AP NEWS

Ambac Announces Third Quarter 2018 Results

November 7, 2018

-- Continued progress towards executing key strategic priorities during the third quarter included: •Significant progress made toward a final resolution of Puerto Rico’s debt restructuring with signed COFINA Plan Support Agreement and term sheet •Adversely Classified Credits reduced by $0.8 billion or 6.4% to $11.1 billion •Insured net par reduced by $4.3 billion or 7.5% to $52.2 billion •Executed Auction Market Preferred Shares exchange transaction, simplifying capital structure and capturing a fair value discount of approximately $250 million

-- Net Loss of $(22.2) million or $(0.48) per Diluted Share for the Quarter Ended September 30, 2018 -- Net Loss attributable to common stockholders of $(103.8) million or $(2.27) per Diluted Share and Adjusted Loss1 of $(76.0) million or $(1.66) per Diluted Share for the Quarter Ended September 30, 2018 primarily driven by the financial statement impact of the Auction Market Preferred Shares exchange transaction

NEW YORK, Nov. 07, 2018 (GLOBE NEWSWIRE) -- Ambac Financial Group, Inc. (Nasdaq: AMBC) (“Ambac”), a holding company whose subsidiaries, including Ambac Assurance Corporation (“AAC”), provide financial guarantees, today reported a net loss of $(22.2) million or $(0.48) per diluted share for the third quarter of 2018. Including the impact of the Auction Market Preferred Shares (“AMPS”) exchange, net loss attributable to common stockholders was $(103.8) million or $(2.27) per diluted share for the third quarter of 2018, compared to net income attributable to common stockholders of $4.3 million or $0.09 per diluted share for the second quarter of 2018. Adjusted Loss in the third quarter of 2018 was $(76.0) million or $(1.66) per diluted share compared to Adjusted Earnings of $36.5 million or $0.78 per diluted share in the second quarter of 2018.

AMPS Exchange TransactionOn August 3, 2018, Ambac and AAC successfully completed an offer to exchange outstanding AMPS issued by AAC. Upon closing, Ambac and AAC repurchased 22,296 of AMPS with a liquidation preference of $557.4 million representing 84.4% of outstanding shares. In connection with the transaction, AAC issued $212.7 million in current principal of surplus notes with accrued interest of $98.4 million, and Ambac paid $11 million of cash and issued 824,307 of warrants to purchase stock of Ambac. The fair value of consideration paid resulted in a total discount of 45% of the liquidation preference of the AMPS exchanged. Third quarter 2018 results include a reduction to net income attributable to common stockholders of approximately $81.7 million reflecting the difference between the fair value of consideration provided to AMPS holders and the carrying value of the AMPS.

Claude LeBlanc, President and Chief Executive Officer, stated, “During the third quarter of 2018 we continued to make measurable progress across our strategic priorities and execute transactions that we believe will deliver long term value to our shareholders. In addition to the AMPS exchange, this quarter we executed the Puerto Rico Plan Support Agreement for the restructuring of all COFINA bonds, which, if approved by the court overseeing Puerto Rico’s Title III proceedings, would favorably resolve one of our largest exposures to Puerto Rico. In November 2018, consistent with our strategy to actively de-risk our insured portfolio, a strategy that we believe over time will strengthen the quality of book value, we ceded the full amount of certain public finance insurance policies equating to $1.5 billion of performing par exposure, with principal and interest of $3.4 billion, comprised of primarily non-callable capital appreciation bonds and including $241 million par of Adversely Classified and Watch List Credits.” Mr. LeBlanc continued, “We believe that our rigor, persistence, and commitment to progressing our strategic initiatives has and will continue to deliver tangible results for our shareholders.”

