Investor Presentation

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1 Investor Presentation Fourth Quarter Ambac Financial Group, Inc. One State Street Plaza, New York, NY All Rights Reserved

2 INDEX Strategic Priorities Scorecard 3 Subsequent Event-Conclusion of AAC's Segregated Account's Rehabilitation 5 PAGE 4Q2017 Financial and Business Highlights 12 Ambac History and Today 21 Value drivers AFG 26 AAC 33 APPENDIX 32 2

3 STRATEGIC PRIORITIES SCORECARD Strategic Priorities Conclude Segregated Account Rehabilitation Exit (see slide 5) Active Run-off of Ambac Assurance and its subsidiaries that we believe will improve our risk profile; maximizing the riskadjusted return on invested assets Accomplishments ü Segregated Account exit from Rehabilitation successfully completed February 12, 2018 ü Proforma Book Value of $38.08 and Adjusted Book Value of $31.90 per share as of December 31, 2017 ü Future claims paid at 100% in cash ü YTD insured portfolio down 21% ü YTD ACCs down 17% ü Executed major de-risking commutations and terminations in the municipal, structured and international sectors (see slide 4) Loss Recovery through Litigation and Exercise of Contractual Legal Rights ü ü ü Won right to appeal certain rulings of intermediate appellate court to the NY Court of Appeals in the main Countrywide case Settled Ballantyne JPM litigation realizing a benefit of $145 million Progressing other litigation matters including Nomura and First Franklin Operating and Corporate Governance Efficiencies ü ü ü ü Headcount reductions of 19%, will reduce compensation expense by approximately 20% or $8.5 million annually Reduction of future regulatory costs of approximately $6 million annually Streamlined governance structure following Segregated Account Rehabilitation exit Reduced regulatory oversight following Segregated Account Rehabilitation exit New Strategic Initiatives ü ü Management actively exploring potential new business initiatives Targeted business sectors identified and financial criteria established 3

4 HIGHLIGHTED ACTIVE RISK MITIGATION ACTIVITIES Termination of Augusta Funding Limited IV, a $185 million adversely classified credit, including a swap, resulting in a gain of $43 million; Facilitated the refinancing of 188 million of insured debt of an international assetbacked issuer, with payment of a termination premium of 13 million, resulting in accelerated premiums earned of $11 million Reduced ACCs by $422 million as a result of the termination of certain residential mortgage backed transactions Facilitated the refinancing of a public finance transaction that led to reduction of ACCs by $145 million Facilitated the refinancing of the only remaining non-investment grade CDS, reducing ACCs by $74 million 4

5 AMBAC ANNOUNCES CONCLUSION OF SEGREGATED ACCOUNT REHABILITATION On February 12, 2018, Ambac announced the exit from rehabilitation of AAC's Segregated Account, following the successful completion of the holistic restructuring transaction (the "Transaction") announced on July 19, 2017 The Transaction was comprised of 3 key components: Satisfaction and discharge of all outstanding DPOs of the Segregated Account, totaling $3.86 billion, including accretion amounts thereon; AAC's cancellation of $809.5 million, in principal amount outstanding, plus accrued and unpaid interest thereon, 5.1% surplus notes due 2020 (the "General Account Surplus Notes"); and An effective discount of 6.5% on DPOs and the outstanding amount of principal and accrued and unpaid interest on tendered General Account Surplus Notes AAC also received $240 million in cash proceeds from the issuance of notes secured by recoveries from RMBS representation and warranty and fraud litigation in excess of $1.6 billion 5

6 KEY TRANSACTION BENEFITS Transaction Mechanics Material Value Creation and Improved Financial Condition Benefits Increase of $7.56 in Book Value Proforma Book Value as of December 31, 2017 is $38.08 and Proforma Adjusted Book Value is $31.90 per share Reduction of liabilities while preserving NOLs Improvement of AAC's statutory surplus Improved Operating Efficiency Removal or modification of certain restrictive Bank Settlement Agreement covenants associated with General Account Surplus Notes Elimination of the Segregated Account Future claims paid 100% in cash Reduced regulatory oversight Significant Reduction in Future Operating Expenses Approximately $6 million of anticipated future annual savings of regulatory expenses related to the rehabilitation of the Segregated Account Streamlined Corporate Governance Resignation of three AAC unaffiliated directors and appointment of additional director to AFG and AAC boards Streamlined governance structure, interlocking Board of Directors at AFG and AAC 6

7 PRO-FORMA ADJUSTED BOOK VALUE- POST RESTRUCTURING Pro forma Reported Post Restructuring December 31, 2017 December 31, 2017 Change ($ in millions, except per share data) $ Amount Per Share $ Amount Per Share $ Amount Per Share Total AFGI Shareholders' Equity $ 1,381 $ $ 1,725 $ $ 344 $ 7.56 Adjustments: Non-credit impairment unrealized fair value losses on credit derivatives Insurance intangible asset (847) (18.71) (847) (18.71) Net unearned premiums and fees in excess of expected losses Net unrealized investment (gains) losses in AOCI (31) (0.68) (31) (0.68) Adjusted book value $ 1,101 $ $ 1,445 $ $ 344 $ 7.56 Shares Outstanding (in millions)

8 PRO-FORMA AMBAC LIABILITY AND CAPITAL SUMMARY - POST RESTRUCTURING Category Claim Liabilities ($ in millions) Pro-forma 12/31/17 $2,957 Comments Before estimated subrogation recoveries, Unearned Premium Revenue ( UPR ) and reinsurance Includes $320 million of Ambac UK claim liabilities Secured Note 5.1% Surplus Notes Par (1) 5.1% Junior Surplus Notes Par Tier 2 Note $2,145 $289 $370 $240 Includes $764 million owned by Ambac General Account Surplus Notes Does not include $132 million (1) of accrued and unpaid interest Includes $350 million par (formerly held by AFG (2) ) Does not include $100 million of accrued and unpaid interest Auction Market Preferred Shares (AMPS) $660 Liquidation Preference, originally $800 million Common Stock Market Cap (3) $686 45,278,480 common shares 4,053,670 warrants (4) (1) Amounts are net of approximately $102 million of principal and accrued interest held by AFG (2) On August 28, 2014, to help fund the Company s strategic priorities, AFG monetized 80% of its Segregated Account Junior Surplus Note ($350 million) and accrued and unpaid interest ($24 million), for net proceeds of approximately $224 million. AFG retained a 20% interest in the Junior Surplus Notes through a $75 million subordinated Owner Trust Certificate (3) Common Stock Market Cap based on AMBC common shares outstanding at the closing stock price of $15.16 on February 27, 2018 (4) As of December 31, 2017 Ambac has repurchased 985,331 warrants totaling $8.1 million at an average cost of $8.21 per warrant 8

