INVESTOR PRESENTATION - PDF Free Download

AGENDA Ambac overview Strategic priorities Value drivers Financial highlights Conclusion Appendix 1

AMBAC TODAY Ambac Financial Group ( AFG ) Financial services holding company Subsidiaries provide financial guarantees on municipal bonds, structured securities and other financial instruments Wholly-owned principal operating subsidiaries include Ambac Assurance Corporation ( AAC ), Ambac UK and Everspan AFG profile (as of June 30, 2016, unless otherwise noted) $339.6 million in cash and investments $1.4 billion of net operating loss carryforwards ( NOLs ) No debt Equity market capitalization of $866 million as of August 9, 2016 Insured Portfolio Investment Portfolio as of June 30, 2016 Short Term 5% US Gov & Agency Obligations 2% Public Finance 60% Corporate Obligations 27% Int'l 20% $94.4 billion Net Par (1) Structured Finance 20% RMBS- Ambac Insured 34% $6.5 billion Fair Value RMBS/ ABS 18% Muni Obligations 5% Other 6% Foreign Obligations 1% Non-RMBS Ambac Insured (4) 2% (1) Par throughout this presentation includes capital appreciation bonds ( CABs ) which are reported at the par amount at the time of issuance of the insurance policy 2

TRACK RECORD OF REDUCING RISK WHILE CREATING VALUE Progress in reducing insured exposures and improving claimspaying ratio Net Par Outstanding ($bn) Claims-Paying Ratio 6/30/13 6/30/16 Chg $196 $94 (52%) 31:1 17:1 (14:1) $ in millions $600 $400 $200 $- $(200) $(400) $206 $231 May - June 2013 Generated over $1.5 billion of net income and $2.8 billion of operating earnings (1) since emergence from bankruptcy (2) 3Q 13 $69 4Q 13 $156 1Q 14 Net Income ($208) $82 3Q 14 $454 4Q 14 $215 $283 1Q 15 2Q 15 ($391) $387 4Q 15 $9 1Q 16 $59 2Q 16 $ in millions $600 $400 $200 $- $(200) $(400) $203 $193 May - June 2013 3Q 13 $292 4Q 13 $177 1Q 14 Operating Earnings (1) Over $2.8 billion since emergence ($113) $143 3Q 14 $477 4Q 14 $248 $266 1Q 15 2Q 15 $171 3Q 15 $481 4Q 15 $218 1Q 16 $115 2Q 16 $(600) $(600) $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 $6.38 Delivered substantial book value and adjusted book (3) value growth since emergence from bankruptcy $15.62 Book Value/Share (3) $31.09 $37.41 $38.73 $39.80 Jun-2013 Dec-2013 Dec-2014 Dec-2015 Mar-2016 Jun-2016 $35 $30 $25 $20 $15 $10 $5 $0 ($5) ($10) ($7.23) Adjusted Book Value/Share ($1.11) $7.50 $24.78 $29.10 $29.94 Jun-2013 Dec-2013 Dec-2014 Dec-2015 Mar-2016 Jun-2016 (1) Operating 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 2Q 2016 (3) 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 to Ambac Financial Group, Inc. stockholders equity, as reported under GAAP, is available at the end of this document and in our most recent SEC filed quarterly or annual report (4) Compound Annual Growth Rate ( CAGR ) 3

AMBAC A BIT OF HISTORY Historically a global leader in monoline insurance $556 billion of peak insured exposures prefinancial crisis including public finance, residential mortgage backed securities ( RMBS ), student loans and other structured products Adversely impacted by financial crisis Segregated Account of AAC in Rehabilitation o o o Established in March 2010 to separate most troubled liabilities including RMBS and student loan guarantees Wisconsin Office of the Commissioner of Insurance ( OCI ) as Rehabilitator holds ultimate decisionmaking authority over the Segregated Account Generally pays 45% of permitted policy claims, known as the Interim Payment Percentage ( IPP ); deferring 55%; while General Account pays 100% of permitted policy claims Bankruptcy of AFG o o November 2010 - filed for Chapter 11 bankruptcy May 2013 - emerged from bankruptcy with no debt, over $4 billion of net operating loss carry-forwards ( NOLs ) and a new Board of Directors Ambac Financial Group (Holding Company) (AFG) $339.6 million cash & investments; 45 million shares outstanding Ambac Assurance Corp. (Financial Guarantee) (AAC) $7.8 billion CPR; $77 billion net par Everspan Financial Guarantee (Financial Guarantee) $225 million statutory surplus Ambac UK 17% Ambac Assurance UK (UK insurance company) (Ambac UK) $947 million CPR; $16 billion net par $94 billion net par Portfolio % Breakdown Ambac Assurance Corp. Segregated Account (in Rehabilitation) General Account 69% Segregated Account 14% 4

