Ambac Announces First Quarter 2014 Results

Ambac Announces First Quarter 2014 Results

Favorable Loss Reserve Development and Execution of Commutation Strategy Drive
Results

NEW YORK, May 12, 2014 (GLOBE NEWSWIRE) -- Ambac Financial Group, Inc.
(Nasdaq:AMBC) ("Ambac" or the "Company"), a holding company whose
subsidiaries, including Ambac Assurance Corporation ("Ambac Assurance"),
provide financial guarantees and other financial services to clients in both
the public and private sectors globally, today reported results for the three
months ended March 31, 2014.

Ambac First Quarter 2014 Summary Results ($ in millions, except per share
data)
                                              Successor Predecessor Chg $
                                               1Q14      1Q13
Net premiums earned                            $82.5   $100.3    $(17.8)
Net investment income                          70.8     84.5       (13.7)
Other than temporary impairment losses         (10.4)   --        (10.4)
Net realized investment gains                  16.3     46.1       (29.8)
Net change in fair value of credit derivatives 7.4      12.8       (5.4)
Derivative products revenue                    (53.8)   (0.6)      (53.2)
(Loss) income from Variable Interest Entities  (5.5)    38.3       (43.8)
("VIEs")
Loss and loss expenses (benefit)               (140.0)  (51.1)     (88.9)
Interest and gross operating expenses          58.2     51.5       6.7
Insurance intangible amortization              31.7     --        31.7
Net income                                     155.9    282.3      (126.4)
Net income per fully diluted share             $3.31   $0.93     NM
Operating earnings ^1                          176.6    297.4      (120.8)
Operating earnings per fully diluted share^1   $3.75   $0.98     NM
Weighted-average diluted shares outstanding    47.0     302.6      NM
^1 Non-GAAP Financial Data                                         
NM = Not Meaningful                                                

Commenting on today's announcement, Diana N. Adams, President and Chief
Executive Officer said, "We are pleased to report another quarter of solid
financial results. Our efforts in the first quarter remained focused on
carrying out our value creation initiatives, which included the acquisition of
approximately $280 million par of student loan securities in anticipation of
commuting the associated expected future losses. This purchase is another step
forward in our strategy to pursue opportunities for loss mitigation through
proactive management of our insurance and investment portfolios."

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 beginning 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".

Net Income and Operating Earnings

Net income in the first quarter 2014 was $155.9 million, or $3.31 per diluted
share, compared with $282.3 million, or $0.93 per diluted share, in the first
quarter 2013. During the same periods, operating earnings were $176.6 million,
or $3.75 per diluted share compared with $297.4 million, or $0.98 per diluted
share.

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 first quarter of 2014, net premiums earned were $82.5 million,
as compared to $100.3 million in the first quarter of 2013. The decrease in
net premiums earned was primarily driven by decreases in public finance and
structured finance normal earned premiums resulting from the run-off of the
associated insured portfolios. In addition, accelerated premiums earned
decreased as a result of lower public finance and structured finance
refundings, partially offset by an increase in international accelerated
premiums.The following table provides a summary of net premiums earned for
the three month periods ended March 31, 2014 and March 31, 2013:

                             SuccessorAmbac–  PredecessorAmbac–
($ in millions)              Three Months Ended ThreeMonthsEnded
                             March 31, 2014    March 31, 2013
Public Finance               $27.3            $36.1
Structured Finance           10.4              15.7
International Finance        19.7              19.1
Total normal premiums earned 57.4              70.9
Accelerated premiums earned  25.1              29.4
Total net premiums earned    $82.5            $100.3

Net Investment Income

Net investment income for the first quarter of 2014 was $70.8 million, as
compared to $84.5 million for the first quarter of 2013.The decrease 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 decline in investment income was moderated by the ongoing reallocation of
the Financial Guarantee investment portfolio away from municipal securities
towards more diversified assets and distressed Ambac insured 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 agreement assets declines
accordingly.