9 SUMMARY PRO-FORMA GAAP BALANCE SHEET - POST RESTRUCTURING Pro forma ($ in million) December 31, 2017 Adjustments December 31, 2017 Assets: Total non-variable interest entity investments, cash and cash equivalents $ 6,364 $ (1,786) (1) $ 4,578 Subrogation recoverable 631 1,312 (2) 1,943 Other assets 1,696 (9) (3) 1,687 Total VIE assets 14,501 14,501 Total assets $ 23,192 $ (483) $ 22,710 Liabilities and Stockholders' Equity: Liabilities: Loss and loss expense reserve $ 4,745 $ (2,555) (2) $ 2,190 Long-term debt 992 1,952 (4) 2,944 Accrued interest payable 437 (224) (4) 213 Other liabilities 1,007 1,007 Total VIE liabilities 14,366 14,366 Total liabilities 21,547 (827) 20,720 Stockholders' equity 1, (2)(5)(6) 1,989 Total liabilities and stockholders' equity $ 23,192 $ (483) $ 22,710 9

10 SUMMARY PRO-FORMA GAAP BALANCE SHEET - POST RESTRUCTURING (Cont d) (1) The net cash and investment outflows reflects the distributions under the Rehabilitation Exit Transactions as follows: (dollars in millions) Cash payment to third parties for settlement of Deferred Amounts and Surplus Notes $ (1,347) Cash payment for unpaid claims presented after record date (30) Cash payment for one-time current interest payment on remaining surplus notes (11) Cash payment for remaining debt issuance costs (8) Receipt of Tier 2 proceeds 240 Receipt of Secured Notes issued by Ambac LSNI 764 Reduction in value of Ambac-insured RMBS securities held in the investment portfolio (1,394) $ (1,786) (2) The transactions pursuant to the Second Amended Plan of Rehabilitation where Ambac is settling its unpaid claims at a discount is being accounted for as an extinguishment, where the discount of approximately $287 is reflected in the pro forma consolidated balance sheet as an increase to Retained Earnings. As a result of the settlement, future net cash flows on certain policies will become an asset and are reclassified to Subrogation recoverable. (3) Reflects the reclass of previously capitalized costs directly associated with the issuance of the Ambac Notes or Tier 2 Notes to Long-term debt that will be amortized as part of the effective yield calculation. (4) The discount received in the other Rehabilitation Exit Transactions are being accounted for as a debt modification since the creditors before and after the discount remain the same and the change in the terms is not considered substantial. A substantial change is considered to be a change in cash flows of equal to or greater than 10% as a result of the modification of terms. As the change in cash flows is less than 10%, debt modification accounting is appropriate. Under debt modification accounting, no gain or loss is recorded, and a new effective interest rate is established based on the Ambac Note cash flows. Additionally, any consideration paid that is directly related to the issuance of the Ambac Note is capitalized and amortized as part of the effective yield calculation. The net long-term debt increase reflects the impact of the Rehabilitation Exit Transactions as follows: 10

11 SUMMARY PRO-FORMA GAAP BALANCE SHEET - POST RESTRUCTURING (Cont d) (4) The discount received in the other Rehabilitation Exit Transactions are being accounted for as a debt modification since the creditors before and after the discount remain the same and the change in the terms is not considered substantial. A substantial change is considered to be a change in cash flows of equal to or greater than 10% as a result of the modification of terms. As the change in cash flows is less than 10%, debt modification accounting is appropriate. Under debt modification accounting, no gain or loss is recorded, and a new effective interest rate is established based on the Ambac Note cash flows. Additionally, any consideration paid that is directly related to the issuance of the Ambac Note is capitalized and amortized as part of the effective yield calculation. The net longterm debt increase reflects the impact of the Rehabilitation Exit Transactions as follows: Accrued (dollars in millions) Long-term Debt Interest Payable Tier 2 Notes issuance $ 240 $ Ambac Note issuance 2,145 Cash payment for on-time current interest payment on remaining surplus notes (11) Deferred loss on Rehabilitation Exit Transactions and debt issuance costs (20) Reduction in carrying value of Surplus Notes (413) (213) $ 1,952 $ (224) (5) As a result of the Rehabilitation Exit Transactions, Ambac will receive settlement of its ownership in Deferred Amounts and would realize a gain of $57 over the carrying value of the associated Ambac-insured RMBS as of December 31, (6) This pro forma information does not incorporate any assumptions regarding taxes. 11

12 4Q2017 FINANCIAL HIGHLIGHTS Financial Highlights: Total revenues increased $56.2 million as a result of higher investment returns, higher income from VIE entities and greater net gains on interest rate derivatives, partially offset by lower premium earned Total expenses decreased $122.3 million due to lower loss and loss expenses and operating expenses Tax expense was $12.6 million primarily due to Ambac UK current taxes of $8.7 million, $2.0 million of state taxes and the net impact of $1.9 million for the implementation of the provisions of the Tax Cuts and Jobs Act ($ in millions, except per share amounts) 4Q2017 3Q2017 Net income (loss) $ (19) $ (191) Net income (loss) per diluted share $ (0.43) $ (4.20) Adjusted earnings (loss) (1) $ 5 $ (150) Adjusted earnings (loss) per diluted share $ 0.12 $ (3.30) Adjusted book value (1) $ 1,101 $ 1,112 Adjusted book value per share $ $ (1) Adjusted earnings and adjusted book value are non-gaap financial measures of financial performance or financial position that excludes (or includes) amounts that are included in (or excluded from) net income attributable to common stockholders for Adjusted Earnings and Total Ambac Financial Group, Inc. stockholders equity for Adjusted Book Value. A reconciliation between both financial measures can be found in Ambac s 4Q2017 Earnings Release included in Ambac s Current Report on Form 8-K filed with the SEC on February 28, 2018 and at the end of this document 12

