Ambac Financial Group, Inc. 2 nd Quarter 2008 Financial Highlights August 6, 2008

Transcription

1 Ambac Financial Group, Inc. 2 nd Quarter 2008 Financial Highlights August 6, 2008.

2 Progress Towards Strategic Objectives CDO Commutation Portfolio Remediation Capitalization of NewCo* Successfully commuted largest CDO-squared transaction Hired a restructuring advisor and entered into negotiations with a major investment t bank to manage and mitigate t CDO risk through h restructuring t opportunities Initiated discussions with two counterparties on potentially restructuring Ambac s exposure Investigating i fraudulent activity i on the part of sponsors, sellers, servicers, originators and other transaction participants Investigating transaction-specific and systemic failure of sponsors, sellers and originators Significant progress in exercising e repurchase remedy edy for loans in beac breach of reps & warranties Filed with the Office of the Commissioner of Insurance of the State of Wisconsin and expect a response shortly Completed initial rating agency presentations Ongoing process of soliciting market feedback Portfolio Deleveraging * Connie Lee Recapitalization Net Par outstanding declined from $524 bn at 12/31/07 to $487 bn as of 6/30/08 Rating agency capital well in excess of current rating requirements; meeting Aaa/AAA standards 2

3 2 nd Quarter 2008 Financial Highlights.

4 Summary Financial Results ($mm) 2nd Quarter st Quarter 2008 Net Premiums Earned $325.5 $186.9 Net Investment Income $127.3 $120.0 Net Change in Fair Value of Credit Derivatives $976.6 ($1,708.2) Loss and LAE ($339.3) $1,042.8 Financial Services Pre-Tax Income ($164.2) ($288.8) Net Income $823.1 ($1,660.3) GAAP net income: $823.1 mm or $2.80 per diluted share per share. Net change in fair value of credit derivatives of $977 mm Current results reflect CDS spreads as of June 30, 2008, we expect this gain to reverse in July 4

5 Earned Premium Recognized from Refundings, Calls and Other Accelerations Earned Premiums (FY st Half 2008) Refundings are driven by: Auction Rate and Variable Rate Securities and a select group of health care exposures * Reflects results as of 6/30/08 5

6 Mark-to-Market Loss(Gain) Impacted by Credit and Market Deterioration Financial Guarantee Financial Services Net Change in Net Realized Loss & Loss Fair Value of Derivative Investment Expectation Credit Derivatives Products Losses(Gains) Net Mark-to-Market Losses on TRS Asset-backed securities, including ABS of CDO: - (976.6) RMBS - Subprime RMBS - Alt-A (20.2) RMBS - Second Lien (350.3) RMBS - Other VRDO Total (329.8) (976.6) Grand Total (1,131.8) Million 6

7 Total Net Insurance Loss Reserves and Credit Derivative Impairments Year, as of 12/31/ /31/ /31/2007 6/30/2008 MTM ($14) ($20) $4,911 $3,653 Credit Impairment $0 $0 $1,106 $3,106 Insurance Reserves $300 $215 $473 $1,076 Grand Total $286 $195 $6,468 $7,876 Total net insurance loss reserves and credit derivative impairments: $4.2 bn Mark-to-market (excluding impairments: $3.7 bn) Aggregate impact of credit deterioration and market liquidity: $7.9 bn 7

8 Month-by-Month Schedule of Claims Paid-to-Date: RMBS Claims Payment Summary $mm Pace of HELOC claims paid increased in 2Q 2008: $58 mm claims paid versus $33 mm in 1Q 2008 Started to pay CES claims on piggy-back second liens in 2Q

9 Structured Finance Below Investment Grade (BIG) Exposures As of 2Q 2008 Net Par Outstanding Total Impairment Losses and Reserves $27.4 bn $4.0 bn CDO of ABS > 25% MBS Mortgage-Backed & Home Equity - Second Lien Other (Enhanced Equipment Trust Certificates, Investor-Owned Utilities, i Student Loans, Other CDOs) Mortgage-Backed & Home Equity Mid-Prime Mortgage-Backed & Home Equity Sub-Prime Mortgage-Backed & Home Equity - Other 9