STRATEGIC PRIORITIES 5

STRATEGIC PRIORITIES Executing on Our Strategic Priorities Working towards clarity around uncertainties Active runoff of AAC and its subsidiaries through accretive transaction terminations, policy commutations, settlements and restructurings, and maximizing the risk-adjusted return on invested assets Loss recovery through litigation and exercise of contractual and legal rights Rationalization of AAC's capital and liability structures, enabling simplification of corporate governance and facilitating the successful rehabilitation of the Segregated Account Improved cost effectiveness and efficiency of the operating platform Selective business transactions offering attractive risk-adjusted returns that, among other things, may permit utilization of Ambac s tax net operating loss carry-forwards Managing large, legacy exposures including $2.2 billion net par Puerto Rico exposures, with maturities as far as 2054 Chicago, Illinois, New Jersey and other jurisdictions with stressed fiscal conditions RMBS and student loan policies in the Segregated Account Prosecuting our remaining RMBS-related lawsuits Managing the regulatory framework, and other aspects, of the Segregated Account in rehabilitation Optimizing capital allocation in a dynamic environment complicated by long duration profile of AAC s substantial obligations and the Segregated Account rehabilitation $866 million equity market cap as of August 9, 2016 $94 billion of various outstanding insured securities which trade in the marketplace Retaining key employees 6

EXECUTING ON OUR STRATEGY 1 Strong Earnings Generated over $1.5 billion of net income and $2.8 billion of operating earnings since emergence from bankruptcy Continue to execute on our disciplined and accretive asset liability management program to maximize the value of AAC while optimizing our operating platform to generate earnings $1.5 billion net income & $2.8 billion operating earnings 2 Growth in Book Value & Adjusted Book Value per Share Increased book value per share sixfold, from $6.38 at June 30, 2013 to $39.80 as of June 30, 2016 Increased adjusted book value by $37.17 per share from ($7.23) at June 30, 2013 to $29.94 as of June 30, 2016 Having generated $1.7 billion of adjusted book value since emergence from bankruptcy, we remain focused on continuing to grow book value and adjusted book value through prudent asset liability management of AAC $39.80 & $29.94 of book value and adjusted book value per share, respectively 3 Generated Tolling Payments from AAC to AFG Made a $71 million tolling payment from AAC to AFG in April 2016 under the intercompany tax sharing agreement; remaining total potential net tolling payments of $165 million (see page 13) $4.2 billion of remaining NOLs at June 30, 2016, including $1.4 billion at AFG Continue to deliver strong performance and explore selective business transactions offering attractive risk-adjusted returns that, among other things, may permit utilization of Ambac s tax net operating loss carry-forwards to create value for shareholders $71 million Tolling payment to AFG 4 Constructive Regulatory Relationship Ongoing work with the OCI towards the shared goal of a durable, successful rehabilitation of the Segregated Account Our collaborative relationship with the OCI has enhanced AAC s overall claims-paying ability Collaborative Relationship developed with OCI 5 Active Liability Management: Reduced High Risk Exposure Commuted and terminated over $1.4 billion of student loan exposures since emergence from bankruptcy; total student loan exposure down by 66% to $1.7 billion Reduced adversely classified credits by 44% since emergence from bankruptcy We will continue strategically evaluating and executing commutations, cancellations, and other transactions that generate attractive internal rates of return Substantial accretive reduction of our insured book 7

EXECUTING ON OUR STRATEGY 6 Active Liability Management: Reduced Insured Portfolio & Improved Claims Paying Ability Reduced net par exposure by $102 billion, or 52%, since emergence from bankruptcy, including $36 billion, or 25%, in 2015 and $14 billion, or 13%, during 2016 Significantly deleveraged the insured portfolio, improving the claims-paying ratio from 31:1 at June 30, 2013 to 17:1 as of June 30, 2016 Continuing to reduce our net par exposure through both proactive company-led initiatives and natural run-off Improved Claims-Paying Ratio 14 points to down to 17:1 7 Active Liability Management: Aggressive Pursuit of RMBS and other Litigation Recoveries Reached $995 million settlement with JP Morgan in the first quarter of 2016 Recovered almost $520 million to date through other means, including $60 million from non-litigation settlement in 2Q 2016 Brought suit against Puerto Rico and the Highways and Transportation Authority ( HTA ) Aggressively pursuing our remaining RMBS lawsuits, including our primary case against Countrywide/Bank of America, and are preparing this case to be ready for trial by mid-2017 Recovered $1.5 billion from litigation and other means Actively manage $6.5 billion (fair value) consolidated investment portfolio as of June 30, 2016 8 Active Asset Management Strategy LT GAAP book yield of 5.6% for the financial guarantee investment portfolio; 5.9% statutory book yield (ex. Ambac UK) $1.4 billion of Deferred Amounts (including interest) owned by Ambac, or 41% of total, resulting from opportunistic market purchases of Ambac-insured RMBS Investing in our own insured obligations at attractive valuations and compelling internal rates of return will remain a key element of our asset management strategy 5.9% Long-term statutory book yield on fin. guarantee portfolio 9 Expense Management: Reduced Cost Base Reduced headcount by 27% since emergence from bankruptcy 2Q 2016 staff right-sizing actions are expected to reduce compensation costs by over 9% or $5.0 million annually beginning in 3Q 2016 Implementing operational efficiencies and optimizing our platform to best serve the changing nature of our business 27% Headcount reduction since emergence from bankruptcy 10 Shareholder Communication & Corporate Governance Enhancements Enhanced shareholder communication regular direct dialogue between Ambac management and shareholders since emergence Board includes four directors added since the beginning of 2015, two of whom were initially recommended to Ambac by shareholders, and all of whom are highly qualified, independent and shareholder focused Increased Transparency Strengthened Corporate Governance 8

