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Ambac Financial Group, Inc. Announces Second Quarter 2010 Results

Financial Guarantee Loss Reserves

Total net loss and loss expenses were $323.3 million in the second quarter of 2010, compared to $1,230.8 million in the second quarter of 2009. Losses and loss expenses in the second quarter of 2010 were primarily related to credit deterioration in certain student loan transactions and the impact of using a lower average risk-free rate to discount losses. Second quarter of 2009 loss and loss expenses were driven by continued deterioration in the RMBS portfolio.

Loss and loss adjustment expenses paid (on policies not allocated to the Segregated Account) during the second quarter 2010, net of recoveries from all policies (allocated and not allocated to the Segregated Account), amounted to a net recovery of $17.1 million. Total insurance claims presented for payment during the quarter but not paid as a result of the moratorium imposed in March 2010 by the OCI on all policies allocated to the Segregated Account amounted to $525.4 million, all related to RMBS policies. Total net claims paid in the second quarter of 2009 were $400.8 million, primarily related to second-lien RMBS transactions.

Loss and loss expense reserves for all RMBS insurance exposures as of June 30, 2010, were $2,689.7 million (including $655.5 million representing claims presented but not paid since March 24, 2010 due to the claims moratorium). RMBS reserves are net of $2,227.2 million of estimated net remediation recoveries. The estimate of net remediation recoveries related to material representation and warranty breaches increased from $2,069.2 million as of March 31, 2010, primarily as a result of breaches identified during the re-underwriting of additional transactions. Ambac has initiated and may continue to initiate lawsuits seeking compliance with the repurchase obligations in the securitization documents with respect to sponsors who disregard their obligations to repurchase. Additionally, Ambac is in the process of re-underwriting additional transactions that have drastically underperformed expectations and the forensic results of those transactions will be available over the next few quarters.

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