Net Other-Than-Temporary Impairments

Net other-than-temporary impairments of invested assets recognized in earnings
was $10.4 million for the three months ended March 31, 2014 compared to no
impairments for the three months ended March 31, 2013.Net
other-than-temporary impairments in the first quarter of 2014 relate to credit
losses on certain Ambac insured securities purchased as part of its risk
remediation strategy and the Company's intent to sell certain securities that
were in an unrealized loss position as of March 31, 2014 in connection with
its portfolio reallocation initiative referenced above.Our ongoing assessment
of liquidity, particularly in light of the previously announced proposed
amendments to the Plan of Rehabilitation, could result in Ambac being required
to sell securities that are in an unrealized loss position, which could result
in additional other-than-temporary impairment charges in the future.

Net Realized Investment Gains

Net realized investment gains for the first quarter of 2014 were $16.3
million, as compared to $46.1 million for the first quarter of 2013.The first
quarter of 2014 included gains associated with the sale of certain assets
pursuant to Ambac's remediation activities, gains on securities sold in
connection with the investment portfolio reallocation initiative, and foreign
exchange losses of $2.1 million.Net gains for the first quarter of 2013 were
primarily the result of recoveries from the settlement of litigation
associated with investment securities that were previously written-off.

Net Change in Fair Value of Credit Derivatives

The gain attributable to the change in fair value of credit derivatives for
the three months ended March 31, 2014 was $7.4 million as compared to $12.8
million for the three months ended March 31, 2013. The change in fair value of
credit derivatives for both periods includes improvement in reference
obligation prices, gains associated with the 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 $9.8 million for the three months ended March 31, 2014, and
$69.5 million for the three months ended March 31, 2013.

Derivative Products

The derivative products portfolio has been positioned to generate gains in a
rising interest rate environment in order to provide an economic hedge against
the impact of rising rates on certain exposures within the financial guarantee
insurance portfolio.Derivative products revenue for the three months ended
March 31, 2014 was a loss of $53.8 million as compared to a loss of $0.6
million for the three months ended March 31, 2013. Derivative products revenue
during both periods reflect mark-to-market gains and losses in the portfolio
caused by changing interest rates offset by the impact of the Ambac CVA in the
valuation of financial services derivatives. The first quarter 2014 loss was
driven by falling interest rates partially offset by gains of $5.4 million
from the impact of the Ambac CVA.In the first quarter of 2013, interest rate
driven gains were more than offset by losses of $30.1 million from the impact
of the Ambac CVA.

(Loss) Income on Variable Interest Entities (VIEs)

VIE losses for the three months ended March 31, 2014 were $5.5 million, as
compared to a gain of $38.3 million for the three months ended March 31,
2013.Losses on VIEs for the first quarter of 2014 reflect the decreased fair
value of net assets related primarily to the lower CVA applied to certain VIE
note liabilities that include significant projected financial guarantee
claims.Gains in the first quarter 2013 reflect increases to the fair value of
net assets arising from longer estimated lives of certain transactions.

Loss and Loss Expenses (Benefit), and Loss Reserves

Loss and loss expenses (benefit) for the first quarter of 2014 were $(140.0)
million, as compared to $(51.1) million for the three months ended March 31,
2013.First quarter 2014 results were driven by lower estimated losses in
residential mortgage-backed securities ("RMBS") and student loan securities,
partially offset by higher estimated losses as a result of declines in
discount rates during the period.Reductions in RMBS estimated losses were
primarily due to historical and projected housing price appreciation and
improved performance in underlying transactions.In the first quarter 2014,
Ambac acquired approximately $280 million par of student loan securities and
is anticipating commuting the expected future losses.With this purchase, the
Company's view of the likelihood of commutations for such securities
increased, resulting in lower probability weighted loss reserves.The first
quarter 2013 was impacted by lower estimated losses in RMBS and public
finance, partially offset by higher estimated losses in student loan
securities.

During the first quarter of 2014, loss and loss expenses paid, net of
recoveries and reinsurance from all policies, were $9.4 million as compared to
$(12.3) million during the first quarter of 2013. The change was primarily the
result of lower claims paid and lower subrogation received.Claims paid
include 25% of policy claims permitted and paid by the Segregated Account, all
claims presented to the General Account, and supplemental and special payments
made as required by the Rehabilitator.Subrogation received includes
recoveries under and in connection with RMBS transactions.