AFG VALUE DRIVERS 9

VALUE DRIVERS OF AFG Cash and Investments Selective Tax- Advantaged Business Transactions Maximizing the Value of AFG Inter-Company Tax Arrangements Value of AAC 10

AFG VALUE DRIVERS CASH AND INVESTMENTS Cash and investments create substantial flexibility to pursue initiatives to maximize value for shareholders $339.6 million Cash and Investments at AFG as of June 30, 2016 Surplus Notes 4% Corolla Notes 8% Cash and Short Term Investments 3% Ambac Insured RMBS 24% ABS 61% 11

AFG VALUE DRIVERS - NET OPERATING LOSS CARRY-FORWARD ( NOL ) $4.2 billion in NOLs are a considerable asset for our shareholders, and a meaningful lever for future value creation $4.2 Billion of NOLs as of June 30, 2016 $2.8 billion allocated to AAC $1.4 billion allocated to AFG 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 2029-2032 Pursuing selective business transactions that may utilize NOLs 12

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 $71 million of net tolling payments (1) in 2Q 2016 Total potential amount of net tolling payments remaining is $165 million Net Tolling Payments ($ in millions) $250 $236 $200 $150 $143 $100 $50 $0 $165 $92 $45 $28 $20 $51 $71 (2) (2) (2,3) (4) Tier A Tier B Tier C Tier D Ever-to-date Outstanding Utilized 1) Net Tolling Payment = (Utilized NOL Applicable Percentage 35% Federal Corporate Tax Rate) - credits 2) Tier A, B, and C are each subject to a $5 million credit against tolling payment due AFG 3) Pursuant to IRS closing agreement, IRS receives 12.5% of Tier C 4) Pursuant to IRS closing agreement, IRS receives 17.5% of Tier D 13

AFG VALUE DRIVERS CONSIDER SELECTIVE TAX-ADVANTAGED BUSINESS TRANSACTIONS Selective tax-advantaged business transactions can diversify revenue and leverage infrastructure Use our strong balance sheet, substantial tax assets, and robust intellectual capital to explore avenues to generate tax-advantaged risk-adjusted returns for our shareholders May permit utilization of NOLs AFG can purchase NOLs from AAC in the event AFG utilizes its allocated NOLs Improves possibility of booking 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 14

AAC VALUE DRIVERS 15

VALUE DRIVERS OF AAC Risk Management Expense Management Loss Mitigation Maximizing the Value of AAC Ambac UK Successful Rehabilitation of the Segregated Account Asset Management 16

RISK MANAGEMENT REDUCING INSURED LEGACY EXPOSURES Ambac has realized a significant decrease in its distressed liabilities, a meaningful portion of which was due to active liability management $ in billions Adversely Classified Credit Net Par $80 $70 $60 $50 $40 $30 $20 $10 $0 2009 2010 2011 2012 2Q 2013 2013 2014 2015 2Q 2016 ACC Classifications: (definitions in appendix) V IV III II IA Net Par Exposure Reduction Since Emergence $ in billions # of Credits $250 6,000 $200 $150 $100 $50 $- PF SF Int'l # of Credits (right axis) 4,000 2,000 - while increasing book value and adjusted book value Book Value/Share Adjusted Book Value/Share $45 $40 $35 $30 $31.09 $37.41 $38.73 $39.80 $35 $30 $25 $20 $24.78 $29.10 $29.94 $25 $15 $20 $15 $15.62 $10 $5 $7.50 $10 $5 $0 $6.38 Jun-2013 Dec-2013 Dec-2014 Dec-2015 Mar-2016 Jun-2016 $0 ($5) ($10) ($1.11) ($7.23) Jun-2013 Dec-2013 Dec-2014 Dec-2015 Mar-2016 Jun-2016 17

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 88% (since the Segregated Account entered rehabilitation) primarily through commutations, restructurings and refinancings Projected Lifetime RMBS Losses Student Loan Portfolio Reduction $10.0 $9.0 $8.0 $16 $ in billions $12.1 billion Net Par Reduction 1Q 2010 2Q 2016 $7.0 $6.0 $5.0 $12 $4.8 $4.0 $3.0 $8 $13.8 $3.3 $2.0 $1.0 $0.0 $ in billions 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 GCL, Before Estimated Representations & Warranties ETD Unpaid Claims ETD Paid, Net of Subrogation Received ETD Losses + GCL, Net of Representations & Warranties $4 $- Net Par 1Q 2010 Commutations Restructurings and Refinancings $4.0 Run-off $1.7 Net Par 2Q 2016 18

LOSS MITIGATION MANAGING KEY LEGACY EXPOSURES, INCLUDING PUERTO RICO Leading comprehensive loss mitigation campaign San Juan, Washington DC, New York Litigation outstanding HTA agreed to a stay on litigation Clawback Optimistic about PROMESA Oversight Board needs to focus on fiscal and structural reforms Near-term net principal and interest amortization $15 million post reserves @ 1/1/17 ~$300 million of non-go exposure over the next three years Domestic Public Finance reserves, largely attributable to Puerto Rico, were $515 million as of June 30, 2016 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 2) Net Par and Net Principal & Interest are net of reinsurance 3) 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) Pledged revenues for Highways and Transportation Revenue Bonds include toll revenues and investment earnings which are not subject to the Priority Debt Provision 19