13 4Q2017 FINANCIAL HIGHLIGHTS (CONT'D) INVESTMENT MANAGEMENT: During the three months ended December 31, 2017, Ambac acquired $302.5 million of Ambac insured Puerto Rico securities Ambac currently owns approximately 29% of PRIFA and 58% of COFINA insured bonds LOSS MITIGATION ACTIVITY: Adversely Classified Credits ("ACCs") declined $1.1 billion or 7.5% through natural runoff and active loss mitigation activities Reduced ACCs by $422 million as a result of the termination of certain residential mortgage backed transactions Facilitation of a public finance refinancing transaction, reducing ACCs by $145 million Facilitated the refinancing of the only remaining non-investment grade CDS, reducing ACCs by $74 million 13

14 4Q2017 vs 3Q KEY FINANCIAL RESULTS Net Premiums earned decreased $21.5 million due to the continued runoff of the insured portfolio and the favorable impact of de-risking activities in 3Q17 Net investment income increased $19.9 million in 4Q17 primarily from higher discount accretion on Ambac-insured RMBS as a result of the impact of the Segregated Account rehabilitation exit transactions Interest rate derivatives gains were $23.0 million, which reflected the impact of the macro hedge due a rise in interest rates compared to 3Q2017 ($ in millions) 4Q2017 3Q2017 $125 $75 $25 -$25 -$75 -$125 -$175 -$225 -$275 $32 $53 $107 $87 $23 $4 $(102) $(210) $(29) $(34) $(31) $(29) $(19) $(191) $5 $(150) Net premiums earned Net investment income Interest Rate Derivatives gains (losses) Loss and loss expenses Operating expenses Interest expense Net income (loss) attributable to Common Stockholders Adjusted earnings (loss) (1) Adjusted earnings (loss) is a non-gaap financial measure of financial position that excludes (or includes) amounts that are included in (or excluded from) net income which is presented in accordance with GAAP. A reconciliation between both financial measures can be found in Ambac s 4Q2017 Earnings Release, included in Ambac s Current Report on Form 8-K filed with the SEC on February 28, 2018 and at the end of this document (1) 14

15 INCURRED (LOSSES) BENEFIT BY CATEGORY (1) - 4Q2017 vs 3Q2017 RMBS loss of $18.2 million in 4Q2017 was driven by excess spread compression and loss expenses incurred, partially offset by a benefit related to transactions terminated during 4Q17 Domestic public finance losses of $42.2 million in 4Q17 were impacted by adverse developments in Public Finance, primarily Puerto Rico Ambac UK benefit of $7.3 million in 4Q2017 was primarily a result of improved credit performance and foreign exchange gains ($ in millions) 4Q2017 3Q2017 $100 $50 $0 -$50 -$100 -$150 $(18) $34 $(42) $(1) $(2) $7 $13 $(3) $2 $(46) $(45) $(102) -$200 -$250 $(213) $(210) RMBS Domestic Public Finance (1) Components may not add to total due to rounding Student Loans Ambac UK Other Credits Interest on Deferred Amounts Total 15

16 GROSS LOSS RESERVES BY CATEGORY (1) ($ in millions) As of 12/31/17 As of 9/30/17 $5,000 $4,000 $4,114 $4,000 $3,000 $2,598 $2,489 $2,000 $1,000 $816 $801 $0 $308 $307 $286 $290 $17 $14 $89 $99 RMBS Domestic Public Finance Student Loans Ambac UK Other Credits Loss Expenses Total (1) Gross loss reserves are net of estimated R&W subrogation recoveries of $1.8 billion as of December 31, 2017 and September 30, 2017, and other subrogation recoverables of $0.7 billion and $0.8 billion as of December 31, 2017 and September 30, 2017, respectively. Gross loss reserves include $3.9 billion and $3.8 billion of unpaid segregated account policy claims and interest as of December 31, 2017 and September 30, 2017, respectively 16

17 EXPENSE MANAGEMENT Focus on expense reduction through headcount and operating efficiencies Compensation Expense Non-Compensation Expenses $25 $25 $20 $20 ($ in millions) $15 $10 ($ in millions) $15 $10 $5 $5 $0 $0 3Q Q Q Q Q Q Q Q Q Q Q Q 2017 Other OCI Activism Litigation contingency Restructuring Compensation expense decreased $4.4 million in 4Q2017 from 3Q2017 primarily due to costs related to a corporate reorganization implemented in 3Q2017 Expenses related to the restructuring transaction amounted to $5.2 million in 4Q2017 and $7.0 million in 3Q2017 Expenses directly related to regulatory oversight, ("OCI") amounted to $5.0 million in 4Q2017 and $2.2 million in 3Q

18 STEADY IMPROVEMENT IN CLAIMS-PAYING RATIO AND REDUCTION OF INSURED EXPOSURES Claims-paying resources (1) of $8.9 billion as of December 31, 2017 Net par outstanding decreased 68% from June 30, :1 $220 $ $ :1 $ :1 26:1 $ :1 $180 $ $144.7 $ :1 $ :1 14:1 $94.4 $ :1 $62.7 $140 $120 $100 $80 $60 ($ in billions) 0 (1) (2) 06/30/13 12/31/13 06/30/14 12/31/14 06/30/15 12/31/15 06/30/16 12/31/16 12/31/17 $40 Claims-paying Ratio Net Par Outstanding ($ in billions) (1) Total claims-paying ratio is net financial guarantees in force divided by total claims-paying resources. Total claims-paying resources quantifies total resources available to pay claims, including guarantees on subsidiary obligations. The calculation for total claims-paying-resources includes loss and loss adjustment expense reserves before the recorded statutory benefit for expected subrogation receipts (2) Par throughout this presentation includes capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds 18