Although the Rehabilitation Plan for the Segregated Account has not become
effective, the Segregated Account is currently paying 25% of permitted policy
claims pursuant to a Rehabilitation Court order.As of March 31, 2014,
approximately $4.0 billion of such policy claims remained unpaid.

As previously announced, the Rehabilitator is seeking Rehabilitation Court
approval to amend the Rehabilitation Plan.Assuming that the amendments to the
Rehabilitation Plan are approved and based on a 5.1% annual interest rate
being applicable to all unpaid portions of permitted policy claims, accrued
interest on the unpaid portions of permitted policy claims would be
approximately $277 million through March 31, 2014. This accrued interest
amount is currently not reflected in the Company's financial results and will
be recorded only upon approval of these amendments by the Rehabilitation
Court.

Loss reserves (gross of reinsurance and net of subrogation recoveries) were
$5.3 billion at March 31, 2014 and $5.5 billion at December 31, 2013.

The following table provides loss reserves by bond type at March 31, 2014 and
December 31, 2013:

($ in millions)                    March 31, 2014 December 31, 2013
RMBS                               $3,211        $3,312
Student Loans                      891            982
Domestic Public Finance            343            338
Ambac UK                           674            633
All other credits                  95             94
Loss expenses (including Ambac UK) 100            111
Totals                             $5,314        $5,470

Reserves as of March 31, 2014 and December 31, 2013, are net of $2.2 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

Gross operating expenses for the three months ended March 31, 2014 were $25.9,
compared to $28.3 million for the three months ended March 31, 2013.The
decrease in expenses was largely driven by lower compensation-related expenses
in the first quarter 2014 compared to the same period last year.

At the Fresh Start Reporting Date, an insurance intangible asset was recorded
which represented the difference between the fair value and aggregate carrying
value of insurance and reinsurance assets and liabilities.The insurance
intangible asset is being amortized over the remaining life of Ambac's
exposures.The insurance intangible amortization expense for the three months
ended March 31, 2014 was $31.7 million.

Interest expense was $32.3 million for the three months ended March 31, 2014,
as compared to $23.2 million for the three months ended March 31,
2013.Interest expense includes accrued interest on investment agreements and
surplus notes issued by Ambac Assurance and the Segregated Account.
Additionally, interest expense includes discount accretion on surplus notes as
their carrying value is at a discount to par.At the Fresh Start Reporting
Date, the unamortized discounts on surplus notes were decreased by resetting
the carrying value to fair value, and future cash flows on the surplus notes
were 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 $12.8
million for the three months ended March 31, 2014, as compared to $3.7 million
for the three months ended March 31, 2013.

The following table provides a summary of interest expense for the three month
periods ended March 31, 2014 and March 31, 2013:

                      SuccessorAmbac–  PredecessorAmbac–
($ in millions)       Three Months Ended ThreeMonthsEnded
                      March 31, 2014    March 31, 2013
Interest expense:                       
Surplus notes         $31.9            $22.0
Investment agreements 0.4               1.0
Secured borrowing     --               0.2
Total                 $32.3            $23.2

If the Rehabilitation Plan is amended in the form proposed by the
Rehabilitator, the Rehabilitator intends to redeem certain Segregated Account
surplus notes (other than junior surplus notes) at a redemption price that
would include an amount equal to accrued interest on such redeemed surplus
notes.Any such payment would also trigger similar proportionate redemption
payments on Ambac Assurance's surplus notes. Settlement of these liabilities
would result in a charge representing the accelerated recognition of the
unamortized discount on the redeemed surplus notes.Ambac will record this
charge only upon redemption of such notes.As of March 31, 2014, the
unamortized discount on the portion of Segregated Account and General Account
surplus notes expected to be redeemed was $82.4 million.

Taxes

The provision for income taxes of $3.2 million for the first quarter 2014,
compared to $0.6 million for the same period last year. First quarter 2014
income taxes consist primarily of alternative minimum taxes.Both periods also
included income tax expense as a result of pre-tax profits in Ambac UK's
Italian branch, which cannot be offset by losses in other jurisdictions.

At March 31, 2014 the Company had $5.2 billion of U.S. Federal net operating
loss carryforwards ("NOLs"), including $1.4 billion at Ambac Financial Group
and $3.8 billion at Ambac Assurance.