Ambac’s Third Quarter 2018 Summary Results Better (Worse) ($ in millions, except per share data) 3Q2018 2Q2018 Amount Percent ---------------------------------------------------------------- --------- -------- --------- --------- Net premiums earned $ 25.6 $ 25.8 $ (0.2 ) (1 )% Net investment income 58.3 66.7 (8.4 ) (13 )% Net realized investment gains (losses) 30.2 47.1 (16.9 ) (36 )% Net gains (losses) on interest rate derivatives 17.3 9.1 8.2 90 % Income (loss) on Variable Interest Entities (“VIEs”) 1.8 0.6 1.2 200 % Losses and loss expenses (benefit) 33.5 32.6 (0.9 ) (3 )% Operating expenses 28.4 26.1 (2.3 ) (9 )% Interest expense 65.7 62.4 (3.3 ) (5 )% Insurance intangible amortization 26.4 23.2 (3.2 ) (14 )% Provision for income taxes 2.2 2.0 (0.2 ) (10 )% Net income (loss) (22.2 ) 4.3 (26.5 ) (616 )% Net income (loss) attributable to Common Stockholders (103.8 ) 4.3 (108.1 ) (2,514 )% Net income (loss) per diluted share $ (2.27 ) $ 0.09 $ (2.36 ) (2,622 )% Adjusted earnings (loss) 1 (76.0 ) 36.5 (112.5 ) (308 )% Adjusted earnings (loss) per diluted share 1 $ (1.66 ) $ 0.78 $ (2.44 ) (313 )% Total Ambac Financial Group, Inc. stockholders’ equity 1,757.7 1,799.8 (42.1 ) (2 )% Total Ambac Financial Group, Inc. stockholders’ equity per share $ 38.77 $ 39.70 $ (0.93 ) (2 )% Adjusted book value 1 1,291.9 1,398.0 (106.1 ) (8 )% Adjusted book value per share 1 $ 28.50 $ 30.84 $ (2.34 ) (8 )% Weighted-average diluted shares outstanding (in millions) 45.7 46.5 0.8 2 % ---------------------------------------------------------------- ------- - ------- ------- - ------ --

1 See Non-GAAP Financial Data section of this press release for further information

Net Premiums EarnedDuring the third quarter of 2018, net premiums earned were $25.6 million compared to $25.8 million in the second quarter of 2018, including accelerations of $6.7 million and $6.1 million, respectively. Normal premiums earned decreased $0.8 million or 4% primarily due to the continued runoff of the insured portfolio. Accelerated premiums earned increased $0.6 million or 10% due to executed commutations, partially offset by lower accelerated premiums in public finance.

The following table provides a summary of net premiums earned for the three month periods ended September 30, 2018 and June 30, 2018, respectively:

Three Months Ended ($ in millions) September 30, 2018 June 30, 2018 ---------------------------- ------------------ ------------- Public Finance $ 9.2 $ 9.7 Structured Finance 4.2 4.1 International Finance 5.5 5.9 ------ ----------- ------ ------ Total normal premiums earned 18.9 19.7 Accelerated earnings 6.7 6.1 ------ ----------- ------ ------ Total net premiums earned $ 25.6 $ 25.8 - ---- ----------- - ---- ------

Net Investment Income and Net Realized Investment GainsNet investment income for the third quarter of 2018 and the second quarter of 2018 was $58.3 million and $66.7 million, respectively. Net investment income for the third quarter of 2018 decreased due to a reduction in the size of the investment portfolio and a lower allocation to higher-yielding Ambac insured RMBS, partially offset by an increase in net gains on invested assets classified as trading. Net gains on invested assets classified as trading were $7.0 million in the third quarter of 2018 compared to $3.6 million in the second quarter of 2018.

The decrease in the fair value of the consolidated investment portfolio of approximately $0.1 billion from June 30, 2018, to $4.3 billion at September 30, 2018, was due primarily to interest payments and voluntary redemptions of the Ambac Note and loss and loss adjustment expense payments during the third quarter.

Third quarter 2018 net realized investment gains were $30.2 million compared to $47.1 million in the second quarter of 2018. Net realized gains in both quarters were primarily from the sale of AAC-insured RMBS securities in connection with the re-balancing of the investment portfolio and to facilitate debt redemptions.

Losses and Loss Expenses and Loss ReservesLosses and loss expenses for the third quarter of 2018 were $33.5 million, as compared to an expense of $32.6 million for the second quarter of 2018.

The following table provides losses and loss expenses incurred by bond type for the three month periods ended September 30, 2018 and June 30, 2018:

Three Months Ended ($ in millions) September 30, 2018 June 30, 2018 ------------------------------ ------------------ --------- RMBS $ 19.2 $ (26.1 ) Domestic public finance 9.1 44.1 Student loan 4.0 (4.3 ) Ambac UK and other credits 1.2 18.9 Total losses and loss expenses $ 33.5 $ 32.6 - ---- ----------- - ----- -

Third quarter of 2018 RMBS losses and loss expenses of $19.2 million were driven by loss expenses incurred and a reduction to estimated representation and warranty subrogation recoveries, partially offset by credit improvements. Second quarter of 2018 RMBS losses and loss expenses were a benefit of $26.1 million driven by a benefit of $10.0 million related to RMBS transactions proactively terminated during the quarter and credit improvements, partially offset by loss expenses incurred and a reduction of estimated representation and warranty subrogation recoveries.

Domestic public finance losses and loss expenses in the third quarter of 2018 were $9.1 million, primarily related to loss expenses. In the second quarter of 2018, domestic public finance losses and loss expenses were $44.1 million primarily related to Military Housing loss expenses and additions to Puerto Rico loss reserves.