LOSS MITIGATION CASE STUDIES Capturing discount and maximizing accretive opportunities including policy commutations, terminations and restructurings Puerto Rico Bond Cancellation Local Insight Media Transaction Cancelled $229 million net par of Puerto Rico Highways and Transportation Authority exposure, ~ 10% of PR exposure; $493 million of total P&I $458 million net par exposure terminated on Local Insight Media asset-backed transaction Airplane Securitization South Carolina Student Loan Policy Commutation Reduced exposure to our largest pooled aircraft securitization by $168 million net par as a result of de-risking efforts Undertook a nearly eight month effort, with multiple constituents, to commute $182 million net par of private student loan exposure sponsored by South Carolina Student Loan Corporation 20

LOSS MITIGATION - LITIGATION AND OTHER RECOVERIES Aggressively pursuing RMBS and other recoveries, through litigation and other means Active Litigation RMBS Settlements and Other Recoveries Countrywide, First Franklin and Nomura $995 million RMBS settlement with JP Morgan in 1Q 2016 Estimated representation and warranty ( R&W ) subrogation recoveries of $1.9 billion as of June 30, 2016 Countrywide Hopeful to have trial by middle of 2017; seeking pre-judgment interest, punitive damages, as well as all other available remedies in trial Additional fraud-only cases relating to Harborview and Lehman transactions $520 million other RMBS-related recoveries ever-to-date, including $60 million settlement with RMBS counterparty in 2Q 2016 Other Potential Recoveries First Franklin and Nomura Timing further behind Countrywide case JP Morgan Investment Management In connection with Ambac UK insured Ballantyne Re transaction Puerto Rico HTA and Clawbacks Citigroup settlement with the SEC related to a CDO transaction for which Ambac provided credit protection Analyzing and pursuing other potential areas for recoveries 21

SUCCESSFUL REHABILITATION OF THE SEGREGATED ACCOUNT Goal to achieve a durable exit of the Segregated Account from rehabilitation OCI holds ultimate decision-making authority over the Segregated Account Constructive relationship with OCI and Special Deputy Commissioner ( SDC ) The SDC held a Listening Session on July 12, 2016. Among the many important topics discussed at the listening session, the SDC said At present, the Rehabilitator does not have any plans to increase the interim payment percentage ( IPP ); he said that, among other things, the rehabilitator and its advisors would need to feel highly confident that any change to the IPP would be sustainable and fair to all policyholders The Rehabilitator reserves the right to amend the plan of rehabilitation or take such other action as he deems necessary or appropriate to adjust the rate of accretion on Deferred Amounts from time to time based on such factors as he considers relevant; as such, the accretion rate remains under review That although his preferred goal would be to achieve an exit from rehabilitation through a consensual plan, he would advise the Commissioner to use all tools available to accomplish a successful and durable exit that enhances AAC's long-term claims-paying ability 22

ASSET MANAGEMENT Optimize investment portfolio; investment strategy included a shift to investments in Ambac insured RMBS and other Ambac-related securities $6.6 billion consolidated investment portfolio as of June 30, 2013 Short Term 9% US Gov & Agency 7% Corp 15% Foreign 1% $6.5 billion consolidated investment portfolio as of June 30, 2016 Short Term 5% US Gov & Agency 2% Corp 27% RMBS- Ambac Insured 18% RMBS/ABS 20% Other 4% Muni 25% Non-RMBS Ambac Insured (1) 1% AAC long-term GAAP book yield 5.6% as of June 30, 2016 5.8% as of December 31, 2015 RMBS- Ambac Insured 34% Estimated annualized total returns since emergence AAC: 7% Ambac UK: 6% RMBS/ABS 18% Other 6% Foreign 1% Muni 5% Non-RMBS Ambac Insured (1) 2% Own $1.4 billion Deferred Amounts (including interest), or 41%, of total Deferred Amounts outstanding, as of June 30, 2016 (1) Excludes Ambac insured securities that are internally rated investment grade 23

AMBAC UK Long-tailed insured portfolio with accretive opportunities, diverse investment portfolio and improving claims-paying ratio Ambac UK $16.2 billion net par as of June 30, 2016 Ambac UK $597 million investment portfolio as of June 30, 2016 Structured Insurance 6% Other 5% Transportation 6% MBS 2% ABS 17% Claims-paying resources $947 million as of June 30, 2016 Loss reserves Sovereign /subsovereign 35% Investor Owned and Public Utilities 30% Improved from $601 million as of June 30, 2013 to $451 million as of June 30, 2016, or 25% Proactive risk remediation efforts include JPMIM litigation regarding Ballantyne Commutations and terminations: Punch Taverns and Eurotunnel RMBS/ABS 13% High Yield & Loans 11% Other 4% 33:1 34:1 Short Term 6% Hedge Fund 7% 32:1 US Gov & Agency Obligations 4% Equities 4% 29:1 28:1 Corporate Obligations 10% Property 7% Ambac UK Claims Paying Ratio (1,2) Foreign Obligations 13% Non-RMBS Ambac Insured 20% 26:1 25:1 Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Dec-2015 Jun-2016 (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 (2) The calculation for Total Claims-Paying-Resources includes loss and loss adjustment expense reserves before the recorded Statutory benefit for expected subrogation receipts 24