Balance Sheet

Total assets at March 31, 2014 were $27.1 billion, unchanged from December 31,
2013.The fair value of the consolidated non-VIE investment portfolio was $6.7
billion and $6.5 billion at March 31, 2014 and at December 31, 2013,
respectively. The fair value of the financial guarantee investment portfolio
was $6.3 billion at March 31, 2014, up $0.2 billion from $6.1 billion at
December 31, 2013.

Total liabilities at March 31, 2014 were $25.9 billion, a decrease of
approximately $0.2 billion from $26.1 billion at December 31, 2013.The
decrease was primarily the result of a decrease in VIE liabilities, loss and
loss expense reserves and unearned premium reserves, partially offset by
increases in payable for securities purchased and derivative liabilities.

Non-GAAP Financial Data

In addition to reporting the Company's financial results in accordance with
GAAP, the Company reports 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 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

Operating Earnings were $176.6 million, or $3.75 per diluted share, for the
three months ended March 31, 2014 as compared to $297.4 million, or $0.98 per
diluted share, for the three months ended March 31, 2013.Insurance intangible
amortization was the primary difference between net income and operating
earnings in the first quarter of 2014.

The following table reconciles Net Income attributable to common shareholders
to the non-GAAP measure, Operating Earnings, for the three month periods ended
March 31, 2014 and March 31, 2013:

                            Successor Ambac          Predecessor Ambac
                            Three Months Ended March Three Months Ended March
                             31, 2014                 31, 2013
($ in millions)              $ Amount   Per Diluted   $ Amount   Per Diluted
                                        Share                    Share
                                                             
Net income attributable to   $155.9   $3.31       $282.3   $0.93
common shareholders
Adjustments:                                                  
Non-credit impairment fair
value gain on credit         (4.2)     (0.09)        (5.9)     (0.02)
derivatives
Effect of consolidating      0.3       0.01          (27.0)    (0.09)
financial guarantee VIEs
Insurance intangible         31.7      0.67          --       0.00
amortization
FX gain from re-measurement                                   
of premium receivables
and loss and loss expense    (1.7)     (0.04)        17.9      0.06
reserves
Fair value loss on
derivatives products from    (5.4)     (0.11)        30.1      0.10
Ambac CVA
Operating earnings           $176.6   $3.75       $297.4   $0.98

Adjusted Book Value

Adjusted Book Value was ($187.2) million as of March 31, 2014, as compared to
($280.7) million at December 31, 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:

($ in millions)                              March 31, 2014 December 31, 2013
Total Ambac Financial Group, Inc.            $953.2        $703.0
stockholders' equity
Adjustments:                                                
Non-credit impairment fair value losses on   68.6           72.8
credit derivatives
Effect of consolidating financial guarantee  (373.4)        (372.7)
VIEs
Insurance intangible asset and goodwill      (2,084.6)      (2,112.5)
Ambac CVA on derivative product liabilities  (53.8)         (48.4)
(excluding credit derivatives)
Net unearned premiums and fees in excess of  1,349.6        1,435.2
expected losses
Net unrealized investment losses in          (46.8)         41.9
Accumulated Other Comprehensive Income
Adjusted Book Value                          $(187.2)      $(280.7)

The Adjusted Book Value increase from December 31, 2013 to March 31 2014 of
$93.5 million was driven by operating earnings, partially offset by a
reduction in unearned premiums related to premiums earned during the quarter
and previously recognized in Adjusted Book Value.

Explanation of Non-GAAP Measures

Operating Earnings. Operating earnings eliminate the impact of certain GAAP
accounting requirements and include certain items that the Company has
realized or expects to realize in the future, but that are not reported under
GAAP. Operating earnings is defined as net income attributable to common
shareholders, as reported under 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. GAAP fair values include adjustments
    that 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 ("Ambac CVA"), which are not
    expected to result in realized gains or losses. 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
    being insured by Ambac. These adjustments 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 of the financial guarantee insurance
    intangible asset and impairment of 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 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 included 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 or loss
    when realized.
  *Elimination of non-recurring GAAP Fresh Start reporting adjustments.

