily by Fresh Start adjustments that
increased the overall amortized cost basis and decreased the effective yield
of the portfolio for Successor Ambac. The following table provides a summary
of net investment income for the three month periods ending September 30, 2013
and September 30, 2012:

                                                      
                           SuccessorAmbac–  PredecessorAmbac–
($ in millions)             Three Months Ended ThreeMonthsEnded
                            September30, 2013 September30, 2012
Financial Guarantee         $51.6             $ 81.0
Financial Services          0.5               3.0
Corporate                   —                0.1
Total net investment income $52.1             $ 84.1

The Company continues to shift the Financial Guarantee investment portfolio
away from tax-exempt municipal securities toward higher yielding assets,
including Ambac Assurance-wrapped securities purchased as part of the
Company's loss remediation strategy. Financial Services investment income
continues to decline, as the investment agreement portfolio runs off and the
balance of investment assets declines accordingly.

Net Other-Than-Temporary Impairments

Net other-than-temporary impairments of invested assets recognized in earnings
increased to $38.0 million for the three months ending September 30, 2013 from
$0.4 million for the three months ending September 30, 2012.Third quarter
2013 net other-than-temporary impairments relate to the Company's intent to
sell certain securities that are in an unrealized loss position as of
September30, 2013. Net other-than-temporary impairments for the third
quarter of 2012 were primarily related to investments in RMBS, including those
guaranteed by Ambac Assurance.

Net Change in Fair Value of Credit Derivatives

The gain attributable to the change in fair value of credit derivatives for
the three months ending September 30, 2013 was $31.2 million as compared to
$27.4 million for the three months ending September 30, 2012. The change in
fair value of credit derivatives for both periods includes improvement in
reference obligation prices, gains associated with runoff of the portfolio and
credit derivative fees earned, net of the impact of the Ambac Assurance credit
valuation adjustment ("Ambac CVA").The reduction in the Ambac CVA resulted in
losses within the overall change in fair value of credit derivative
liabilities of $3.4 million for the three months ending September 30, 2013,
and $45.5 million for the three months ending September 30, 2012.

Derivative Products

The derivative products portfolio has been positioned to generate 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 products revenue for the three months ending
September30, 2013 was $12.4 million as compared to a net loss of $36.0
million for the three months ending September30, 2012. Derivative products
revenue during the third quarter of 2013 was driven by mark-to-market gains in
the portfolio caused by rising interest rates during the periods, partially
offset by the impact of the Ambac CVA. The net loss for the three months
ending September30, 2012 primarily resulted from a realized loss related to
the negotiated termination of a derivative asset. Inclusion of the Ambac CVA
in the valuation of financial services derivatives resulted in losses within
derivative products revenue of $1.1 million for the three months ending
September30, 2013, compared to losses of $5.3 million for the three months
ending September30, 2012.

Income on Variable Interest Entities (VIEs)

VIE income for the three months ending September 30, 2013 was $55.1 million,
as compared to $6.1 million for the three months ending September 30, 2012.
VIE income in the third quarter of 2013 was primarily attributable to the
impact of an increase in the Ambac CVA on the fair value of certain VIE note
liabilities that include significant projected financial guarantee
claims.Income on VIEs for the third quarter of 2012 reflects the positive
change in the fair value of net assets of VIEs during the period.

Loss and Loss Expenses, and Loss Reserves

Loss and loss expenses for the third quarter of 2013 were a net benefit of
$154.3 million, as compared to a net benefit of $18.7 million for the three
months ending September 30, 2012. Third quarter 2013 results were driven by
lower estimated losses in first and second lien RMBS and student loans,
partially offset by higher estimated losses in the municipal finance
portfolio.