EXPENSE MANAGEMENT Focus on expense reduction through headcount and operating efficiencies Compensation-related expense reduction efforts $10 million estimated gross annualized savings from multiple headcount reductions since 2015 Shift toward increase in incentive pay Increase use of contract and flex-time staff Non-compensation savings initiatives Opportunistically moving from fixed to variable expense structures Robust vendor management program Dynamic insource/outsource initiative 25

FINANCIAL HIGHLIGHTS 26

STEADY IMPROVEMENT IN CLAIMS-PAYING RATIO Claims-paying ratio has improved 14:1 since 2Q 2013; $8.8 billion claims-paying resources as of June 30, 2016 Claims-Paying Ratio (1, 2) 31:1 28:1 26:1 26:1 23:1 19:1 18:1 17:1 Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Dec-2015 Mar-2016 Jun-2016 (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 (2) The calculation for Total Claims-Paying-Resources includes loss and loss adjustment expense reserves before the recorded Statutory benefit for expected subrogation receipts 27

BALANCE SHEET IMPROVEMENTS Assets (excluding intangibles and VIEs) Liabilities (excluding VIEs) $12 $10 $8 $6 $4 $2 $0 $ in billions Dec-13 Dec-14 Dec-15 Jun-16 $12 $10 $8 $6 $4 $2 $0 $ in billions Dec-13 Dec-14 Dec-15 Jun-16 Gross Loss Reserves Stockholder s Equity $6 $ in billions $2.0 $ in billions $5 $4 $3 $1.5 $1.0 $2 $1 $0 Dec-13 Dec-14 Dec-15 Jun-16 $0.5 $0.0 Dec-13 Dec-14 Dec-15 Jun-16 28

GROSS LOSS RESERVES BY CATEGORY (1) $ in millions $6,000 As of 06/30/16 As of 06/30/13 $5,542 $5,000 $4,000 $3,448 $3,651 $3,000 $2,299 $2,000 $1,000 $0 $302 $1,064 $515 $237 RMBS Student Loans Domestic Public Finance $601 $451 $73 $11 $78 $114 Ambac UK Other Credits Loss expenses Total (1) Gross loss reserves are net of estimated R&W subrogation recoveries of $1.9 billion as of June 30, 2016 and $2.4 billion as of June 30, 2013 and other subrogation recoverables of $1.0 billion and $0.8 billion as of June 30, 2016 and June 30, 2013, respectively. Gross loss reserves include $3.6 billion and $3.8 billion of unpaid segregated account policy claims and interest as of June 30, 2016 and June 30, 2013, respectively. 29

AMBAC LIABILITY AND CAPITAL SUMMARY Category ($ in millions) 6/30/16 Comments Claim Liabilities $6,684 Before estimated subrogation recoveries, Unearned Premium Revenue ( UPR ) and reinsurance Includes $3,578 million of unpaid claims, including accrued interest on Deferred Payment Obligations ( DPO ) of $575 million Includes $486 million of Ambac UK claim liabilities 5.1% Surplus Notes Par (1) 5.1% Junior Surplus Notes Par Auction Rate Preferred Shares (AMPS) $902 $863 million par General Account notes $39 million par Segregated Account notes Does not include $321 million of accrued interest $376 Includes $350 million par (formerly held by AFG (2) ) Does not include $67 million of accrued interest $660 Liquidation Value, originally $800 million Common Stock Market Cap (3) $866 45,121,788 common shares 4,133,519 warrants (4) (1) Surplus Notes Par is reduced by approximately $30 million which was acquired by AFG (2Q 2015) and AAC (1Q-2Q 2016); unpaid accrued interest is reduced by $9.6 million relating to certain surplus notes that were previously repurchased under call options in 2Q 2016 (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 interest ($24 million), for net proceeds of approximately $224 million. AFG also retained a 20% interest through a $75 million subordinated Owner Trust Certificate (3) Common Stock Market Cap based on AMBC common shares closing stock price of $19.20 on August 9, 2016 (4) Through August 9, 2016, 905,482 warrants have been purchased at a total cost of $7 million for an average price of $8.09 per warrant 30

CONCLUSION 31

CONCLUSION Track record of strong financial performance and value generation Generated $1.5 billion of net income and $2.8 billion of operating earnings since emergence Increased book value per share sixfold, from $6.38 at June 30, 2013 to $39.80 as of June 30, 2016 Increased adjusted book value by $37.17 per share from ($7.23) at June 30, 2013 to $29.94 as of June 30, 2016 Future value drivers Significant accretive asset liability management opportunities at AAC and Ambac UK Substantial tax assets Combined $4.2 billion NOLs $165 million potential tolling payments available Potential for select tax-advantaged business transactions $340 million cash and investments, or $7.53 per share, and no debt at AFG 32