19 AMBAC LIABILITY AND CAPITAL SUMMARY - AS OF 12/31/17 Category ($ in millions) 12/31/17 Comments Claim Liabilities $6,824 Before estimated subrogation recoveries, Unearned Premium Revenue ( UPR ) and reinsurance Includes $3,867 million of unpaid claims, including accrued interest on Deferred Amounts ( DPO ) of $840 million Includes $320 million of Ambac UK claim liabilities 5.1% Surplus Notes Par (1) $755 Does not include $345 million (1) of accrued and unpaid interest 5.1% Junior Surplus Notes Par $370 Includes $350 million par (formerly held by AFG (2) ) Does not include $100 million of accrued and unpaid interest Auction Market Preferred Shares (AMPS) $660 Liquidation Preference, originally $800 million Common Stock Market Cap (3) $686 45,278,480 common shares 4,053,670 warrants (4) (1) Amounts are net of approximately $232 million of principal and accrued interest held by AFG, inclusive of Segregated Account surplus notes (2) On August 28, 2014, to help fund the Company s strategic priorities, AFG monetized 80% of its Segregated Account Junior Surplus Note ($350 million) and accrued and unpaid interest ($24 million), for net proceeds of approximately $224 million. AFG retained a 20% interest in the Junior Surplus Notes through a $75 million subordinated Owner Trust Certificate (3) Common Stock Market Cap based on AMBC common shares outstanding at the closing stock price of $15.16 on February 27, 2018 (4) As of December 31, 2017 Ambac has repurchased 985,331 warrants totaling $8.1 million at an average cost of $8.21 per warrant 19

20 BOOK VALUE AND ADJUSTED BOOK VALUE PER SHARE (1) Ambac has strengthened book value and adjusted book value since emergence from bankruptcy (2) Book Value/Share (3) 42% CAGR since June 2013 Adjusted Book Value/Share Increase of $20.57 since June 2013 $50 $50 $40 $30 $31.09 $37.41 $37.94 $30.52 $40 $30 $28.15 $29.48 $24.34 $20 $15.62 $20 $15.01 $10 $6.38 $10 $3.77 $8.32 $0 Jun-13 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 $0 Jun-13 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 (1) Adjusted book value is a non-gaap financial measure of financial position that excludes (or includes) amounts that are included in (or excluded from) Total Ambac Financial Group, Inc. stockholders equity which is presented in accordance with GAAP. A reconciliation between both financial measures can be found in Ambac s 4Q2017 Earnings Release included in Ambac s Current Report on Form 8-K filed with the SEC on February 28, 2018 and at the end of this document (2) Measured from June 30, 2013, the first quarter end after emergence from bankruptcy on May 1, 2013, through 4Q2017 (3) CAGR is Compound Annual Growth Rate 20

21 AMBAC HISTORY AND TODAY 21

22 AMBAC - A BIT OF HISTORY Historically a global leader in monoline insurance $556 billion of peak insured exposures prefinancial crisis including public finance, structured finance, and international finance Adversely impacted by financial crisis Segregated Account of AAC in Rehabilitation Established in March 2010 to separate most troubled liabilities, including residential mortgage-backed securities ("RMBS") and student loan guarantees Wisconsin Office of the Commissioner of Insurance ( OCI ) as Rehabilitator held ultimate decision-making authority over the Segregated Account Generally paid 45% of permitted policy claims, known as the Interim Payment Percentage ( IPP ); deferring 55% Bankruptcy of AFG November filed for Chapter 11 bankruptcy May emerged from bankruptcy with no debt, ~$5 billion of net operating loss carry-forwards ( NOLs ) and a new Board of Directors Ambac Financial Group, Inc. (Holding Company) (AFG) $368 million cash & investments; 45 million shares outstanding Everspan Financial Guarantee (Financial Guarantee) $233 million statutory surplus Ambac Assurance Corporation (Financial Guarantee) (AAC) $7.9 billion CPR; $47 billion net par $63 billion net par Portfolio % Breakdown Ambac UK: 25% Segregated Account: 15% Ambac Assurance UK (UK insurance company) (Ambac UK) $918 million CPR; $16 billion net par General Account: 60% Ambac Assurance Corporation Segregated Account (in Rehabilitation) 22

23 AMBAC TODAY AFG Financial guarantee holding company Subsidiaries provide financial guarantees on municipal bonds, structured securities and other financial instruments Principal operating subsidiaries include AAC, Ambac UK and Everspan Insured Portfolio as of December 31, 2017 AFG profile (as of December 31, 2017, unless otherwise noted) $368.2 million in cash and investments $3.7 billion of net operating loss carry-forwards ( NOLs ) $1.4 billion AFG; $2.3 billion AAC No debt at AFG Equity market capitalization of $686 million as of February 27, 2018 Investment Portfolio as of December 31, 2017 Non-RMBS Ambac Inured: 17% US Gov & Agency Obligations: 2% Corporate Obligations: 14% Int'l: 27% Muni Obligations: 2% $62.7 billion Net Par Public Finance: 51% Shortterm: 12% $5.7 billion Fair Value Structured Finance: 22% RMBS/ ABS: 6% Other: 8% RMBS-Ambac Insured: 39% 23

24 EARNINGS GENERATION SINCE EXITING BANKRUPTCY Generated $1.2 billion of net income and $2.4 billion of adjusted earnings (1) since emergence from bankruptcy (2) Net Income $1.2 billion since emergence Adjusted Earnings (1) $2.4 billion since emergence ($ in millions) $1,000 ($ in millions) $1,100 $1,154 $700 $505 $484 $493 $800 $637 $400 $100 $75 $500 $200 $462 $315 -$200 -$100 -$500 $(329) -$400 $(165) May - Dec May - Dec (1) Adjusted Earnings is a non-gaap financial measure that excludes (or includes) amounts that are included in (or excluded from) net income attributable to common stockholders which is presented in accordance with GAAP. A reconciliation to net income attributable to common stockholders, as reported under GAAP, is available at the end of this document and in our most recent SEC filed quarterly or annual report (2) Measured from June 30, 2013, the first quarter end after emergence from bankruptcy on May 1, 2013 through 4Q

25 EXECUTING ON STRATEGY SINCE EMERGENCE FROM BANKRUPTCY (2) Generated $1.2 billion of Net Income Increased Book Value per share by $24.14 Executed holistic restructuring transaction to conclude the Segregated Account Rehabilitation Generated $2.4 billion of Adjusted Earnings (1) Increased Adjusted Book Value (1) per share by $20.57 Settled JP Morgan RMBS litigation for $995 million AAC annualized total return on invested assets of 6.1% Reduced net par exposure by 68% Settled Ballantyne JPM litigation realizing a total benefit of $145 million Reduced adversely classified credits by 56% Cumulative tolling payments and accruals from AAC to AFG of $131 million Enhanced governance (1) Adjusted earnings and adjusted book value are non-gaap financial measures of financial performance or financial position that excludes (or includes) amounts that are included in (or excluded from) net income attributable to common stockholders for Adjusted Earnings and Total Ambac Financial Group, Inc. stockholders equity for Adjusted Book Value. A reconciliation between both financial measures can be found in Ambac s 4Q2017 Earnings Release included in Ambac s Current Report on Form 8-K filed with the SEC on February 28, 2018 and at the end of this document (2) Ambac emerged from bankruptcy on May 1,