10 Moody s Capital vs. Ambac Loss Reserves and CDO Impairments: Pre and Post CDO Commutations $7.9 bn $6.5 bn $4.0 bn $3.1 bn $3.3 bn $0.1 bn Pre-tax Impairment and Reserves Pre Commutation Pre-tax Impairment and Reserves Post Commutation Moody s RMBS and CDO (1.3 x Stressed PV) Pre Commutation Moody s RMBS and CDO (1.3 x Stressed PV) Post Commutation Ambac Excess Capital Aaa Post Commutation Ambac Excess Capital Aa3 Post Commutation Ambac estimates $3.3 3 bn of excess capital under Moody s capital model for the Aa3 rating level 10

11 Portfolio Performance Update.

12 Key Messages RMBS CDOs Seasoning should allow for more stable loss estimates Second lien reserves have greater level of clarity Remediation very active, likely to favorably impact ultimate losses Impairment considers percentage of inner CDO bucket that needs to be written down and inner RMBS performance With 2 nd quarter impairment, volatility expected to decline, but not be eliminated 12

13 Mortgage-Related Reserves and Impairment (6/30/2008: $3 bn) Direct RMBS: $896* mm CDO of ABS: $2.3* bn HELOC: $ 464 mm CES: $187 mm CDO^2**: $934 mm Mid-prime: $179 mm Sub-prime: $18 mm Hi-Grade & Other CDOs of ABS: $ 1,323 mm Other: $48 mm * Numbers may not add due to rounding ** Excludes AA Bespoke (settled 8/1/08) 13

14 ABK Second Lien Portfolio Performance Shows Signs of Improvement Select ABK CES and HELOC: Delinquencies Select ABK CES and HELOC: CDRs 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 FFM07FFC, Group 1 FFM 07FFC, Gro up 2 BSL07001, Group 2 BSL07001, Group 3 OWM L06O1, Gro up INDS0603, Group TM T06006, Group 1 TM T064SL, Group 1 SACO0602, Gro up 2 SACO0602, Group 1 SACO0510, Group HEM T0701, Group SACO0608, Group INM C06H2, Gro up CWHE06C, Group 1 CWHE06C, Group 2 CWHE06B, Group 1 CWHE06B, Gro up 2 CWHE05F, Group 1 CWHE05F, Group 2 Average FFM07FFC BSL % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 FFM07FFC, Group 1 FFM07FFC, Group 2 BSL07001, Group 2 BSL07001, Group 3 OWM L06O1, Group INDS0603, Group TM T06006, Group 1 TM T064SL, Group 1 SACO0602, Group 2 SACO0602, Group 1 SACO0510, Group HEM T0701, Group SACO0608, Group CWHE06C, Group 1 CWHE06C, Group 2 CWHE06B, Group 1 CWHE06B, Group 2 CWHE05F, Group 1 CWHE05F, Group 2 Average FFM07FFC BSL07001 Trend line for day delinquencies for CES and HELOCs has noticeably flattened On an unweighted basis, the average of the performance for the transaction pools shows that delinquencies appear to flattening out, while default rates may have begun to decline 14

15 Second Lien Portfolio Reserving HELOC Closed-End Seconds (CES) (BIG Par as a % of Total HELOC Par) Change in 2 nd Quarter Reserves Net Outstanding Reserves (BIG Par as a % of Total CES Par) Change in 2 nd Quarter Reserves Net Outstanding Reserves 27%/(7 deals) $36 $464 51%/(8 deals) ($448) $187 ABK Portfolio Update: 7 ($2.9 bn) of 46 transactions are now BIG, representing 27% of net par of the HELOC portfolio The 7 transactions are represented by 5 issuers and were originated in ABK Portfolio Update: 8 (representing $2.5 bn) of 33 transactions are now BIG, and represent 51% by net par of the CES portfolio These 8 transactions are represented by 6 issuers and were originated in