APPENDIX 33

OUTSTANDING DEBT SERVICE (1) $ in billions Estimated Net Debt Service Amortization $149 billion $35 $30 $25 $20 $15 $10 $5 $0 (2) 2016 2017 2018 2019 2020 2021 2022-2026 2027-2031 2032-2036 After 2036 General Account Segregated Account Ambac UK (1) Depicts amortization of existing guaranteed portfolio (principal and interest), assuming no advance refundings, as of June 30, 2016. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay guaranteed obligations (2) Includes scheduled runoff for remaining 6 months of 2016 34

PUERTO RICO NET PRINCIPAL AND INTEREST (1) AMORTIZATION ($ IN MILLIONS) AS OF JUNE 30, 2016 Payment Date Commonwealth GO Principal and Interest Amortization of Ambac Insured Puerto Rico Exposures by Payment Date Public Bldg - GO Guaranteed Senior Highway (1968) Senior Transportation (1998) Rum Tax Hotel Occupancy Tax Sales Tax (COFINA) (1) Net of reinsurance (2) Following issuers defaults, Ambac paid in full the 7/1/2016 payment on the Ambac-insured Rum Tax and GO bonds and also paid $9.9mm on the 7/1/2016 payment on the Ambac-insured Public Building Authority bonds to cover the issuer s partial payment default Total P & I 7/1/2016 (2) 1.4 38.6 0.6 36.3 41.7 3.4-122.0 1/1/2017 1.4 4.1 0.6 9.4 9.5 3.4-28.4 7/1/2017 1.4 23.0 13.1 34.4 42.6 15.2-129.7 1/1/2018 1.4 3.6 0.3 9.4 8.6 3.1-26.4 7/1/2018 1.4 23.5 9.9 32.6 43.5 15.5-126.4 1/1/2019 1.4 3.0-9.3 7.6 2.8-24.1 7/1/2019 32.7 5.6-17.6 7.6 15.8-79.3 1/1/2020 0.6 3.0-9.3 7.6 2.5-23.0 7/1/2020 7.2 3.0-28.0 7.6 16.1-61.9 1/1/2021 0.4 3.0-9.3 7.6 2.2-22.5 7/1/2021 7.4 10.0 1.3 9.8 7.6 2.2-38.3 1/1/2022 0.2 2.8-9.3 7.6 2.2-22.1 7/1/2022 7.5 2.8-9.3 7.6 2.2-29.4 1/1/2023 0.1 2.8-9.3 7.6 2.2-22.0 7/1/2023 3.6 2.8-10.3 53.2 2.2-72.1 1/1/2024-2.8-9.3 6.4 2.2-20.7 7/1/2024-2.8-9.8 54.5 2.2-69.3 1/1/2025-2.8-9.3 5.0 2.2-19.3 7/1/2025-2.8 1.0 9.9 55.8 2.2-71.7 1/1/2026-2.8-9.3 3.6 2.2-17.9 7/1/2026-2.8 1.0 11.3 57.2 2.2-74.5 1/1/2027-2.8-9.2 2.2 2.2-16.4 7/1/2027-2.8 6.9 37.8 58.7 2.2-108.4 1/1/2028-2.8-9.0 0.6 2.2-14.6 7/1/2028-2.8-38.5 60.2 22.2-123.7 1/1/2029-2.8-8.8-1.7-13.3 7/1/2029-2.8-39.7 68.7 22.7-133.9 1/1/2030-2.8-7.9-1.1-11.8 7/1/2030-28.2-67.7-23.2-119.1 1/1/2031-2.1-6.3-0.6-9.0 7/1/2031-25.9-88.5-23.2-137.6 35

PUERTO RICO NET PRINCIPAL AND INTEREST (1) AMORTIZATION CONTINUED ($ IN MILLIONS) AS OF JUNE 30, 2016 Principal and Interest Amortization of Ambac Insured Puerto Rico Exposures by Payment Date Payment Date Commonwealth Public Bldg - GO Senior Highway Senior Transportation Hotel Occupancy Sales Tax Rum Tax GO Guaranteed (1968) (1998) Tax (COFINA) Total P & I 1/1/2032-1.4-4.2 - - - 5.6 7/1/2032-1.4-4.2 - - - 5.6 1/1/2033-1.4-4.2 - - - 5.6 7/1/2033-1.4-4.2 - - - 5.6 1/1/2034-1.4-4.2 - - - 5.6 7/1/2034-28.1-4.2 68.7 - - 101.0 1/1/2035-0.8-4.2 - - - 5.0 7/1/2035-33.7-4.2 68.7 - - 106.6 1/1/2036 - - - 4.2 - - - 4.2 7/1/2036 - - - 62.2 68.7 - - 130.9 1/1/2037 - - - 2.7 - - - 2.7 7/1/2037 - - - 63.8 49.1 - - 112.9 1/1/2038 - - - 1.0 - - - 1.0 7/1/2038 - - - 40.7 - - - 40.7 1/1/2039 - - - - - - - - 7/1/2039 - - - - - - - - 1/1/2040 - - - - - - - - 7/1/2040 - - - - - - - - 1/1/2041 - - - - - - - - 7/1/2041 - - - - - - - - 1/1/2042 - - - - - - - - 7/1/2042 - - - 0.2 - - - 0.2 7/1/2043 - - - - 84.0 - - 84.0 7/1/2044 - - - - 84.0 - - 84.0 8/1/2047 - - - - - - 786.2 786.2 8/1/2048 - - - - - - 820.2 820.2 8/1/2049 - - - - - - 855.5 855.5 8/1/2050 - - - - - - 892.3 892.3 8/1/2051 - - - - - - 930.5 930.5 8/1/2052 - - - - - - 970.3 970.3 8/1/2053 - - - - - - 1,011.7 1,011.7 8/1/2054 - - - - - - 1,054.6 1,054.6 Grand Total 68.1 293.8 34.7 824.3 1,063.6 205.5 7,321.3 9,811.3 (1) Net of reinsurance 36