26 AFG VALUE DRIVERS 26

27 VALUE DRIVERS OF AFG 27

28 AFG VALUE DRIVERS CASH AND INVESTMENTS Cash and investments create flexibility to pursue initiatives to maximize value for shareholders $368.2 million Cash and Investments at AFG as of December 31, 2017 Corolla Notes: 8% Corolla Equity Interest: 9% Cash & Short-term Investments: 20% Corporate Obligations: 1% ABS: 5% RMBS-AAC Insured: 2% AAC / Segregated Account Surplus Notes: 55% 28

29 AFG VALUE DRIVERS - NET OPERATING LOSS CARRY-FORWARD ( NOL ) $3.7 billion in NOLs are a considerable asset for our shareholders, and a meaningful lever for future value creation AAC: 62% AFG: 38% $1.4 billion allocated $1.4 billion allocated to AFG to $2.3 AFGbillion allocated to AAC Inter-company tax sharing arrangement requires AAC to pay AFG for using AAC s allocated NOLs ( Tolling Payments ) No Deferred Tax Asset on the balance sheet; NOLs expire Pursuing selective business transactions that may utilize NOLs 29

30 AFG VALUE DRIVERS NOL TOLLING AGREEMENT Tolling agreement provides an opportunity for significant cash to flow up to AFG AAC will pay AFG for usage of up to $3.65 billion of NOLs AAC paid $100.1 million of tolling payments in 2016 & 2017 AAC accrued an additional $31.1 million of tolling payments in 2017 * $30.5 to be paid in May 2018 * $0.6 paid in December 2017 Total potential amount of AFG's net tolling payments remaining is $56 million $250 Net Tolling Payments ($ in millions) $200 $150 $56 $100 $50 $14 $111 $131 Utilized Outstanding $0 $20 $14 $28 Tier A Tier B Tier C Tier D Ever-to- Date 30

31 AFG VALUE DRIVERS CONSIDER SELECTIVE TAX-ADVANTAGED BUSINESS TRANSACTIONS Selective tax-advantaged business transactions can diversify revenue and leverage infrastructure Use our balance sheet, substantial tax assets, and robust intellectual capital to explore avenues to generate favorable tax-advantaged risk-adjusted returns for our shareholders May permit utilization of NOLs AFG can purchase NOLs from AAC in the event AFG utilizes all of its allocated NOLs Improves possibility of recording Deferred Tax Assets Attractive risk-adjusted returns AAC resources Human capital, including core competencies in risk, credit and asset management Corporate infrastructure that can be leveraged Publicly traded permanent capital structure Favorable regulatory environment 31

32 AAC VALUE DRIVERS 32

33 VALUE DRIVERS OF AAC 33

34 RISK MANAGEMENT REDUCING INSURED LEGACY EXPOSURES Ambac has realized a significant decrease in its distressed liabilities, a meaningful portion of which was due to de-risking activities Adversely Classified Credits - Net Par (definitions in Appendix) $ in billions $40 $30 $20 $10 $0 2Q $ in billions $250 $200 $150 $100 $50 $0 Net Par Exposure Reduction Since Emergence 2Q ,000 5,000 4,000 3,000 2,000 1,000 IA II III IV V PF SF Int'l # of Credits (right axis) while strengthening book value and adjusted book value Book Value Per Share 42% CAGR since June 2013 Adjusted Book Value Per Share Increased $20.57 since June 2013 $50 $40 $30 $20 $10 $0 $6.38 Jun-13 $15.62 Dec-13 $31.09 Dec-14 $37.41 $37.94 Dec-15 Dec-16 $30.52 Dec-17 $50 $40 $30 $20 $10 $0 $3.77 Jun-13 $8.32 Dec-13 $15.01 $28.15 $29.48 $24.34 Dec-14 Dec-15 Dec-16 Dec-17 34

35 LOSS MITIGATION SEGREGATED ACCOUNT Benefiting from recovery in the housing market, low interest rates and aggressive Ambac remediation initiatives, projected RMBS losses have declined materially since emergence from bankruptcy Ambac has decreased its student loan exposure by 91% (since the Segregated Account entered rehabilitation) primarily through commutations, restructurings and refinancings Projected Lifetime RMBS Losses Student Loan Portfolio Reduction $ in billions $ in billions $12.6 billion Net Par Reduction 1Q Q2017 $10 $8 $6.5 $6.0 $16 $14 $6 $4 $5.5 $5.0 $4.5 $12 $10 $8 $6 $13.8 $4.8 $3.3 $2 $ $4.0 $3.5 $4 $2 $0 Net Par 1Q 2010 Commutations Restructurings and Refinancings $4.5 Run-off $1.2 Net Par 4Q 2017 ETD Paid, Net of Subrogation Received ETD, Unpaid Claims GCL, Before Est. R&Ws ETD Losses + GCL, Net of R&W (right axis) 35

36 LOSS MITIGATION MANAGING KEY LEGACY EXPOSURES - PUERTO RICO Leading comprehensive loss mitigation campaign San Juan, Washington DC, New York Focused on constructive restructuring outcomes underpinned by process and fiscal plan transparency and improvements, spending discipline, economic growth and capital market access Litigation outstanding COFINA structure and trustee HTA FEGP, Fiscal Plan Compliance Law Clawback US Treasury (relating to rum taxes) Near-term net principal and interest amortization Net claim payments $205 million ETD 4Q2017 ~$340 million of debt service due in Domestic Public Finance loss reserves, largely attributable to Puerto Rico, were $816 million as of December 31,