Adjusted Book Value. Adjusted Book Value eliminates the impact of certain 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 GAAP. Adjusted Book Value is defined as Total Ambac Financial
Group, Inc. stockholders' equity (deficit) as reported under 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 credit loss. GAAP fair values include adjustments that
    are heavily affected by, and in part fluctuate with, changes in market
    factors such as interest rates and credit spreads, including Ambac's CVA,
    which are not expected to result in realized gains or losses. 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
    being insured by Ambac. These adjustments 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 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 gains 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 gains 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 adjustment
    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 may 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 NOL that is offset by a full valuation allowance in
the 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 the
facts and circumstances as of the relevant reporting date.

Comparability of Successor and Predecessor

The following significantly affect the comparability of first quarter 2014
results:

  *Investment Income: As required under Fresh Start, the amortized cost basis
    of Ambac's fixed income securities were adjusted to fair value as of the
    Fresh Start Reporting Date. This resulted in an overall increase in the
    amortized cost of fixed income securities and offsetting decrease in
    Accumulated Other Comprehensive Income of $826.6 million. Premiums and
    discounts are amortized or accreted over the remaining term of the
    securities using the effective interest method. As a result of Fresh
    Start, the net unamortized discount in the portfolio decreased on the
    Fresh Start Reporting Date by the amount of the increase to amortized cost
    described above, which impacted the amount of premium amortization and
    discount accretion reflected in net investment income of Successor Ambac.
  *Interest Expense: As required under Fresh Start, 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 carrying value
    of debt and accrued interest by $767.9 million. Discounts to the face
    value of debt are accreted through interest expense based on the projected
    cash flows of the instruments using the effective interest method. 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: As required under Fresh
    Start, 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.
  *Insurance Intangible Amortization: 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 financial
    guarantee insurance and reinsurance assets and liabilities. The carrying
    value of our financial guarantee insurance and reinsurance contracts will
    continue to be reported and measured in accordance with existing
    accounting policies; these line items primarily comprise premiums
    receivable, reinsurance recoverable on paid and unpaid losses, unearned
    premiums, deferred ceded premium, subrogation recoverable, losses and loss
    expense reserve, and ceded premiums payable. Pursuant to the business
    combinations guidance for insurance entities in Financial
    Services—Insurance Topic of the ASC, the insurance intangible asset is
    amortized into expense on a basis consistent with the related financial
    guarantee insurance or reinsurance contracts.
  *Predecessor Ambac common stock was cancelled upon emergence from
    bankruptcy on May 1, 2013.As a result, the earnings per share information
    for Predecessor Ambac is not meaningful to investors in Successor Ambac's
    common stock and warrants.

Earnings Call and Webcast

On May 13, 2014 at 8:00am (ET), members of senior management will discuss
first quarter 2014 results during a live conference call.Ambac's conference
call will be accessible via telephone and webcast.The dial-in number for
Ambac's conference call is 855-427-4389 (Domestic) or 484-756-4251
(International).Webcast participants may access the call through the Investor
Relations section of Ambac's website, http://ir.ambac.com/events.cfm.

A replay of the call will be available for one week at 855-859-2056 (Domestic)
or 404-537-3406 (International); conference ID # 30676372. The webcast will be
archived on Ambac's website for approximately 90 days.

About Ambac

Ambac Financial Group, Inc., headquartered in New York City, is a holding
company whose subsidiaries, including its principal operating subsidiary,
Ambac Assurance Corporation ("Ambac Assurance"), Everspan Financial Guarantee
Corp., and Ambac Assurance UK Limited, provide 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 Financial Group, Inc. is also exploring opportunities
involving the acquisition and/or development of new businesses. Ambac
Financial Group Inc.'s common stock trades on the NASDAQ Global Select
Market.For more information, please go to http://ambac.com.

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 2013 Annual Report on Form 10-K and in Part II, Item 1A of
our Quarterly Report on Form 10-Q for the three month period ended March 31,
2014, and under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Part I, Item 2 of the Quarterly Report on Form
10-Q for the three month period ended March 31, 2014.