During the third quarter of 2018, claim and loss expenses paid (net of reinsurance) were $228.6 million which included $264.0 million of losses and loss expenses paid related mostly to Puerto Rico and a student loan commutation, partially offset by $35.4 million of subrogation received. During the second quarter of 2018, claim and loss expenses paid (net of reinsurance) were $77.9 million which included $113.4 million of losses and loss expenses paid, partially offset by $35.5 million of subrogation received.

Loss and loss expense reserves (gross of reinsurance) were $(30) million at September 30, 2018, and $181 million at June 30, 2018, which were net of $1.776 billion and $1.816 billion, respectively, of estimated subrogation recoveries related to AAC’s pursuit of legal remedies to seek redress for breaches of representations and warranties.

The following table provides loss and loss expense (gross of reinsurance) reserves by bond type at September 30, 2018, and June 30, 2018:

($ in millions) September June 30, 30, 2018 2018 ------------------------------------ ---------- ---------- RMBS $ (1,273 ) $ (1,264 ) Domestic public finance 637 773 Student loans 235 309 Ambac UK and other credits 266 289 Loss expenses 105 74 -------- - -------- - Total loss and loss expense reserves $ (30 ) $ 181 - ------ - - ------ -

Net Gains (Losses) on Interest Rate DerivativesNet gains on interest rate derivatives were $17.3 million for the third quarter of 2018 and $9.1 million for the second quarter of 2018. Gains on interest rate derivatives were a result of the impact of an increase in forward interest rates. The interest rate derivatives portfolio is positioned to benefit from rising interest rates as a partial economic hedge against interest rate exposure in AAC’s insured and investment portfolios.

ExpensesOperating expenses for the third quarter of 2018 increased by $2.3 million to $28.4 million from $26.1 million in the second quarter of 2018. The increase in the third quarter of 2018 was primarily due to higher expenses related to the AMPS exchange transaction, partially offset by lower compensation costs and regulatory expenses associated with the Office of the Commissioner of Insurance (the “OCI”). Third quarter operating expenses included $5.9 million of expenses associated with the AMPS transaction.

Interest expense for the third quarter of 2018 increased $3.3 million to $65.7 million from $62.4 million in the second quarter of 2018 due to the August 2018 re-issuance of surplus notes in connection with the AMPS exchange transaction, partially offset by lower interest expense resulting from the partial redemption of the Ambac Note and full redemption of the RMBS secured borrowing in the second quarter of 2018.

Taxes and Net Operating Loss Carry-Forwards (“NOLs”)Income taxes were $2.2 million for the third quarter of 2018, compared to $2.0 million for the second quarter of 2018. The third quarter provision included $0.4 million of state income taxes and foreign income taxes of $1.8 million. The second quarter provision included $0.6 million of state income taxes and foreign taxes of $1.4 million.

At September 30, 2018, the Ambac consolidated group had approximately $3.55 billion of NOLs, including $1.40 billion at Ambac and $2.15 billion at AAC.

As a result of taxable income at AAC during 2018, AAC utilized NOLs in an amount that resulted in the accrual of $11.0 million of tolling payments. There are no assurances that Ambac Assurance will be able to generate taxable income for the full year of 2018 and therefore make future tolling payments to Ambac, including the accrued amount. Ambac Assurance’s tax positions are subject to review by the OCI, which may lead to the adoption of positions that reduce the amount of tolling payments otherwise available to Ambac.

Balance SheetTotal assets decreased by $6.4 billion from June 30, 2018 to $15.1 billion at September 30, 2018, primarily due to the deconsolidation of two VIEs during the third quarter of 2018 (causing a reduction in assets of $6.0 billion). The deconsolidations were as a result of loss mitigation activities that eliminated or reduced Ambac’s policies or control rights that previously required Ambac to consolidate these entities.

Total liabilities decreased by $6.2 billion from June 30, 2018 to $13.3 billion as of September 30, 2018, primarily as a result of the above noted VIE deconsolidations (causing a reduction in liabilities of $6.0 billion) and claims payments, partially offset by the impact of the AMPS Exchange transaction which increased surplus notes and accrued interest on surplus notes by $286.0 million.

Total Ambac Financial Group, Inc. Stockholders’ EquityStockholders’ equity at September 30, 2018, was down 2% to $1.76 billion, or $38.77 per share compared to $1.80 billion or $39.70 per share as of June 30, 2018, due to the impact of the AMPS exchange transaction of $73.7 million, net loss of $22.2 million, and translation losses of $8.9 million related to Ambac’s foreign subsidiaries, partially offset by unrealized investment portfolio gains of $60.8 million.