16 Significant Progress Towards Remediation Efforts Related to RMBS Exposures 2Q 2008 estimated remediation recoveries aggregate g to $263mm on a PV basis across 8 second lien collateral transactions The estimate is based upon substantiated breaches of representations and warranties on over 1,800 loans where actual loan file examinations were performed by consultants to Ambac. These consultants have significant experience in the quantitative and qualitative aspects of mortgage lending This remediation estimate is only an initial sampling of mortgage loans for which we are seeking recoveries and we are significantly expanding the number of loans and transactions under review The 8 second lien transactions contain over 85,000 loans There are an additional 6 second lien collateral transactions with NPO of $1.5 bn and 9 mid-prime collateral transactions with NPO of $3.7 bn Detailed loan file review reveals a significant number of deal representation and warranty breaches. We are continuing to build cases to support loan repurchase demands The estimated t recoveries will be revised as the scrutiny of the mortgage loan pools progresses 16

17 HELOC Performance Summary Bank Originated Non-Bank Originated Originated <2005 Net Par Outstanding $4,078 $4,306 $2,310 as of 6/30/08 Reserves $0 $464 $0 Weighted Average Cumulative Collateral Loss Weighted Average 60+ dlq. (incl. FC & REO) Weighted Average Loan Age (months) 0.7% 5.3% 1.7% 0.4% 8.8% 6.5% Bank originated and pre-2005 transactions performing in-line with expectations Certain HELOC transactions have shown largely significant deterioration over the last few months Remediation efforts focused on non-bank originated product 17

18 CES Summary 80/20 Piggy-back CES with ($mm) Conventional CES High concentration of Purchase and Stated Doc Loans Net Par Outstanding at 6/30/08 $2,390 $2,441 Reserves $0 $187 Weighted Average Cumulative Collateral Loss Weighted Average 60+ del. (including FC & REO) 3.2% 18.5% 5.4% 13.6% Weighted Average Loan Age (months) Conventional CES showing acceptable performance Mainly refinance, full doc or streamlined loans with good geographic diversification and lower CLTVs Piggy-back CES with high concentrations of purchase and stated doc loans encompass 100% of CES reserves Started to pay claims on one transaction in the 2 nd quarter 18

19 Mid-Prime and Sub-Prime: Performance as Expected Mid-prime ($6.3 bn net par / $864 mm BIG) Mid-prime (Alt-A) transactions have shown deterioration in the last few months This deterioration is apparent in some 2006 and 2007 transactions Build-up of loans in foreclosure and REO may result in a rapid increase in cumulative losses Although loss severities may be relatively modest, low credit enhancement means claims are a more likely result Sub-prime ($7.7 bn net par / $608 mm BIG) The sub-prime portfolio is performing satisfactorily in market context, and remains single-a on average 5 ($608.0 mm) of 91 transactions are now BIG. One 2007 transaction accounts for 88% of our total reserve 19

20 Direct RMBS: 2007 Exposure 2007 Insurance Net Par 2007 Insurance by Rating Second Lien: $1.0 bn of CES $4.0 bn of HELOC $1.3 bn / $5.0 total is BIG Mid-prime 2007 transactions comprise 43% of total mid-prime par O/S 2007 average enhancement size $195 mm Average enhancement 14.2% Sub-prime Ambac only insured one 2007 sub-prime transaction : Option One (currently BIG) Other Affordability Product: modest 2007 exposure ($708 mm) Prime: Characterized by low initial credit enhancement, but satisfactory performance to date ($535 mm) 20