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)volatility in the price of Ambac's common stock;
(2)uncertainty concerning our ability to achieve value for holders of Ambac
securities, whether from Ambac Assurance Corporation ("Ambac Assurance") or
from new business opportunities, including risks associated with the possible
dilution of the ownership interests of our stockholders; (3)our inability to
achieve the financial results projected during our Chapter 11 proceeding;
(4)potential of rehabilitation proceedings against Ambac Assurance;
(5)decisions made by the Rehabilitator of the Segregated Account of Ambac
Assurance Corporation (the "Segregated Account")for the benefit of
policyholders that may result in material adverse consequences for Ambac's
security holders; (6)our inability to realize the expected recoveries
included in our financial statements; (7)intercompany disputes or disputes
with the Rehabilitator of the Segregated Account; (8)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; (9) decisions of the Rehabilitator concerning payments of deferred
claim amounts or payments on surplus notes, the timing or magnitude of which
is disadvantageous to Ambac, (10) increased fiscal stress experienced by
issuers of public finance obligations or an increased incidence of Chapter 9
filings by municipal issuers; (11)adverse events arising from the
rehabilitation proceedings for 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;
(12)adverse tax consequences or other costs resulting from the Segregated
Account rehabilitation plan or from rules and procedures governing the payment
of permitted policy claims; (13)credit risk throughout our business,
including but not limited to credit risk related to residential
mortgage-backed securities, student loan and other asset securitizations,
collateralized loan obligations, public finance obligations and exposures to
reinsurers; (14)risks attendant to the change in composition of securities in
our investment portfolio; (15)inadequacy of reserves established for losses
and loss expenses; (16)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; (17)changes in prevailing interest
rates; (18)factors that may influence the amount of installment premiums paid
to Ambac, including the Segregated Account rehabilitation proceedings;
(19)default by one or more of Ambac Assurance's portfolio investments,
insured issuers or counterparties; (20)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;
(21)risks relating to determinations of amounts of impairments taken on
investments; (22)credit and liquidity risks due to unscheduled and
unanticipated withdrawals on investment agreements; (23)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;
(24)system security risks; (25)the effects of U.S. fiscal policies;
(26)market spreads and pricing on derivative products insured or issued by
Ambac or its subsidiaries; (27)the risk of volatility in income and earnings,
including volatility due to the application of fair value accounting;
(28)changes in accounting principles or practices that may impact Ambac's
financial results, including those resulting from potential amendments to the
Segregated Account Rehabilitation Plan; (29)legislative and regulatory
developments; (30)operational risks, including with respect to internal
processes, risk models, systems and employees, and failures in services or
products provided by third parties; (31)Ambac's financial position and the
Segregated Account rehabilitation proceedings that may prompt departures of
key employees and may impact our ability to attract qualified executives and
employees; and (32)other risks and uncertainties that have not been
identified at this time.

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
                                         March 31, 2014     March 31, 2013
                                                          
Revenues:                                                  
                                                          
Net premiums earned                      $82,547            $100,256
                                                          
Net investment income:                                     
Securities available-for-sale and        68,807             85,057
short-term
Other investments                        1,994             (543)
Total net investment income              70,801            84,514
                                                          
Other-than-temporary impairment losses:                    
Total other-than-temporary impairment    (10,392)           --
losses
Portion of loss recognized in other      --               --
comprehensive income
Net other-than-temporary impairment      (10,392)          --
losses recognized in earnings
                                                          
Net realized investment gains (losses)   16,289             46,060
                                                          
Change in fair value of credit                             
derivatives:
Realized gains (losses) and other        775                2,509
settlements
Unrealized gains (losses)                6,607             10,278
Net change in fair value of credit       7,382             12,787
derivatives
                                                          
Derivative products                      (53,841)           (569)
Other income                             1,894              9,498
(Loss) income on variable interest       (5,542)           38,326
entities
Total revenues before expenses and       109,138            290,872
reorganization items
                                                          
Expenses:                                                  
Losses and loss expenses (benefit)       (140,011)          (51,135)
Insurance intangible amortization        31,714             --
Underwriting and operating expenses      25,786             33,874
Interest expense                         32,328            23,165
Total (benefit) expenses before          (50,183)           5,904
reorganization items
                                                          
Pre-tax income (loss) from continuing    159,321           284,968
operations before reorganization items
                                                          