Financial Guarantee Insured PortfolioThe financial guarantee insurance portfolio net par amount outstanding declined 7.5% during the quarter ended September 30, 2018, to $52.2 billion from $56.5 at June 30, 2018. The reduction in the insured portfolio was primarily related to a decrease of $1.6 billion in the international finance sector related to the negotiated termination of an asset backed policy (consolidated VIE) and the maturity of a utility policy; a decrease of $1.5 billion in the public finance portfolio related to calls and maturities; and a decrease of $1.1 billion in the structured finance sector due to active de-risking, via a student loan commutation and reinsurance of a structured finance exposure, coupled with continued policy paydowns.

Details of financial guarantee insurance portfolio are highlighted in the below table.

Septe June Net Par Outstanding mber 30, 30, 2018 2018 ----------------------- ---- ---- By Sector: Public finance 52 % 51 % Structured Finance 21 % 21 % International 27 % 28 % By Financial Guarantor: Ambac Assurance 74 % 73 % Ambac UK 26 % 27 %

Adversely Classified Credits decreased by a net $0.8 billion or 6.4% to $11.1 billion in the third quarter of 2018, due to the student loan commutation and the negotiated termination of an international utility exposure, coupled with runoff and upgrades to other transactions.

Subsequent Events

Puerto RicoOn October 19, 2018 a COFINA Plan of Adjustment and Disclosure Statement was filed by the Puerto Rico Oversight Board following the execution of a Plan Support Agreement for the restructuring of all senior and junior COFINA bonds on August 29, 2018. These agreements represent significant progress toward a negotiated resolution of the COFINA Title III proceeding and Ambac’s COFINA exposure, however, no assurance can be given that the Plan of Adjustment will be approved by the court overseeing COFINA’s Title III restructuring.

Reinsurance AgreementAs part of Ambac’s active risk mitigation efforts, in November 2018, AAC ceded the full amount of certain public finance insurance policies to a third party reinsurer, totaling $1.5 billion of performing par exposure (principal and interest of $3.4 billion), which was mostly comprised of policies on non-callable capital appreciation bonds and includes $241 million par of Adversely Classified and Watch List Credits.

Non-GAAP Financial DataIn addition to reporting Ambac’s quarterly financial results in accordance with GAAP, Ambac reports two non-GAAP financial measures: Adjusted 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. The most directly comparable GAAP measures are net income attributable to common stockholders for Adjusted Earnings and Total Ambac Financial Group, Inc. stockholders’ equity for Adjusted Book Value. We are presenting these non-GAAP financial measures because they provide greater transparency and enhanced visibility into the underlying drivers of our business. Adjusted Earnings and Adjusted Book Value are not substitutes for Ambac’s GAAP reporting, should not be viewed in isolation, may be subject to change, and may differ from similar reporting provided by other companies, which may define these non-GAAP measures differently.

Ambac has a significant tax NOL that is offset by a full valuation allowance in the GAAP consolidated financial statements. As a result of this and other considerations, for purposes of non-GAAP measures, we utilize a 0% effective tax rate, which is subject to change in the future.

Adjusted Earnings (Loss). Adjusted Earnings (Loss) is defined as net income (loss) attributable to common stockholders, as reported under GAAP, adjusted on an after-tax basis for the following:

-- Non-credit impairment fair value (gain) loss on credit derivatives: 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 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”), and are not expected to result in an economic gain or loss. These adjustments allow for all financial guarantee contracts to be accounted for consistent with the Financial Services – Insurance Topic of ASC, whether or not they are subject to derivative accounting rules. -- Insurance intangible amortization: Elimination of the amortization of the financial guarantee insurance intangible asset that arose as a result of Ambac’s emergence from bankruptcy and the implementation of Fresh Start reporting. This adjustment ensures that all financial guarantee contracts are accounted for consistent with the provisions of the Financial Services – Insurance Topic of the ASC. -- Foreign exchange (gains) losses: Elimination of the foreign exchange gains (losses) on the re-measurement of assets, liabilities and transactions in non-functional currencies. This adjustment eliminates the foreign exchange gains (losses) on all assets, liabilities and transactions in non-functional currencies, which enables users of our financial statements to better view the business results without the impact of fluctuations in foreign currency exchange rates and facilitates period-to-period comparisons of Ambac’s operating performance.

Adjusted Loss was $76.0 million, or $1.66 per diluted share, for the third quarter 2018 as compared to Adjusted Earnings of $36.5 million or $0.78 per diluted share, for the second quarter of 2018. Adjusted Loss for the third quarter 2018 relative to Adjusted Earnings for the second quarter of 2018 resulted mostly from the impact of the AMPS exchange transaction in the third quarter 2018.