RISK ADVERSE CREDIT CLASSIFICATIONS Classification Description Class I 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 37

AMBAC NON-GAAP FINANCIAL DATA Non-GAAP Financial Data Included in this presentation, the Company reports two non-gaap financial measures: Operating Earnings and Adjusted Book Value. A non-gaap financial measure is a numerical measure of financial performance or financial position that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. We are presenting these non-gaap financial measures because they provide greater transparency and enhanced visibility into the underlying drivers of our business and the impact of certain items that the Company believes will reverse from GAAP book value over time through the GAAP statements of comprehensive income. Operating Earnings and Adjusted Book Value are not substitutes for the Company s GAAP reporting, should not be viewed in isolation and may differ from similar reporting provided by other companies, which may define non-gaap measures differently. Operating Earnings The following table reconciles net income attributable to common stockholders to the non-gaap measure, operating earnings, for the periods listed: Operating Earnings ($ in millions) May-June 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 Net income (loss) attributable to common shareholders $ 206 $ 231 $ 69 $ 156 $ (208) $ 82 $ 454 $ 215 $ 283 $ (391) $ 387 $ 9 $ 59 Adjustments Non-credit impairment unrealized fair v alue (gain) loss on credit deriv ativ e (50) (9) (107) (4) 2 (5) (10) 4 (10) (34) 3 (1) (4) Effect of consolidating financial guarantee VIEs (15) (49) 288 0 53 3 (11) (26) (16) 31 21 156 (5) Amortization of insurance intangible asset 25 37 37 32 36 42 42 37 38 40 54 51 39 Goodw ill impairment - - - - - - - - - 515 - - - Foreign ex change (gain) loss from remeasurement of premiums receiv able and loss and loss adjustment ex penses 7 (19) (9) (2) (7) 26 18 30 (26) 15 11 7 33 Unrealized fair v alue (gain) loss on derivative products from Ambac CVA 31 1 15 (5) 10 (5) (16) (13) (3) (4) 5 (4) (7) Operating earnings (losses) $ 203 $ 193 $ 292 $ 177 $ (113) $ 143 $ 477 $ 248 $ 266 $ 171 $ 481 $ 218 $ 115 38

AMBAC NON-GAAP FINANCIAL DATA Adjusted Book Value The following table reconciles Total Ambac Financial Group, Inc. stockholders equity to the non-gaap measure Adjusted Book Value as of each date presented: June 30, 2016 March 31, 2016 ($ in millions, other than per share data) $ Amount Per Share $ Amount Per Share Total AFGI Stockholders' Equity $ 1,796.0 $ 39.80 $ 1,744.5 $ 38.73 Adjustments: Non-credit impairment fair value losses on credit derivatives 14.0 0.31 17.7 0.39 Financial guarantee VIEs consolidated (137.1) (3.03) (142.4) (3.16) Insurance intangible asset (1,075.6) (23.84) (1,150.0) (25.53) Ambac CVA on derivative product liabilities (excluding credit derivatives) (89.4) (1.98) (82.6) (1.83) Net unearned premiums and fees in excess of expected losses 1,001.9 22.20 1,034.5 22.96 Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income (158.9) (3.52) (110.8) (2.46) Adjusted book value $ 1,350.9 $ 29.94 $ 1,310.9 $ 29.10 Shares outstanding (in millions) 45.1 45.0 December 31, 2015 December 31, 2014 December 31, 2013 June 30, 2013 ($ in millions, other than per share data) $ Amount Per Share $ Amount Per Share $ Amount Per Share $ Amount Per Share Total AFGI Stockholders' Equity $ 1,684.8 $ 37.41 $ 1,399.1 $ 31.09 $ 703.0 $ 15.62 $ 287.2 $ 6.38 Adjustments: Non-credit impairment fair value losses on credit derivatives 19.0 0.42 55.7 1.24 72.8 1.62 188.5 4.19 Financial guarantee VIEs consolidated (302.8) (6.72) (319.1) (7.09) (372.7) (8.28) (594.4) (13.21) Insurance intangible asset (1,212.1) (26.91) (1,410.9) (31.35) (1,598.0) (35.51) (1,621.6) (36.04) Goodwill - - (514.5) (11.43) (514.5) (11.43) (514.5) (11.43) Ambac CVA on derivative product liabilities (excluding credit derivatives) (78.7) (1.75) (64.5) (1.44) (48.4) (1.08) (64.6) (1.44) Net unearned premiums and fees in excess of expected losses 1,056.6 23.46 1,402.3 31.16 1,666.0 37.02 1,903.0 42.29 Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income (51.0) (1.13) (210.7) (4.68) 41.9 0.93 91.0 2.02 Adjusted book value $ 1,115.8 $ 24.78 $ 337.4 $ 7.50 $ (49.9) $ (1.11) $ (325.4) $ (7.23) Shares outstanding (in millions) 45.0 45.0 45.0 45.0 39