Reorganization items                     23                 2,059
                                                          
Pre-tax income (loss) from continuing    159,298           282,909
operations
                                                          
Provision for income taxes               3,249             657
Net income (loss)                        156,049           282,252
Less:net gain (loss) attributable to the 107               (47)
noncontrolling interest
Net income (loss) attributable to common $155,942           $282,299
shareholders
                                                          
                                                          
Net income (loss) per share              $3.46              $0.93
Net income (loss) per diluted share      $3.31              $0.93
                                                          
Weighted-average number of common shares                   
outstanding:
                                                          
Basic                                    45,042,823        302,469,966
                                                          
Diluted                                  47,045,742        302,579,981


Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2014 and December 31, 2013
(Dollars in Thousands)
                                                           
                                                           
                                             March 31, 2014 December 31, 2013
                                             (unaudited)    
Assets                                                      
                                                           
Investments:                                                
Fixed income securities, at fair value
(amortized cost of $6,121,910 in 2014 and     $6,168,689     $5,885,316
$5,927,254 in 2013)
Fixed income securities pledged as
collateral, at fair value (amortized cost of  125,123       126,223
$125,090 in 2014 and $126,196 in 2013)
Short-term investments, at fair value
(amortized cost of $215,103 in 2014 and       215,103        271,119
$271,118 in 2013)
Other investments, at fair value              240,530        241,069
Total investments                             6,749,445      6,523,727
                                                           
Cash                                          31,700         77,370
Receivable for securities                     36,447         14,450
Investment income due and accrued             34,641         37,663
Premium receivables                           1,418,114      1,453,021
Reinsurance recoverable on paid and unpaid    111,442        121,249
losses
Deferred ceded premium                        142,280        145,529
Subrogation recoverable                       512,235        498,478
Loans                                         6,250          6,179
Derivative assets                             81,911         77,711
Insurance intangible assets                   1,570,070     1,597,965
Goodwill                                      514,511       514,511
Other assets                                  72,865         35,927
Variable interest entity assets:                            
Fixed income securities, at fair value        2,546,762      2,475,182
Restricted cash                               8,552          17,498
Investment income due and accrued             4,247          1,365
Loans                                         13,269,452     13,398,895
Intangible assets                             --           76,140
Other assets                                  3,324          19,617
Total assets                                  $27,114,248    $27,092,477
                                                           
Liabilities and Stockholders' Equity                        
                                                           
Liabilities:                                                
Unearned premiums                             2,167,764     2,255,680
Losses and loss expense reserve               5,826,168      5,968,712
Ceded premiums payable                        69,892         70,962
Obligations under investment agreements       359,993        359,070
Deferred taxes                                2,202          2,199
Current taxes                                 3,761          738
Long-term debt                                972,147        963,178
Accrued interest payable                      317,052        294,817
Derivative liabilities                        300,840        253,898
Other liabilities                             58,819         67,377
Payable for securities purchased              79,697        4,654
Variable interest entity liabilities:                       
Accrued interest payable                      3,569         722
Long-term debt, at fair value                 13,878,577    14,091,753
Derivative liabilities                        1,844,690     1,772,306
Other liabilities                             266           7,989
Total liabilities                             25,885,437     26,114,055
                                                           
Stockholders' equity:                                       
Preferred stock, par value $0.01 per share;
authorized shares - 20,000,000; issued and    --           --
outstanding shares - none
Common stock, par value $0.01 per share;
authorized shares - 130,000,000; issued and   450            450
outstanding shares - 45,003,512 at March 31,
2014 and 45,003,461 at December 31, 2013
Additional paid-in capital                    187,210        185,672
Accumulated other comprehensive income        104,417       11,661
Accumulated earnings                          661,161       505,219
Common stock held in treasury at cost, 937
shares at March 31, 2014 and at December 31,  (19)          (19)
2013
Total Ambac Financial Group, Inc.             953,219        702,983
stockholders' equity
                                                           
Non-controlling interest                      275,592        275,439
Total stockholders' equity                    1,228,811      978,422
Total liabilities and stockholders' equity    $27,114,248    $27,092,477

CONTACT: Abbe F. Goldstein, CFA
         Managing Director, Investor Relations and
         Corporate Communications
         (212) 208-3222
         agoldstein@ambac.com

Ambac Financial Group, Inc.
 
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