The following table reconciles net income (loss) attributable to common stockholders to the non-GAAP measure, Adjusted Earnings (Loss), for the three month periods ended September 30, 2018, and June 30, 2018, respectively:

Three Months Ended September 30, 2018 June 30, 2018 Per ($ in millions, other than per share data) $ Amount Diluted $ Amount Per Diluted Share Share --------------------------------------------------------- ---------- --------- -------- ----------------- Net income (loss) attributable to common stockholders $ (103.8 ) $ (2.27 ) $ 4.3 $ 0.09 Adjustments: Non-credit impairment fair value (gain) loss on credit (0.2 ) — 0.3 0.01 derivatives Insurance intangible amortization 26.4 0.58 23.2 0.50 Foreign exchange (gains) losses 1.6 0.03 8.6 0.18 Adjusted Earnings (loss) $ (76.0 ) $ (1.66 ) $ 36.5 $ 0.78 - ------ - - ----- - - ---- - - ---- ---------- Weighted-average diluted shares outstanding (in millions) 45.7 46.5 ------- - ------ ----------

Adjusted Book Value. Adjusted Book Value is defined as Total Ambac Financial Group, Inc. stockholders’ equity as reported under GAAP, adjusted for after-tax impact of the following:

-- Non-credit impairment fair value losses on credit derivatives: 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. GAAP fair values are 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 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. -- Insurance intangible asset: Elimination of the financial guarantee insurance intangible asset that arose as a result of Ambac’s emergence from bankruptcy and the implementation of Fresh Start reporting. This adjustment ensures that all financial guarantee contracts are accounted for within Adjusted Book Value consistent with the provisions of the Financial Services—Insurance Topic of the ASC. -- Net unearned premiums and fees in excess of expected losses: Addition of the value of the unearned premium revenue (“UPR”) on financial guarantee contracts, in excess of expected losses, net of reinsurance. This non-GAAP adjustment presents the economics of UPR and expected losses for financial guarantee contracts on a consistent basis. In accordance with GAAP, stockholders’ equity reflects a reduction for expected losses only to the extent they exceed UPR. However, when expected losses are less than UPR for a financial guarantee contract, neither expected losses nor UPR have an impact on stockholders’ equity. This non-GAAP adjustment adds UPR in excess of expected losses, net of reinsurance, to stockholders’ equity for financial guarantee contracts where expected losses are less than UPR. -- Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income: 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 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.

Adjusted Book Value was $1.292 billion, or $28.50 per share, at September 30, 2018, as compared to $1.398 billion, or $30.84 per share, at June 30, 2018. The decrease in Adjusted Book Value was primarily attributable to the Adjusted Loss for the three months ended September 30, 2018.

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

September 30, 2018 June 30, 2018 ($ in millions, other than per share data) $ Amount Per Share $ Amount Per Share ------------------------------------------------------------- ----------- --------- ----------- --------- Total Ambac Financial Group, Inc. stockholders’ equity $ 1,757.7 $ 38.77 $ 1,799.8 $ 39.70 Adjustments: Non-credit impairment fair value losses on credit derivatives 1.2 0.03 1.3 0.03 Insurance intangible asset (755.7 ) (16.67 ) (786.2 ) (17.34 ) Net unearned premiums and fees in excess of expected losses 503.2 11.10 536.7 11.84 Net unrealized investment (gains) losses in Accumulated Other (214.4 ) (4.73 ) (153.6 ) (3.39 ) Comprehensive Income Adjusted Book Value $ 1,291.9 $ 28.50 $ 1,398.0 $ 30.84 - ------- - - ----- - - ------- - - ----- - Shares outstanding (in millions) 45.3 45.3 ------- - ------- -

Earnings Call and Webcast

On November 8, 2018 at 8:30am ET, Claude LeBlanc, President and Chief Executive Officer, and David Trick, Executive Vice President and Chief Financial Officer, will discuss third quarter 2018 results during a conference call. A live audio webcast of the call will be available through the Investor Relations section of Ambac’s website, http://ir.ambac.com/events.cfm. Participants may also listen via telephone by dialing (877) 407-9716 (Domestic) or (201) 493-6779 (International).

The webcast will be archived on Ambac’s website. A replay of the call will be available through November 22, 2018, and can be accessed by dialing (Domestic) (844) 512-2921 or (International) (412) 317-6671; and using ID#13684051.

Additional information is included in an operating supplement and presentations at Ambac’s website at www.ambac.com.