FORWARD LOOKING STATEMENT In this presentation, we have included statements that may constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as estimate, project, plan, believe, anticipate, intend, "potential, "going forward," "looking ahead" 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 from expectations or estimates reflected in such forward-looking statements, include, among others: (1) volatility in the price of Ambac s common stock; (2) uncertainty concerning our ability to achieve value for holders of Ambac securities, whether from AAC or from new business opportunities; (3) dilution of current stockholder value or adverse effects on our share price resulting from the issuance of additional shares of common stock; (4) adverse effects on our share price resulting from future offerings of debt or equity securities that rank senior to our common stock; (5) potential of rehabilitation proceedings against AAC; (6) decisions made by the rehabilitator of the Segregated Account of AAC (the Segregated Account ) for the benefit of policyholders that may result in material adverse consequences for Ambac s security holders; (7) changes to the Segregated Account Rehabilitation Plan that could adversely affect the value of securities issued or insured by AAC or the Segregated Account; (8) our inability to realize the expected recoveries included in our financial statements, including those relating to breaches of representations and warranties (R&W) by sponsors of certain RMBS transactions; (9) intercompany disputes or disputes with the rehabilitator of the Segregated Account; (10) our inability to monetize assets, restructure or exchange outstanding debt and insurance obligations, or the failure of any such transaction to deliver anticipated results; (11) our results of operation may be adversely affected by events or circumstances that result in the accelerated amortization of our insurance intangible asset; (12) increased fiscal or liquidity stress experienced by issuers of public finance obligations or an increased incidence of Chapter 9 filings or other restructurings by municipal issuers; (13) adverse tax consequences or other costs resulting from the Segregated Account rehabilitation plan, from rules and procedures governing the payment of permitted policy claims, or from the characterization of our surplus notes as equity; (14) credit risk throughout our business, including but not limited to credit risk related to residential mortgagebacked securities, student loan and other asset securitizations, collateralized loan obligations, public finance obligations and exposures to reinsurers; (15) risks attendant to the change in composition of securities in our investment portfolio; (16) inadequacy of reserves established for losses and loss expenses; (17) the risk that our risk management policies and practices do not anticipate certain risks and/or the magnitude of potential for loss as a result of unforeseen risks; (18) changes in prevailing interest rates; (19) factors that may influence the amount of installment premiums paid to Ambac, including the Segregated Account rehabilitation proceedings; (20) default by one or more of AAC s portfolio investments, insured issuers or counterparties; (21) market risks impacting assets in our investment portfolio or the value of our assets posted as collateral in respect of investment agreements and interest rate swap transactions; (22) risks relating to determinations of amounts of impairments taken on investments; (23) the risk of litigation and regulatory inquiries or investigations, and the risk of adverse outcomes in connection therewith, which could have a material adverse effect on our business, operations, financial position, profitability or cash flows; (24) our inability to realize value from Ambac Assurance UK Limited; (25) system security risks; (26) market spreads and pricing on derivative products insured or issued by Ambac or its subsidiaries; (27) the risk of volatility in income and earnings, including volatility due to the application of fair value accounting; (28) changes in accounting principles or practices that may impact Ambac s reported financial results; (29) legislative and regulatory developments; (30) operational risks, including with respect to internal processes, risk models, systems and employees, and failures in services or products provided by third parties; (31) Ambac s financial position and the Segregated Account rehabilitation proceedings that may prompt departures of key employees and may impact our ability to attract qualified executives and employees; (32) the potential adverse economic impact of the United Kingdom s withdrawal from the European Union on Ambac s insured international portfolio and the value of its foreign investments; and (33) other risks and uncertainties that have not been identified at this time. 40

ABOUT AMBAC Ambac Financial Group, Inc. ("Ambac"), headquartered in New York City, is a holding company whose subsidiaries, including its principal operating subsidiaries, Ambac Assurance Corporation ("AAC"), Everspan Financial Guarantee Corp., and Ambac Assurance UK Limited ("Ambac UK"), provide financial guarantees and other financial services to clients in both the public and private sectors globally. AAC, including the Segregated Account of AAC (in rehabilitation), is a guarantor of public finance and structured finance obligations. Ambac s primary goal is to maximize stockholder value by executing the following key strategies: active runoff of AAC and its subsidiaries through accretive transaction terminations, policy commutations, settlements and restructurings, and maximizing the risk-adjusted return on invested assets; loss recovery through litigation and exercise of contractual and legal rights; improved cost effectiveness and efficiency of the operating platform; rationalization of AAC's capital and liability structures, enabling simplification of corporate governance and facilitating the successful rehabilitation of the Segregated Account; and selective business transactions offering attractive risk-adjusted returns that, among other things, may permit utilization of Ambac s tax net operating loss carry-forwards. 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. 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 primary residential mortgage backed securities litigations. For more information, please go to www.ambac.com. Contact Abbe F. Goldstein, CFA Managing Director, Investor Relations and Corporate Communications (212) 208-3222 agoldstein@ambac.com 41