During the third quarter of 2013, loss and loss expenses paid, net of
recoveries and reinsurance from all policies, were $6.3 million as compared to
$637.0 million during the third 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. 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.The resumption
of 25% partial claims payments in the third quarter of 2012 was the key driver
of the amount of claims paid during that period. At September 30, 2013, a
total of $3.9 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) at
September 30, 2013 were $5.4 billion as compared to $5.5 billion at June 30,
2013. The following table provides loss reserves by bond type at September
30, 2013 and June 30, 2013:

($ in millions)                               September 30, 2013 June 30, 2013
RMBS                                          $3,347             $3,448
Student Loans                                 944                1,064
Domestic Public Finance                       275                236
Ambac UK (including loss adjustment expenses) 619                604
All other credits                             95                 79
Loss adjustment expenses (excluding Ambac UK) 120                111
Totals                                        $5,400             $5,542

Reserves as of September 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, 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 the three month periods
ending September 30, 2013 and September 30, 2012:

                                                                  
                                       SuccessorAmbac–  PredecessorAmbac–
($ in millions)                         Three Months Ended ThreeMonthsEnded
                                        September30, 2013 September30, 2012
Underwriting and operating:                               
Gross Operating Expenses                $24.3             $26.1
Reinsurance commissions, net            0.7               0.5
Amortization of deferred acquisition    —                6.8
costs
Total                                   $25.0             $33.4

Gross operating expenses for the three months ended September 30, 2013 were
$24.3 million as compared to $26.1 million for the three months ending
September 30, 2013. The decrease was primarily due to lower compensation and
consulting 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 three months
ending September 30, 2013 was $37.5 million.

Interest expense was $31.8 million for the three months ending September 30,
2013, as compared to $23.3 million for the three months ending September 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 by resetting the carrying value 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 $12.1
million for the three months ending September30, 2013, as compared to $2.9
million for the three months ending September30, 2012. The following table
provides a summary of interest expense the three month periods ending
September 30, 2013 and September 30, 2012:

                                                
                     SuccessorAmbac–  PredecessorAmbac–
($ in millions)       Three Months Ended ThreeMonthsEnded
                      September30, 2013 September30, 2012
Interest expense:                       
                                         
Surplus notes         $31.2             $ 21.2
Investment agreements 0.5               1.5
Secured borrowing     0.1               0.6
Total                 $31.8             $ 23.3

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 at
September 30, 2013 were $28.6 billion, an increase of approximately $1.1
billion from $27.5 billion at June 30, 2013. The increase is primarily the
result of higher VIE assets and fair value of invested assets.Total
liabilities at September 30, 2013 were $27.7 billion, an increase of
approximately $0.8 billion from $26.9 billion at June 30, 2013. The increase
was primarily the result of higher variable interest entity liabilities,
partially offset by lower loss and loss expense reserves, unearned premium
reserves, and derivative liabilities.

The fair value of the consolidated investment portfolio was $6.7 billion at
September 30, 2013, up $0.1 billion from $6.6 billion at June 30, 2013.The
fair value of the financial guarantee investment portfolio was $6.3 billion at
September 30, 2013, up $0.1 billion from $6.2 billion at June 30, 2013.

Overview of Ambac Assurance Statutory Results

During the third quarter of 2013, Ambac Assurance generated statutory net
income of $127.7 million. Third quarter 2013 statutory results were primarily
driven by net investment income of $95.4 million and premiums earned of $75.3
million, partially offset by net loss and loss expenses of $43.0 million.

As of September 30, 2013, Ambac Assurance reported policyholder surplus of
$501.7 million, up from $393.7 million at June 30, 2013. The increase in
policyholder surplus from June 2013 was primarily due to statutory net income
in the third quarter of 2013, as more fully described above.

Ambac Assurance's claims-paying resources amounted to approximately $5.9
billion as of September 30, 2013, up approximately $0.1 billion from $5.8
billion at June 30, 2013. This excludes Ambac Assurance UK Limited's
claims-paying resources of approximately $1.1 billion. The increase in Ambac
Assurance's claims paying resources was primarily attributable to net
investment income and improvements in the valuation of investments carried at
fair value, partially offset by reductions in expected future installment
premiums.

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.

Operating Earnings were $193.4 million for the three months ending September
30, 2013 as compared to $113.6 million for the three months ending September
30, 2012.

The following table reconciles Net Income attributable to common shareholders
to the non-GAAP measure, Operating Earnings, for the three month periods
ending September 30, 2013 and September 30, 2012:

                                      

                                       SuccessorAmbac–  PredecessorAmbac–
                                        Three Months Ended Three Months
                                       September30,2013 Ended
                                                           September30,2012
                                                         
Net income attributable to common       $231.0            $157.5
shareholders
Adjustments:                                              
Non-credit impairment fair value gain   (8.5)             (45.3)
on credit derivatives
Effect of consolidating financial       (48.7)            4.7
guarantee VIEs
Insurance intangible amortization       37.5              —
Foreign exchange gain from
re-measurement of premium receivables   (19.0)            (8.6)
and loss and loss expense reserves
Fair value loss on derivatives from     1.1               5.3
Ambac CVA
Operating Earnings                      $193.4            $113.6

Adjusted Book Value was ($498.4) million as of September 30, 2013, as compared
to ($538.1) million at June 30, 2013.