21 CDO of ABS Performance Update.

22 Moody s Continues to Downgrade ABS CDO Collateral Assets Percent Collateral Ever Downgraded: ABS CDOs reported by UBS Moody's continues to downgrade ABS CDO collateral assets On average, total Moody's collateral downgrades increased from approx. 30% to 47% since the end of the 1Q 2008 ABS CDOs continue to see an increasing amount of Event-of-Default (EOD) triggers hit in the second quarter. According to UBS, 207 CDOs with an original balance amount of approx. $223 bn have experienced EODs ABS CDOs of the vintage: 78% of Mezz ABS CDOs have hit an EOD trigger, 50% of high-grade ABS CDOs and 64% of CDO-Squareds Source: "UBS Investment Research, CDO Insight, Global Fixed Income Research, dated July 27,

23 Impairments on the ABS CDO Portfolio Net Par Impairment % Impaired AA-Bespoke CDO-Squared 1, (termination price) 61% (Terminated 8/1/2008) Other CDO-Squareds 1, % Other CDO of ABS & 29, ,323 5% outstanding commitment of ABS CDOs Two single A CDO-Squareds have effectively been written off on a present value basis. Other CDO exposures reflect continued deterioration in ABS CDO collateral 23

24 CDO-Squared Commutation: $1.4 bn AA Bespoke Weak Collateral Performance Underlying CDO tranches have been progressively downgraded 98 % of Par is rated BIG 16 % of Par has elected liquidation (i.e. a credit event) 34% of Par has been accelerated Adverse Structural Features Rationale Some Super Senior investors have chosen to liquidate despite distressed valuations following write-downs; distressed liquidation values are likely to give 100% severities for subordinated inner CDO tranches Unusually, principal claims due upon the exhaustion of Ambac s 30% attachment point Sizeable expected payments in the near term Single largest CDO squared $1.4 bn Considerable credit impairment: $789 mm+ Significant mark-to-market market of 1 bn at 3/31/08 Substantial capital allocation in rating agency models 24

25 High Grade CDOs of ABS: Summary ($mm) 2005 and Prior CDO of ABS Bucket CDO of ABS Bucket < Subordination > Subordination Net Par Outstanding as of 6/30/08 $6,997 / 27% $10,490 / 41% $8,317 / 32% % Par subject to an EOD 0% 57% 93% Average BIG Collateral 14% 39% 51% % BIG (ABK Rating) 0% 78% 82% 2005 and prior vintages currently subject to manageable ratings deterioration of the underlying collateral Size of inner CDO bucket drives current performance for deals; Alt-A and, to a lesser extent, second lien performance will be key factor for deals with smaller CDO buckets over intermediate t term 25

26 RMBS and CDO Claim Payment Projection Claims Payment Projection HELOC & CES claims will largely occur over the next 5 to 6 years, inclusive of a sharp rise over the next two years followed by an equally sharp drop thereafter Only exceptions to this payment profile are three deals where payments of ultimate principal are due at maturity Single A CDO-Squared deals have triggered interest payments High Grade CDOs of ABS do not require interest payments until 2013 Principal remaining is either repaid at legal final (2040 s for most deals) or earlier (2020 s) for certain deals that cease amortizing, where we are projecting an earlier exit 26

27 Appendix 1 NewCo.

28 NewCo* Timeline Fixed Income Investor Meetings Official business plan filed with Wisconsin OCI Business Plan Presentation to Moody s Business Plan Presentation to S&P First Policy Insured Jul 7 Jul 15 Jul 30 Jul 31 Aug 8 Sept 4Q 2008 Initial press release commenting on discussions with Regulators Meeting with Wisconsin OCI * Connie Lee Recapitalization 28

29 Appendix 2 Dividend Capacity from AAC to the Holding Company.

30 ABK Net Financial Guarantees in Force / Capital Ratio/ Qualified Statutory Capital Net Financial Guarantees in Force & Capital Ratio Qualified Statutory Capital $ mm $727 $803 $833 $815 $ Ratios $ bn $3.3 $3.7 $3.3 $3.6 $ $2.4 $2.7 $3.1 $3.2 $ /31/ /31/ /31/2007 3/31/2008 6/30/ /31/ /31/ /31/2007 3/31/2008 6/30/2008 Net Financial Guarantees In Force Capital Ratio* Capital Ratio is net financial guarantees in force divided by qualified statutory capital. Contingency Reserve Surplus to Policyholders CDO impairments of about $2.1 bn are incorporated into the qualified surplus as of June 30, 2008 As exposures amortize, there is significant de-leveraging of risk 30