37 LOSS MITIGATION MANAGING KEY LEGACY EXPOSURES - PUERTO RICO (CONTINUED) Ambac Puerto Rico Exposure ($ in millions) as of December 31, 2017 (1) (1) (2) (6) (2)(6) (5) Gross Ever-to-Date Single Risk Gross Par Net Par Principal & Interest Net Principal & Interest Net Claims Paid Range of Maturity Credit Class Rating General Fund Debt: PR Commonwealth GO $ 56.0 $ 56.0 $ 64.0 $ 64.0 $ IV BIG PR Public Buildings Authority Revenue - GO Guaranty IV BIG Subtotal Revenue Debt: PR Highways and Transp'n 1968 Resolution - Highway Rev (3)(4) IV BIG PR Highways and Transp'n 1998 Resolution - Sr Transp'n (3)(4) IV BIG PR Infrastructure Financing Special Tax Revenue (Rum Tax) (3) IV BIG Convention Center (Hotel Occupancy Tax) (3) IV BIG Senior Sales Tax Rev (COFINA) , , III BIG Subtotal $ 1,829.7 $ 1,801.8 $ 9,324.4 $ 9,240.7 $ Grand total $ 1,996.1 $ 1,968.2 $ 9,575.4 $ 9,491.7 $ (1) Gross Par and Net Par include capital appreciation bonds ( CABS ) which are reported at the par amount at the time of issuance of the insurance policy. Accretion of the CABS would increase the related gross and net par by $691 million and $683 million, respectively at December 31, 2017 (2) Net Par and Net Principal & Interest are net of reinsurance (3) Subject to Act No , as amended, also known as the Financial Emergency and Fiscal Responsibility Act of 2017, which declares an emergency period that has been subsequently extended until June 30, Pursuant to Act , all executive orders issued under Act No (as amended, known as the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act), shall continue in full force and effect until amended, rescinded or superseded. Also subject to the Priority Debt Provision under Section 8 of Article VI of the Constitution of the Commonwealth of Puerto Rico, commonly known as the "clawback provision" (4) Certain Pledged Revenues for Highway and Transportation Revenue Bonds such as Toll Revenues and Investment Earnings are not subject to the Priority Debt Provision (5) In January 2018, Ambac made net claim payments totaling $26.1 million on Ambac-insured Bonds, including Rum Tax and GO Bonds ($13.7 million), Highway and Transportation Bonds ($9.3 million), and Convention Center Bonds ($3.1 million) (6) Gross and Net Principal & Interest excludes the effects of a 10% current interest rate on $60 million gross and net par of PR Public Building Authority ("PBA") bonds with a maturity date of July 1, 2035, resulting from the absence of a remarketing. Should a remarketing not occur before the maturity of the bonds, the Gross and Net Principal & Interest for PBA exposure would increase by $47.4 million 37

38 LOSS MITIGATION LITIGATION AND OTHER RECOVERIES Aggressively pursuing RMBS and other recoveries, through litigation and other means approximately $1.6 billion of RMBS-related recoveries ever-to-date Active Litigation Countrywide, First Franklin and Nomura Estimated representation and warranty ( R&W ) subrogation recoveries of $1.8 billion as of December 31, 2017 Countrywide Following appellate court decision our putback and fraud claims remain intact Pending appeal with NY Court of Appeals on certain aspects of the intermediate appellate court decision Additional fraud-only cases relating to Harborview and Lehman transactions First Franklin and Nomura Timing further behind Countrywide case U.S. Bank Seeking redress for trustee's failure to enforce rights and remedies and its treatment of trust recoveries with respect to 5 RMBS transactions Puerto Rico COFINA structure and trustee HTA FEGP, Fiscal Plan Compliance Law Clawback US Treasury (relating to rum taxes) Other Potential Recoveries Citigroup settlement with the SEC Related to a CDO transaction for which Ambac provided credit protection Analyzing and pursuing other potential areas for recoveries 38

39 ASSET MANAGEMENT Optimize investment portfolio; investment strategy included a shift to investments in Ambac insured RMBS and other Ambac insured securities $6.6 billion consolidated investment portfolio as of June 30, 2013 $5.7 billion consolidated investment portfolio as of December 31, 2017 US Gov & Agency: 7% Non-RMBS-Ambac Insured (1): 1% Short-term: 9% Corporate Obligations: 15% US Gov & Agency: 2% Non-RMBS Ambac Insured: 17% Corporate Obligations: 14% Muni Obligations: 2% RMBS/ ABS: 20% Other: 4% RMBS-Ambac Insured: 18% Muni Obligations: 25% Foreign Obligations: 1% Short-term: 12% RMBS/ ABS: 6% Other: 8% AAC long-term GAAP book yield 9.4% as of December 31, % as of June 30, 2013 Estimated annualized total returns since bankruptcy emergence AAC: 6.1% Ambac UK: 5.2% RMBS-Ambac Insured: 39% Own $1.6 billion Deferred Amounts (including interest), or 41%, of total Deferred Amounts outstanding, as of December 31, 2017 (1) Excludes Ambac insured securities that are internally rated investment grade 39

40 AMBAC UK Long-tailed insured portfolio with accretive opportunities, diverse investment portfolio and improving claims-paying ratio Ambac UK $15.9 billion net par as of December 31, 2017 Ambac UK $698 million investment portfolio as of December 31, 2017 ABS: 14% US Gov & Agency: 4% Corporate Obligations: 10% Short-term: 5% Structured Insurance: 6% Other: 4% Sovereign /subsovereign: 35% Insurance-linked: 3% RMBS/ABS: 17% Non-US Obligations: 4% Transportation: 7% Non-RMBS Ambac Insured: 24% MBS: 2% Investor Owned and Public Utilities: 32% Claims-paying resources $918 million as of December 31, 2017 Loss reserves Improved from $601 million as of June 30, 2013 to $286 million as of December 31, 2017, or 52% Proactive risk remediation efforts include litigation and commutations Proactive asset management, including investments in Ambac UK insured transactions High Yield & Loans: 12% Hedge Fund: 8% Equities: 8% Property: 5% Ambac UK Claims-Paying Ratio (1) 33:1 34:1 29:1 26:1 24:1 24:1 Jun-13 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 (1) Total claims-paying ratio is net financial guarantees in force divided by total claims-paying resources. Total claims-paying resources quantifies total resources available to pay claims, including guarantees on subsidiary obligations 40