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:

                                                               
                                             As of              As of
                                              September30, 2013 June30, 2013
Total Ambac Financial Group, Inc.             $611.4            $287.2
stockholders' equity
Adjustments:                                                    
Non-credit impairment fair value losses on    180.0             188.5
credit derivatives
Effect of consolidating financial guarantee   (653.7)           (594.4)
variable interest entities
Insurance intangible asset and goodwill       (2,135.5)         (2,136.1)
Ambac CVA on derivative product liabilities   (63.5)            (64.6)
(excluding credit derivatives)
Net unearned premiums and fees in excess of   1,525.8           1,690.3
expected losses
Net unrealized investment losses in           37.1              91.0
Accumulated Other Comprehensive Income
Adjusted Book Value                           $(498.4)          $(538.1)

Adjusted Book Value of ($538.1) million as of June 30, 2013 reflects a
($113.2) million revision to the previously reported amount of ($424.9)
million in Ambac's second quarter 2013 Form 10-Q.The revision relates to a
previously omitted adjustment associated with conforming the Adjusted Book
Value treatment of a newly consolidated VIE to that of other VIEs.

The Adjusted Book Value increase from June 30, 2013 to September 30, 2013 of
$39.7 million was driven by Operating Earnings for the three months ended
September 30, 2013 partially offset by reductions in unearned premiums in
excess of expected losses previously recognized in Adjusted Book Value.The
reductions in unearned premiums in excess of expected losses recognized in
Adjusted Book Value occurred due to premiums earned in the third quarter 2013
and to higher expected losses on certain financial guarantee contracts as of
September 30, 2013.

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.We maintain a full valuation allowance against our
deferred tax asset and recognition of the value of the NOL would be reflected
in Adjusted Book Value considering all facts and circumstances as of the
relevant reporting date.

About Ambac

Ambac, headquartered in New York City, is a holding company whose
subsidiaries, including its principal operating subsidiary, 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 (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 third quarter 2013 financial results,
including its quarterly report on Form 10-Q for the quarter ended September
30, 2013, can be found on Ambac's website at www.ambac.com under the Investor
Relations tab.

Forward-Looking Statements

In this press release, we have included 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, Item1A of the 2012 Annual Report on Form 10-K and in Part II, Item1A of
the Third 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 Corporation ("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 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; (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; (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
September 30, 2013 and December 31, 2012
(Dollars in Thousands)
                                                           
                                         Successor          Predecessor
                                         September 30, 2013 December 31, 2012
                                         (unaudited)        
Assets                                                      
                                                           
Investments:                                                
Fixed income securities, at fair value
(amortized cost of $5,795,824 in 2013 and $5,758,665         $5,402,395
$4,751,824 in 2012)
Fixed income securities pledged as
collateral, at fair value (amortized cost 140,273           265,779
of $140,216 in 2013 and $265,517 in 2012)
Short-term investments, at fair value
(amortized cost of $549,233 in 2013 and   549,229            661,658
$661,219 in 2012)
Other investments, at fair value          237,446            100
Total investments                         6,685,613          6,329,932
                                                           
Cash                                      28,551             43,837
Receivable for securities                 19,339             761
Investment income due and accrued         34,115             39,742
Premium receivables                       1,436,010          1,620,621
Reinsurance recoverable on paid and       137,400            159,086
unpaid losses
Deferred ceded premium                    152,076            177,893
Subrogation recoverable                   484,605            497,346
Deferred acquisition costs                --               199,160
Loans                                     6,148              9,203
Derivative assets                         82,962             126,106
Current taxes                             3,589              --
Insurance intangible assets               1,620,952         --
Goodwill                                  514,511           --
Other assets                              41,349             39,715
Variable interest entity assets:                            
Fixed income securities, at fair value    2,423,914          2,261,294
Restricted cash                           23,045             2,290
Investment income due and accrued         4,154              4,101
Loans                                     14,762,446         15,568,711
Intangible assets                         159,505           --
Other assets                              13,354             5,467
Total assets                              $28,633,638        $27,085,265
                                                           