31 Statutory Capital and Dividends Changes to Ambac Assurance s Surplus to Policyholders for the 2Q is as follows: ` 1Q Q 2008 YTD 6/30/2008 Beginning Surplus to Policyholders $3,316,143 $3,629,301 $3,316,143 Capital Contribution 1,310,706-1,310,706 Net (Loss) Income (844,991) $384,123 (460,868) Dividends Paid (54,635) $(54,635) (109,270) Tax and Loss Bonds Benefit Reversal - $(371,371) 371) $(371,371) 371) Contingency Reserves and Other (97,922) $(134,133) (232,055) Ending Surplus to Policyholders $3,629,301 $3,453,285 $3,453, Dividends Limitation, without special approval, is $331 mm (or 10% of 12/31/07 Surplus to Policyholders) Dividends from Ambac Assurance to the parent company for 2008 are expected to be $216 mm (or $54 mm a quarter) Dividends of $163 mm for the first three quarters of 2008 have been paid 31

32 Holding Company Liquidity AFG Cash at 6/30/2008 $166,000,000 July Dividend $54,634,950 October Dividend $54,634,950 Expenses $(5,652,366) Common Dividends $(5,736,000) Interest $(56,656,813) Interest Income $ 1,821,168 Miscellaneous $735,799 AFG projected cash at 12/31/2008 $209,781,688 Projected Buyback $(50,000,000) Net cash after Buyback $159,781,688 Annual Debt Service $113,315,625 Debt Service Coverage 1.41 Ambac has been building a cash cushion at the holding company to preserve flexibility An additional $54 mm is expected to be paid before the end of 2008 Statutory net income for 2008 may be a constraining factor for dividends in 2009 ABK Cash Needs: $113 mm per year in interest $24 mm in anticipated expenses and dividends for

33 Appendix 3: Financial Guarantee Investment Portfolio All information based on amortized cost as of June 30, 2008 unless otherwise indicated.

34 Financial Guarantee Investment Portfolio Fixed Income Investment Portfolio As of June 30, 2008 Weighted Average YTD INCOME ANALYSIS BY TYPE OF SECURITY Fair Amortized Yield to After-Tax Investment Investment category ($ thousands) Value Cost Maturity Yield Income Financial i Guarantee investments: t Long-term investments U.S. government obligations $305,843 $313, % 1.72% $3,729 U.S. agency obligations , , % 2.56% 5,997 Municipal obligations ,541,254 8,469, % 4.52% 188,170 Foreign obligations , , % 3.09% 7,693 Corporate obligations , , % 3.72% 11,631 Mortgage and asset-backed securities , , % 3.31% 20,316 Total long-term investments ,054,831 10,978, % 4.18% 237,536 Short-term investments , , % 1.68% 11,501 Other ,745 12,903 7,623 Total Financial Guarantee investments ,809,982 11,733, % 4.02% 256,660 Highly Liquid Securities Fair Amortized ($ thousands) Value Cost Short Term $742,406 $742,406 US Treasury 305, ,833 US Agency Senior Debentures 482, ,276 US Agency MBS 709, ,769 Muni Pre-Refunded 1,371,302 1,311,878 Muni Natural AAA 1,081,339 1,088,499 Muni Natural AA and Insured AA Underlying 4,463,448 4,470,534 $9,156,158 $9,129,195 34

35 Financial Guarantee Investment Portfolio 12 Month Expected Cash Generation ($mm) MuniPortfolio MuniPortfolio Taxable Portfolio Taxable Portfolio Expected Principal Expected Interest Expected Principal Expected Interest Total Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