41 APPENDIX 41

42 RISK ADVERSE CREDIT CLASSIFICATIONS Classification Class I Description Fully Performing Meets Ambac Criteria with Remote Probability of Claim Survey List Investigation of Specific Condition or Weakness Underway Class IA Potential Problem with Risks to be Dimensioned Class II Substandard Requiring Intervention Class III Doubtful with Clear Potential for Loss Class IV Imminent Default or Defaulted Class V Fully Reserved 42

43 OUTSTANDING INSURED DEBT SERVICE (1) Estimated Insured Net Debt Service Amortization ($ in billions) $101 billion $25 $20 $15 $10 $5 $ After 2037 General Account Segregated Account Ambac UK (1) Depicts amortization of existing guaranteed portfolio (principal and interest), assuming no advance refundings, as of December 31, Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay guaranteed obligations 43

44 PUERTO RICO NET PRINCIPAL AND INTEREST (1) AMORTIZATION ($ IN MILLIONS) AS OF DECEMBER 31, 2017 Payment Date Commonwealt h GO Net Principal and Interest Amortization of Ambac Insured Puerto Rico Exposures by Payment Date Public Bldg - GO Guaranteed (3) Senior Highway (1968) Senior Transportation (1998) (2) Rum Tax Hotel Occupancy Tax Sales Tax (COFINA) Total P & I Ending Net Debt Service Outstanding 1/1/2018 $ 1.4 $ 3.0 $ 0.3 $ 9 $ 8.6 $ 3.1 $ $ 25.4 $ 9, /1/ , /1/ ,315 7/1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ ,932 7/1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ ,149 7/1/ , /1/ , /1/ ,012.6 (1) Net of reinsurance (2) Certain CUSIPs within this risk pay monthly or quarterly. Such payments are reflected in the next semi-annual payment date. (3) Net Principal and Interest Amortization do not reflect an interest rate increase from 5.5% to 10%, resulting from the lack of a remarketing, on a $60 million Ambac-insured 7/1/2035 security issued by the PR Public Building Authority. Should a remarketing not occur before the maturity of the bonds, the Net Principal and Interest Amortization would increase by $47.4 million. 44

45 PUERTO RICO NET PRINCIPAL AND INTEREST (1) AMORTIZATION (CONTINUED) ($ IN MILLIONS) AS OF DECEMBER 31, 2017 Net Principal and Interest Amortization of Ambac Insured Puerto Rico Exposures by Payment Date Public Bldg - Senior Ending Net Payment Commonwealth GO Guaranteed Senior Transportation Date GO (3) Highway (1968) (1998) (2) Rum Tax Hotel Sales Tax Debt Service Occupancy Tax (COFINA) Total P & I Outstanding 1/1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ ,647 1/1/ , /1/ , /1/ , /1/ , /1/2039 7, /1/2039 7, /1/2040 7, /1/2040 7, /1/2041 7, /1/2041 7, /1/2042 7, /1/ , /1/2043 7, /1/ , /1/2044 7, /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/ , /1/2053 1, , , /1/2054 1, ,054.6 Grand Total $ 64.0 $ $ 20.4 $ $ $ $ 7,321.3 $ 9,491.7 (1) Net of reinsurance (2) Certain CUSIPs within this risk pay monthly or quarterly. Such payments are reflected in the next semi-annual payment date. (3) Net Principal and Interest Amortization do not reflect an interest rate increase from 5.5% to 10%, resulting from the lack of a remarketing, on a $60 million Ambac-insured 7/1/2035 security issued by the PR Public Building Authority. Should a remarketing not occur before the maturity of the bonds, the Net Principal and Interest Amortization would increase by $47.4 million. 45

46 STATUS OF RMBS LITIGATIONS (1) Litigation Case Current Status (as of February 28, 2018) Countrywide Securities Corp., Countrywide Financial Corp. (a.k.a. Bank of America Home Loans) and Bank of America Corp New York State Supreme Court, Index No /2010 [re CWHEQ 2006-S1, CWHEQ 2006-S4, CWHEQ 2006-S6, CWABS 2004-K, CWABS 2004-L, CWABS 2004-M, CWABS 2004-N, CWABS 2004-O, CWABS 2004-T, CWHEQ 2005-F, CWHEQ 2005-L, CWHEQ 2006-B, CWHEQ 2006-C, CWABS , CWABS , CWHEQ , CWHEQ ] Fact and expert discovery concluded Summary judgment motions were filed on May 1, 2015 and the court heard oral argument on July 15, 2015 On October 27, 2015, the court issued a decision granting in part and denying in part the parties respective summary judgment motions regarding AAC s claims against Countrywide. Both parties appealed certain rulings The Court also granted in its entirety AAC s partial motion for summary judgment and denied Bank of America s motion for summary judgment regarding AAC s successor-liability claims against Bank of America. Bank of America appealed On May 16, 2017, the First Department issued rulings in both appeals, reversing a number of rulings that the trial court had made and affirming other rulings On June 15, 2017, AAC filed a motion with the First Department for leave to appeal certain rulings in the May 16, 2017 decision to the Court of Appeals. Countrywide opposed the motion On July 25, 2017, the First Department granted AAC s motion for leave to appeal certain rulings in the May 16, 2017 decision to the Court of Appeals. The appeal is fully briefed Briefing to the Court of Appeals is completed, and oral argument is expected in 2018 (1) Information disclosed herein is accurate as of the date indicated. AAC may update the information included in this slide from time to time without notice, but is under no duty or obligation to do so 46