Liabilities and Stockholders' Equity                        
(Deficit)
                                                           
Liabilities:                                                
Liabilities subject to compromise         $0                 $1,704,904
Unearned premiums                         2,303,627         2,778,401
Losses and loss expense reserve           5,884,660          6,619,486
Ceded premiums payable                    86,028             94,527
Obligations under investment agreements   359,484            356,091
Obligations under investment repurchase   1,370             5,926
agreements
Deferred taxes                            1,611              1,586
Current taxes                             --               96,778
Long-term debt                            954,721            150,170
Accrued interest payable                  271,330            228,835
Derivative liabilities                    400,382            531,315
Other liabilities                         77,270             102,488
Payable for securities purchased          82,144            25
Variable interest entity liabilities:                       
Accrued interest payable                  3,565             3,618
Long-term debt                            15,266,893        15,436,008
Derivative liabilities                    2,047,204         2,221,781
Other liabilities                         6,599             293
Total liabilities                         27,746,888         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 September 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 -            450                --
130,000,000; issued and outstanding
shares - 45,002,524 at September 30, 2013
Predecessor common stock, par value $0.01
per share; authorized shares -            --               3,080
650,000,000; issued and outstanding
shares - 308,016,674 at December 31, 2012
Additional paid-in capital                184,566            2,172,027
Accumulated other comprehensive (loss)    (10,246)          625,385
income
Retained earnings (accumulated deficit)   436,656           (6,297,264)
Predecessor common stock held in treasury
at cost, 5,580,657 shares at December 31, --               (410,755)
2012
Total Ambac Financial Group, Inc.         611,426            (3,907,527)
stockholders' equity (deficit)
                                                           
Non-controlling interest                  275,324            660,560
Total stockholders' equity (deficit)      886,750            (3,246,967)
Total liabilities and stockholders'       $28,633,638        $27,085,265
equity (deficit)




Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(Dollars in Thousands Except Share Data)
                                                          
                                        Successor Ambac    Predecessor
                                        Three Months Ended Three Months Ended
                                        September 30, 2013 September 30, 2012
                                                          
Revenues:                                                  
                                                          
Net premiums earned                      $70,949            $113,074
                                                          
Net investment income:                                     
Securities available-for-sale and        51,776             84,078
short-term
Other investments                        350               --
Total net investment income              52,126            84,078
                                                          
Other-than-temporary impairment losses:                    
Total other-than-temporary impairment    (38,553)           (2,501)
losses
Portion of loss recognized in other      516               2,147
comprehensive income
Net other-than-temporary impairment      (38,037)          (354)
losses recognized in earnings
                                                          
Net realized investment (losses) gains   (10,310)           3,162
                                                          
Change in fair value of credit                             
derivatives:
Realized gains and other settlements     1,580              2,944
Unrealized gains                         29,614            24,496
Net change in fair value of credit       31,194            27,440
derivatives
                                                          
Derivative products                      12,372             (36,007)
Other loss                               (1,751)            (368)
Income on variable interest entities     55,109            6,137
Total revenues before expenses and       171,652            197,162
reorganization items
                                                          
Expenses:                                                  
Losses and loss expenses                 (154,290)          (18,745)
Insurance intangible amortization        37,473             --
Underwriting and operating expenses      25,047             33,347
Interest expense                         31,817            23,268
Total (benefit) expenses before          (59,953)           37,870
reorganization items
                                                          
Pre-tax income from continuing           231,605           159,292
operations before reorganization items
                                                          
Reorganization items                     4                  1,252
                                                          
Pre-tax income from continuing           231,601           158,040
operations
                                                          
Provision for income taxes               594               667
Net income                               231,007           157,373
Less:net gain (loss) attributable to the 32                (171)
noncontrolling interest
Net income attributable to common        $230,975           $157,544
shareholders
                                                          
                                                          
Net income per share                     $5.13              $0.52
Net income per diluted share             $4.98              $0.52
                                                          
Weighted-average number of common shares                   
outstanding:
                                                          
Basic                                    45,002,463        302,469,966
Diluted                                  46,354,875        302,582,276

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

Ambac Financial Group, Inc.
 
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