36 Financial Guarantee Investment Portfolio Tax Status 36

37 Financial Guarantee Investment Portfolio Sector Allocation *Includes Escrowed Municipals 37

38 Financial Guarantee Investment Portfolio Quality Breakdown Insured Underlying Rating Short Term 6.3% BBB 0.1% A 1.3% AA 13.3% Other 0.1% AAA 12.8% US Agency* 4.9% Monoline Insured 41.9% AGY MBS 6.1% US Treasury* 13.2% * Includes Escrowed Municipals Source: Lower of Moody s or S&P 38

39 Financial Guarantee Investment Portfolio Guarantor and Underlying Credit Rating Breakdown ABK 3.3% FGIC 10.3% FSA 14.1% MBIA 14.2% 39

40 Financial Guarantee Investment Portfolio Quality Breakdown Ignoring Insurance *Includes Escrowed Municipals 40

41 Appendix 4: Exposure to the Financial Guarantee Sector.

42 Exposure to the Financial Guarantee Sector (By S&P Rating) (mm) Reinsurance Ceded Investment portfolio - FG Investment portfolio - FS CDS TRS Total AAA 5,397 1, ,692 AA 56,396 1, , ,450 A 17, ,033 BBB BIG 723 1, ,053 Ttl Total 81, , , ,196 Results in the quarter reflect the recapture of $826 mm relating to the cancellation of certain reinsurance contracts 42

43 Exposure to the Financial Guarantee Sector (By Bond Type) Investment portfolio -Investment portfolio - Reinsurance Ceded FG FS CDS TRS Total Public Finance: Lease and tax backed $11,533 $731 $24 $0 $30 $12,318 General obligation ,284 1, ,003 Utility revenue , ,688 Transportation revenue , ,692 Health care revenue , ,434 Higher education , ,394 Housing revenue , ,495 Other Total U.S. Public Finance ,771 4, ,353 Structure Finance: Mortgage-backed and home equity , ,629 Asset-backed and conduits , ,578 CDO of ABS >25% MBS Other CDOs Student loan , ,783 Investor-owned utilities , ,089 Other , ,348 Total Structured Finance , ,568 International Finance: Asset-backed and conduits , ,964 Other CDOs Investor-owned and public utilities , ,965 Transportation revenue , ,774 Sovereign/sub-sovereign , ,103 Mortgage-backed & home equity Other Total International Finance , ,436-20,275 Grand Total $81,193 $4,559 $517 $1,769 $158 $88,196 Percent of Total Net Par Outstanding Public Finance % 97.7% 4.6% 3.3% 27.8% 53.7% Structured Finance % 1.8% 95.4% 15.5% 72.2% 23.3% International Finance % 0.5% 0.0% 81.2% 0.0% 23.0% Total Net Par Outstanding % 100.0% 100.0% 100.0% 100.0% 100.0% 43

44 Appendix 5: Investment Agreement Business.

45 Adjusted Net Book Value As of June 30, 2008 In Billions: Book Value of Securities: $6.35 Add: GAAP Impairment: $0.31 Less: Expected Impairment: $0.02 Total Adjusted Book Value of Securities: $6.64 Add: Market Value of Interest Rate Derivatives: $0.17 Book Value of Liabilities: ($6.74) Adjusted Net Book Value: $

46 Investment Agreement Book - Liability Details Diverse source of funds with differing types of withdrawal probability, frequency and magnitude ($mm) 2Q08 Book Value 1Q08 Book Value Change Book Value Purpose Contingent Draw 3,835 3,961 (126) ABS CDO (10 deals) 1,910 2,014 (104) Escrow of funded debt & equity for CDS claims, P&I payment CLN (22) 1,272 1,283 (11) Escrow of funded debt for CDS claims, P&I payment (62% AAA debt) Debt Service (80) (1) Reserve used to pay debt service if pledged revenues insufficient Structured Insurance (2) (8) Escrow of funded debt for insurance portfolio experience, P&I payment Capital Interest (3) (2) Pay debt service interest costs during the development stage Fixed Draw 2,692 2,833 (141) Construction (8) 1,005 1,098 (93) Escrow of debt proceeds for the payment of international project costs CLN (72) (53) Escrow of funded debt for CDS claims (only at maturity), P&I payment Defeasance (40) Escrow of debt or equity proceeds to secure final payment at maturity Full Flexible (95) Construction (4) (97) Escrow of debt proceeds for the payment of municipal project costs Float Fund (4) Escrow of recurring cash proceeds for the payment of debt service Total 6,743 * Book Values reflect hedge adjustments 7,105 (362) 46