About AmbacAmbac Financial Group, Inc. (“Ambac” or “AFG”), headquartered in New York City, is a holding company whose subsidiaries, including its principal operating subsidiaries, Ambac Assurance Corporation (“Ambac Assurance or AAC”), Everspan Financial Guarantee Corp. and Ambac Assurance UK Limited (“Ambac UK”), provide financial guarantees of obligations in both the public and private sectors globally. AAC is a guarantor of public finance and structured finance obligations. Ambac’s common stock trades on the NASDAQ Global Select Market under the symbol “AMBC”. The Amended and Restated Certificate of Incorporation of Ambac contains substantial restrictions on the ability to transfer Ambac’s common stock. Subject to limited exceptions, any attempted transfer of common stock shall be prohibited and void to the extent that, as a result of such transfer (or any series of transfers of which such transfer is a part), any person or group of persons shall become a holder of 5% or more of Ambac’s common stock or a holder of 5% or more of Ambac’s common stock increases its ownership interest. Ambac is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, we use our website to convey information about our businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related information, and the posting of updates to the status of certain residential mortgage backed securities litigations. For more information, please go to www.ambac.com.

Contact

Lisa A. KampfManaging Director, Investor Relations(212) 208-3177lkampf@ambac.com

Forward-Looking Statements

In this press release, 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 our most recent SEC filed quarterly or annual report.

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) the highly speculative nature of Ambac’s common stock and volatility in the price of Ambac’s common stock; (2) uncertainty concerning the Company’s ability to achieve value for holders of its securities, whether from Ambac Assurance Corporation (“Ambac Assurance”) or from transactions or opportunities apart from Ambac Assurance; (3) adverse effects on Ambac’s share price resulting from future offerings of debt or equity securities that rank senior to Ambac’s common stock; (4) potential of rehabilitation proceedings against Ambac Assurance; (5) dilution of current shareholder value or adverse effects on Ambac’s share price resulting from the issuance of additional shares of common stock; (6) inadequacy of reserves established for losses and loss expenses and possibility that changes in loss reserves may result in further volatility of earnings or financial results; (7) decisions made by Ambac Assurance’s primary insurance regulator for the benefit of policyholders that may result in material adverse consequences for holders of the Company’s securities or holders of securities issued or insured by Ambac Assurance; (8) increased fiscal stress experienced by issuers of public finance obligations or an increased incidence of Chapter 9 filings or other restructuring proceedings by public finance issuers; (9) failure to recover claims paid on Puerto Rico exposures or incurrence of losses in amounts higher than expected; (10) the Company’s inability to realize the expected recoveries included in its financial statements; (11) changes in Ambac Assurance’s estimated representation and warranty recoveries or loss reserves over time; (12) insufficiency or unavailability of collateral to pay secured obligations; (13) credit risk throughout the Company’s business, including but not limited to credit risk related to residential mortgage-backed securities, student loan and other asset securitizations, public finance obligations and exposures to reinsurers; (14) credit risks related to large single risks, risk concentrations and correlated risks; (15) concentration and essentiality risk in connection with Military Housing insured debt; (16) the risk that the Company’s risk management policies and practices do not anticipate certain risks and/or the magnitude of potential for loss; (17) risks associated with adverse selection as the Company’s insured portfolio runs off; (18) adverse effects on operating results or the Company’s financial position resulting from measures taken to reduce risks in its insured portfolio; (19) intercompany disputes or disputes with Ambac Assurance’s primary insurance regulator; (20) our inability to mitigate or remediate losses, commute or reduce insured exposures or achieve recoveries or investment objectives, or the failure of any transaction intended to accomplish one or more of these objectives to deliver anticipated results; (21) the Company’s substantial indebtedness could adversely affect its financial condition and operating flexibility; (22) the Company may not be able to obtain financing or raise capital on acceptable terms or at all due to its substantial indebtedness and financial condition; (23) the Company may not be able to generate the significant amount of cash needed to service its debt and financial obligations, and may not be able to refinance its indebtedness; (24) restrictive covenants in agreements and instruments may impair the Company’s ability to pursue or achieve its business strategies; (25) loss of control rights in transactions for which we provide insurance due to a finding that Ambac Assurance has defaulted, whether due to the Segregated Account rehabilitation proceedings or otherwise; (26) the Company’s results of operation may be adversely affected by events or circumstances that result in the accelerated amortization of the Company’s insurance intangible asset; (27) adverse tax consequences or other costs resulting from the Segregated Account rehabilitation plan, or from the characterization of the Company’s surplus notes or other obligations as equity; (28) risks attendant to the change in composition of securities in the Company’s investment portfolio; (29) changes in tax law; (30) changes in prevailing interest rates; (31) changes on inter-bank lending rate reporting practices or the method pursuant to which LIBOR rates are determined; (32) factors that may influence the amount of installment premiums paid to the Company, including the Segregated Account rehabilitation proceedings; (33) default by one or more of Ambac Assurance’s portfolio investments, insured issuers or counterparties; (34) market risks impacting assets in the Company’s investment portfolio or the value of our assets posted as collateral in respect of interest rate swap transactions; (35) risks relating to determinations of amounts of impairments taken on investments; (36) 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 the Company’s business, operations, financial position, profitability or cash flows; (37) actions of stakeholders whose interests are not aligned with broader interests of the Company’s stockholders; (38) the Company’s inability to realize value from Ambac UK or other subsidiaries of Ambac Assurance; (39) system security risks; (40) market spreads and pricing on interest rate derivative insured or issued by the Company; (41) the risk of volatility in income and earnings, including volatility due to the application of fair value accounting; (42) changes in accounting principles or practices that may impact the Company’s reported financial results; (43) legislative and regulatory developments, including intervention by regulatory authorities; (44) the economic impact of “Brexit” may have an adverse effect on the Company’s insured international portfolio and the value of its foreign investments, both of which primarily reside with its subsidiary Ambac UK; (45) operational risks, including with respect to internal processes, risk and investment models, systems and employees, and failures in services or products provided by third parties; (46) the Company’s financial position that may prompt departures of key employees and may impact the Company’s ability to attract qualified executives and employees; (47) implementation of new tax legislation signed into law on December 22, 2017 (commonly known as the “Tax Cuts and Jobs Act”) may have unexpected consequences for the Company and the value of its securities, particularly its common shares; (48) implementation of the Tax Cuts and Jobs Act may negatively impact the economic recovery of Puerto Rico, which could result in higher loss severities or an extended moratorium on debt service owed on Ambac Assurance-insured bonds of Puerto Rico and its instrumentalities; (49) implementation of the Tax Cuts and Jobs Act could have a negative impact on municipal issuers of Ambac-insured bonds; (50) fluctuations in foreign currency exchange rates could adversely impact the insured portfolio in the event of loss reserves or claim payments denominated in a currency other than US dollars and the value of non-US dollar denominated securities in our investment portfolio; and (51) other risks and uncertainties that have not been identified at this time.