47 STATUS OF RMBS LITIGATIONS - CONTINUED (1) Litigation Case Current Status (as of February 28, 2018) Countrywide Home Loans, Inc., Countrywide Financial Corp., and Bank of America Corp. New York State Supreme Court, Index No /2014 [re CWALT , CWALT 2006-OA19, HVMLT , HVMLT , Lehman XS N, Lehman XS N, Lehman XS N, and Lehman XS N] Complaint for fraudulent-inducement filed on December 30, 2014 Countrywide filed a motion to dismiss on February 20, 2015 which Bank of America joined on February 23, 2015, and which plaintiffs opposed. The Court heard oral argument in November 2015 and denied defendants motion to dismiss on December 20, 2016 Fact discovery is ongoing Countrywide Home Loans, Inc. Circuit Court, Dane County, Wisconsin, Case No. 14CV3511 (Wisconsin Action) and New York State Supreme Court, Index no /2015 (New York Action) [re HVMLT , HVMLT , HVMLT , HVMLT , and HVMLT ] Complaint for fraudulent-inducement filed in WI on December 30, 2014 Defendant filed a motion to dismiss in the Wisconsin Action on February 20, 2015, which plaintiffs opposed The WI court dismissed the case without prejudice for lack of personal jurisdiction in an order entered on July 2, Plaintiffs appealed this decision and on June 23, 2016, the Wisconsin Court of Appeals reversed the dismissal of the complaint. The Wisconsin Supreme Court granted defendant s petition for review of the June 23, 2016 decision and oral argument was heard on February 28, On June 30, 2017, the Wisconsin Supreme Court reversed the decision of the Wisconsin Court of Appeals and remanded the case to the Wisconsin Court of Appeals for further proceedings. On remand, in December 2017 the Court of Appeals dismissed the case on jurisdictional grounds. On January 16, 2018, the plaintiffs filed a petition with the Wisconsin Supreme Court for review of the December 2017 decision. Defendant opposed the petition. On June 30, 2015 plaintiffs commenced the New York Action and filed a complaint for fraudulent-inducement on July 21, Plaintiffs also filed a motion to stay the New York Action pending resolution of the Wisconsin appeal. On August 10, 2015, defendant filed a motion to dismiss, which plaintiffs opposed. On September 20, 2016, the court granted plaintiffs motion to stay and held in abeyance defendant s motion to dismiss (1) nformation disclosed herein is accurate as of the date indicated. AAC may update the information included in this slide from time to time without notice, but is under no duty or obligation to do so 47

48 STATUS OF RMBS LITIGATIONS (CONTINUED) (1) Litigation Case Current Status (as of February 28, 2018) First Franklin Financial Corporation, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Inc., Merrill Lynch Mortgage Lending, Inc., and Merrill Lynch Mortgage Investors, Inc. New York State Supreme Court, Index No /2012 [re First Franklin Mortgage Loan Trust 2007-FFC] Nomura Credit & Capital, Inc. and Nomura Holding America Inc. New York State Supreme Court, Index No /2013 [re Nomura Asset Acceptance Corporation, Alternative Loan Trust, Series and Nomura Asset Acceptance Corporation, Alternative Loan Trust, Series ] On July 18, 2013 the court denied defendants motion to dismiss the putback and fraudulent-inducement claims, but granted the defendants motion to dismiss the claim for indemnification. The court further ruled that AAC is limited to the sole remedy of repurchase for breaches of representations and warranties relating to the loan pool but not for breaches of transaction-level representations and warranties Fact discovery is ongoing On July 12, 2013, defendants filed a motion to dismiss the complaint; oral argument was heard on November 13, 2013 AAC filed an Amended Complaint on September 22, 2014 adding a fraudulentinducement claim Defendants filed a motion to strike the Amended Complaint on October 31, 2014, which AAC opposed and AAC also cross-moved for leave to file an amended complaint Defendants also filed a motion to dismiss the fraudulent-inducement claim, which plaintiffs opposed. The court heard oral argument on this motion on April 14, 2015 On June 3, 2015, the court denied defendants July 2013 motion to dismiss AAC s claim for breaches of representations and warranties, but granted the defendants motion to dismiss AAC s claims for breach of the repurchase protocol and for alter ego liability against Nomura Holding. Nomura has appealed the court s decision denying the motion to dismiss AAC s claim for breaches of representations and warranties. On December 7, 2017 the First Department affirmed the trial court's June 3, 2015 decision On December 29, 2016, the court denied defendants motions to strike the amended complaint and to dismiss the fraudulent inducement claim. Nomura filed a notice of appeal on January 30, 2017 Fact discovery is ongoing (1) Information disclosed herein is accurate as of the date indicated. AAC may update the information included in this slide from time to time without notice, but is under no duty or obligation to do so 48

49 STATUS OF RMBS LITIGATIONS (CONTINUED) (1) Current Status (as of February 28, 2018) U.S. Bank, N.A. -- United States District Court, Southern District of New York, Docket No. 17-cv [re HVMLT ] AAC filed the complaint on January 20, 2017 and a second amended complaint on February 23, 2017 asserting claims for declaratory judgment, breach of contract, breach of fiduciary duty, and violation of the Streit Act ( US Bank New York Action I ). On February 23, 2017, AAC also filed a motion for a preliminary injunction, which defendant opposed On March 9, 2017, defendant filed a motion to dismiss the second amended complaint, which AAC opposed The court heard oral argument on AAC s motion for a preliminary injunction and defendant s motion to dismiss on April 24, On June 1, 2017, the court denied defendant s motion to dismiss and denied AAC s motion for preliminary injunction Defendant filed a motion for reconsideration of the court s decision denying its motion to dismiss, which AAC opposed. On December 6, 2017, the court granted defendant's motion to dismiss and on January 18, 2018 the court issued an opinion memorializing the reasons for its decision On March 6, 2017, defendant filed a trust instruction proceeding in Minnesota state court concerning the proposed settlement which is at issue in the US Bank New York Action I, captioned, In the matter of HarborView Mortgage Loan Trust , No. 27-TR-CV (the Minnesota Action ). On April 5, 2017, AAC filed a motion to dismiss the Minnesota Action. On June 12, 2017, defendant filed an amended petition in the Minnesota Action, and on July 7, 2017, AAC filed a renewed motion to dismiss, which US Bank opposed. On November 13, 2017 the court denied the motion to dismiss the proceeding.on February 7, 2018 AAC appealed this dismissal, U.S. Bank, N.A. -- United States District Court, Southern District of New York, Docket No. 17-cv [re HVMLT , HVMLT , HVMLT , HVMLT and HVMLT ] AAC filed the complaint on April 11, 2017 asserting claims for breach of contract, breach of fiduciary duty, declaratory judgment, and violation of the Streit Act On September 15, 2017, defendant filed a motion to dismiss AAC's complaint, which AAC opposed. Oral argument was heard on November 17, 2017 (1) Information disclosed herein is accurate as of the date indicated. AAC may update the information included in this slide from time to time without notice, but is under no duty or obligation to do so 49