47 IA Projected Runoff IA book runs off steadily and is projected to be 50% smaller within 5 years $bn $7.0 $6.5 $6.0 $5.5 ce Balan $5.0 $4.5 $4.0 $3.5 $3.0 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 47

48 Investment Agreement Book - Investment Portfolio Market Value Change as of June 30, Q08 market value was $5.2 bn compared to 1Q08 market value of $5.8 bn $675 mm decrease is primarily attributable to the combination of: $390 mm reduction due to matured Investment Agreements ($490 mm in asset sales) $285 mm reduction in asset pricing due to reduced market liquidity, negative mark on securities considered credit impaired and on securities identified as potential sale candidates The decline in market value during the 2nd Qtr 2008 is concentrated in RMBS Alt-A and other ABS classes, offset by slight recoveries in consumer ABS sectors: RMBS Alt-A: Acceleration in 60+ Delinquencies and slowing prepay speeds negatively impacted 06 & 07 vintages. The market continues to severely discount the value of Alt-As without regard to underlying credit quality and structural t merits of individual id deals. SIV liquidations id are impacting dealer s ability to absorb additional inventory creating additional pricing pressure. Student Loans & Cards: FFELP student loan spreads tightened reflecting a rebound in market perception as a safe asset. Cards fairing better on stable collateral performance despite negative outlook on consumer spending and borrowing. Other ABS: Airplanes & Auto related ABS continue to be negatively impacted by the price of oil and poor auto industry performance. Structured Insurance deals have been impacted by market devaluation in the underlying investment portfolios. Wrapped positions: 3.6% AAA wrapped (FSA and AGO) and 10% wrapped by MBIA, ABK, and FGIC suffered significant devaluation due to the additional downgrades and negative market perceptions. 48

49 Investment Agreement Book Downgrade Cure Provisions Ample resources exist to satisfy cure provisions The following table illustrates the estimated total collateral requirement and cumulative cash returned at various Ambac Assurance Corp. rating levels based on 6/30/08 balances: Current AA/Aa3 A+/A1 A/A2 A-/A3 Cumulative Collateral Requirement $2.5B $4.5B $5.8B $5.6B Cumulative Terminations $0.3B $0.6B $0.7B $0.9B Total Cumulative Collateral and Terminations $2.8B $5.1B $6.5B $6.5B Market Value Of Investment Agreement Asset Portfolio at 6/30/08 $5.2B $5.2B $5.2B $5.2B MV of Investments in Excess of/(deficient to) Cumulative Collateral Requirements and Terminations $2.4B $0.1B ($1.3B) ($1.3B) Rating requirements and cure provisions vary across deals Typical cures include funds to be returned, collateral to be pledged and an additional collateral haircut based on asset type In the event of cash and/or security shortfalls in the investment agreement business, management anticipates utilizing the resources of AAC through intercompany transactions, pending approval by the Office of the Commissioner of Insurance for the State of Wisconsin AAC s investment portfolio is valued at approximately $12 bn with over $1 bn in cash and short-term securities as of June 30,

50 Appendix 6: Mortgage Related Insured Portfolio.

51 Mortgage Related Insured Portfolio: Direct RMBS Net Par Outstanding ABK Rating Distribution Net Par Outstanding $43 bn 6/30/2008 Mortgage- g Backed and Home Equity Second Liens account for approximately 75% BIG par outstanding at 6/30/

52 Mortgage Related Insured Portfolio: CDO of ABS Net Par Outstanding ABK Rating Distribution Net Par Outstanding $30 bn 6/30/2008 High Grade CDOs account for 91% BIG par outstanding at 6/30/2008 versus 59% at 3/31/