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income (Loss) (Unaudited)

Three Months Ended September June 30, ($ in Thousands, except share data) 30, 2018 2018 ----------------------------------------------------------------------------------- ------------ ---------- Revenues: Net premiums earned $ 25,640 $ 25,836 Net investment income: Securities available-for-sale and short-term 49,985 61,742 Other investments 8,347 4,920 ---------- - -------- - Total net investment income 58,332 66,662 Other-than-temporary impairment losses: Total other-than-temporary impairment losses (266 ) (1,010 ) Portion of other-than-temporary impairment recognized in other comprehensive income — (4 ) ---------- - -------- - Net other-than-temporary impairment losses recognized in earnings (266 ) (1,014 ) Net realized investment gains (losses) 30,201 47,148 Change in fair value of credit derivatives: Realized gains and other settlements 99 91 Unrealized gains (losses) 151 (308 ) ---------- - -------- - Net change in fair value of credit derivatives 250 (217 ) Net gains (losses) on interest rate derivatives 17,333 9,149 Net realized gains on extinguishment of debt — 6 Other income (expense) 694 2,491 Income (loss) on variable interest entities 1,831 577 Total revenues 134,015 150,638 ---------- - -------- - Expenses: Losses and loss expense (benefit) 33,501 32,579 Insurance intangible amortization 26,421 23,242 Operating expenses 28,368 26,063 Interest expense 65,673 62,446 Total expenses 153,963 144,330 ---------- - -------- - Pre-tax income (loss) (19,948 ) 6,308 Provision for income taxes 2,211 1,995 ---------- - -------- - Net income (loss) $ (22,159 ) $ 4,313 Less: exchange of auction market preferred shares 81,686 — Net income (loss) attributable to common stockholders $ (103,845 ) $ 4,313 - -------- - - ------ - Net income (loss) per basic share $ (2.27 ) $ 0.09 - -------- - - ------ - Net income (loss) per diluted share $ (2.27 ) $ 0.09 - -------- - - ------ - Weighted-average number of common shares outstanding: 45,749,252 45,683,05 Basic 8 ---------- - -------- - 45,749,252 46,472,37 Diluted 5 ---------- - -------- -

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income (Loss) (Unaudited)

Nine Months Ended September 30, ($ in Thousands, except share data) 2018 2017 ---------------------------------------------------------------------------- ------------ ------------- Revenues: Net premiums earned $ 82,359 $ 143,754 Net investment income: Securities available-for-sale and short-term 222,278 235,092 Other investments 12,956 18,804 ---------- - ----------- - Total net investment income 235,234 253,896 Other-than-temporary impairment losses: Total other-than-temporary impairment losses (1,617 ) (48,581 ) Portion of other-than-temporary impairment recognized in other comprehensive 38 29,366 income ---------- - ----------- - Net other-than-temporary impairment losses recognized in earnings (1,579 ) (19,215 ) Net realized investment gains (losses) 82,211 5,434 Change in fair value of credit derivatives: Realized gains and other settlements 296 1,467 Unrealized gains (losses) (609 ) 6,388 ---------- - ----------- - Net change in fair value of credit derivatives (313 ) 7,855 Net gains (losses) on interest rate derivatives 52,019 36,538 Net realized gains on extinguishment of debt 3,121 4,920 Other income (expense) 2,676 1,107 Income (loss) on variable interest entities 2,982 (1,567 ) Total revenues 458,710 432,722 ---------- - ----------- - Expenses: Losses and loss expense (benefit) (181,315 ) 410,917 Insurance intangible amortization 78,299 116,686 Operating expenses 90,865 93,502 Interest expense 176,192 88,951 Total expenses 164,041 710,056 ---------- - ----------- - Pre-tax income (loss) 294,669 (277,334 ) Provision for income taxes 6,811 31,902 ---------- - ----------- - Net income (loss) $ 287,858 $ (309,236 ) Less: exchange of auction market preferred shares 81,686 — Net income (loss) attributable to common stockholders $ 206,172 $ (309,236 ) -- ------- - -- -------- - Net income (loss) per basic share $ 4.52 $ (6.82 ) -- ------- - -- -------- - Net income (loss) per diluted share $ 4.43 $ (6.82 ) -- ------- - -- -------- - Weighted-average number of common shares outstanding: Basic 45,635,483 45,355,671 ---------- - ----------- - Diluted 46,510,795 45,355,671 ---------- - ----------- -

AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

$ in Thousands, except share data) September 30, June 30, 2018 2018 ------------------------------------------------------------------------- --------------- --------------- Assets: Investments: Fixed income securities, at fair value (amortized cost: $3,001,432 and $ 3,221,301 $ 3,514,927 $3,355,223) Fixed income securities pledged as collateral, at fair value (amortized 84,186 84,641 cost: $84,186 and $84,641) Short-term investments, at fair value (amortized cost: $562,111 and 562,060 393,447 $393,516) Other investments (includes $372,774 and $356,899 at fair value) 411,604 394,396 ------------- - ------------- - Total investments 4,279,151 4,387,411 Cash and cash equivalents 52,505 44,398 Receivable for securities 46,376 82,513 Investment income due and accrued 10,709 12,157 Premium receivables 517,197 553,958 Reinsurance recoverable on paid and unpaid losses 25,511 39,071 Deferred ceded premium 45,204 47,886 Subrogation recoverable 1,898,611 1,876,188 Loans 10,082 10,007 Derivative assets 50,262 56,510 Current taxes 32,509 34,619 Insurance intangible asset 755,734 786,208 Other assets 22,191 33,631 Variable interest entity assets: Fixed income securities, at fair value 2,718,377 2,756,924 Restricted cash 1,024 1,052 Loans, at fair value 4,563,091 10,751,199 Derivative assets 61,543 60,403 Other assets 3,387 1,088 ------------- - ------------- - Total assets $ 15,093,464 $ 21,535,223 -- ---------- - -- ---------- - Liabilities and Stockholders’ Equity: Liabilities: Unearned premiums $ 669,820 $ 721,689 Loss and loss expense reserves 1,868,484 2,057,334 Ceded premiums payable 34,306 35,594 Deferred taxes 27,537 32,781 Long-term debt 2,937,771 2,796,389 Accrued interest payable 356,711 237,558 Derivative liabilities 61,331 67,648 Other liabilities 61,533 58,191 Payable for securities purchased 31,292 16,556 Variable interest entity liabilities: Accrued interest payable 2,817 550 Long-term debt, at fair value 5,585,860 11,454,746 Derivative liabilities 1,657,173 1,992,227 Other liabilities 20 39 ------------- - ------------- - Total liabilities 13,294,655 19,471,302 ------------- - ------------- - Stockholders’ equity: Preferred stock, par value $0.01 per share; 20,000,000 shares authorized; — — issued and outstanding shares—none Common stock, par value $0.01 per share; 130,000,000 shares authorized; 454 454 issued and outstanding shares: 45,365,170 and 45,365,170 Additional paid-in capital 218,050 208,328 Accumulated other comprehensive income 97,825 45,854 Retained earnings 1,441,857 1,545,702 Treasury stock, shares at cost: 32,956 and 32,956 (527 ) (527 ) ------------- - ------------- - Total Ambac Financial Group, Inc. stockholders’ equity 1,757,659 1,799,811 Noncontrolling interest 41,150 264,110 Total stockholders’ equity 1,798,809 2,063,921 ------------- - ------------- - Total liabilities and stockholders’ equity $ 15,093,464 $ 21,535,223 -- ---------- - -- ---------- -

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