53 Appendix 7: Book Value versus Adjusted Book Value.

54 Adjusted Book Value Analysis Adjusted Book Value Adjusted Book Value by Component 54

55 Forward-Looking Statements This presentation contains statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of Any or all of management s forward-looking statements here or in other publications may turn out to be wrong and are based on Ambac s 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) changes in the economic, credit, foreign currency or interest rate environment in the United States and abroad; (2) the level of activity within the national and worldwide credit markets; (3) competitive conditions and pricing levels; (4) legislative and regulatory developments; (5) changes in tax laws; (6) changes in our business plan, including changes resulting from our decision to discontinue writing new business in the financial services area, to significantly reduce new underwriting of structured finance business and to discontinue all new underwritings of structured finance business for six months; (7) the policies and actions of the United States and other governments; (8) changes in capital requirements whether resulting from downgrades in our insured portfolio or changes in rating agencies rating criteria or other reasons; (9) changes in Ambac s and/or Ambac Assurance s credit or financial strength ratings; (10) changes in accounting principles or practices relating to the financial guarantee industry or that may impact Ambac s reported financial results; (11) inadequacy of reserves established for losses and loss expenses; (12) default by one or more of Ambac Assurance s portfolio investments, insured issuers, counterparties or reinsurers; (13) credit risk throughout our business, including large single exposures to reinsurers; (14) market spreads and pricing on insured collateralized debt obligations ( CDOs ) and other derivative products insured or issued by Ambac; (15) credit risk related to residential mortgage securities and CDOs; (16) the risk that holders of debt securities or counterparties on credit default swaps or other similar agreements seek to declare events of default or seek judicial relief or bring claims alleging violation or breach of covenants by Ambac or one of its subsidiaries; (17) the risk that our underwriting and risk management policies and practices do not anticipate certain risks and/or the magnitude of potential for loss as a result of unforeseen risks; (18) the risk of volatility in income and earnings, including volatility due to the application of fair value accounting, or FAS 133, to the portion of our credit enhancement business which is executed in credit derivative form; (19) operational risks, including with respect to internal processes, risk models, systems and employees; (20) the risk of decline in market position; (21) the risk that market risks impact assets in our investment portfolio; (22) the risk of credit and liquidity risk due to unscheduled and unanticipated withdrawals on investment agreements; (23) changes in prepayment speeds on insured asset-backed securities; (24) factors that may influence the amount of installment premiums paid to Ambac; (25) the risk that we may be required to raise additional capital, which could have a dilutive effect on our outstanding equity capital and/or future earnings; (26) our ability or inability to raise additional capital, including the risks that regulatory or other approvals for any plan to raise capital are not obtained, or that various conditions to any plan, either imposed by third parties or imposed by Ambac or its Board of Directors, are not satisfied and thus potentially necessary capital raising transactions do not occur, or the risk that for other reasons the Company cannot accomplish any potentially necessary capital raising transactions; (27) the risk that Ambac s holding company structure and certain regulatory and other constraints, including adverse business performance, affect Ambac s ability to pay dividends and make other payments; (28) the risk of litigation and regulatory inquiries or investigations, and the risk of adverse outcomes in connection therewith, which could have a material adverse effect on our business, operations, financial position, profitability or cash flows; (29) other additional factors described in the Risk Factors section of Ambac s Current Report on Form 8-K dated March 12, 2008 and in its Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and in and also disclosed from time to time by Ambac in its subsequent reports on Form 10-Q and Form 8-K, which are or will be available on the Ambac web site at and at the SEC s web site, and (30) other risks and uncertainties that have not been identified at this time. Readers are cautioned that forward-looking statements speak only as of the date they are made and that Ambac does not undertake to update forward-looking statements to reflect circumstances or events that arise after the date the statements are made. You are therefore advised to consult any further disclosures we make on related subjects in Ambac s reports to the SEC. 55