NEW YORK--(BUSINESS WIRE)-- Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced that Ambac Assurance Corporation (AAC), its principal operating subsidiary, expects to report that estimated statutory impairment losses on credit derivatives increased by approximately $1.6 billion in the second quarter to approximately $4.9 billion at June 30, 2009. Additionally, AAC expects to report statutory loss and loss expenses incurred amounting to approximately $800 million for the quarter ended June 30, 2009. The increase in impairment losses, which relate to AAC's insured portfolio of collateralized debt obligations of asset-backed securities transactions (CDOs of ABS), was driven by rising forward LIBOR rates, which increase estimated future cash outflows, and further deterioration of the underlying collateral within the CDO of ABS transactions. The statutory loss and loss expenses relate primarily to deterioration in AAC's second-lien and Alt-A mortgage-backed securities financial guarantee portfolios.

The increase in the estimated impairment losses in the second quarter is net of the impact of a settlement that reduced a significant portion of exposure under a CDO of ABS transaction that closed in July and a commutation of all of the exposure under a different CDO of ABS transaction that we expect will close by the end of July. The two transactions, with an aggregate of approximately $2.8 billion net notional outstanding at March 31, 2009, are expected to be settled with counterparties for a total cash payment of approximately $750 million.

Estimated impairment losses on credit derivatives is a statutory accounting measurement reported in AAC's statutory filings as "Estimated impairment losses on subsidiary guarantees and commitments." An increase in estimated impairment losses is recorded as a reduction to statutory income and therefore reduces statutory surplus. At March 31, 2009, AAC reported statutory capital and surplus of $372.8 million and contingency reserves of $1,946.6 million. AAC has requested the approval of the Office of the Commissioner of Insurance of the State of Wisconsin (OCI) to release a substantial portion of its contingency reserves, however, there can be no assurance that the OCI will approve such release. The amount of contingency reserves released, if any, will increase AAC's statutory capital and surplus by such amount.

At March 31, 2009, AAC reported total claims-paying resources of approximately $11.9 billion. Total claims-paying resources will be reduced by commutation and settlement payments related to the CDO of ABS portfolio, including the two transactions referred to above, and claims paid related to the direct financial guarantee portfolio since March 31, 2009. Total claims-paying resources is a term used by rating agencies and other analysts to quantify total resources available to pay claims in stress case scenarios and represents an aggregate of contingency reserves, capital and surplus, unearned premiums, losses and loss adjustment expenses, estimated impairment losses on credit derivatives and the present value of future installment premiums. Except for the present value of future installment premiums, each item is a statutory accounting measurement.

Under U.S. generally accepted accounting principles (GAAP), Ambac reports unrealized gains (losses) on credit derivative contracts which is impacted by market valuations of the CDO exposures and includes the effect of AAC's own credit default swap spreads in the measurement. This mark-to-market valuation often differs significantly from the statutory measure of impairment discussed above. For the second quarter of 2009, Ambac expects to report a net unrealized gain of approximately $34 million for GAAP reporting purposes. Ambac also expects to report total net loss and loss expenses of approximately $1.3 billion for the second quarter of 2009 for GAAP reporting purposes.


Ambac also announced that, in order to preserve cash at Ambac Financial Group, Inc., it will discontinue paying the semi-annual interest on its directly-issued subordinated capital securities (DISCs) beginning August 1, 2009. Additionally, to preserve cash and surplus at AAC, it will discontinue paying the monthly dividend on AAC's outstanding auction market preferred shares beginning August 1, 2009.

Ambac is providing this preliminary information about its second quarter results prior to the scheduled earnings announcement date in light of market events of recent months. Investors should not expect Ambac to provide information about the results of future quarters in advance of scheduled quarterly earnings announcement dates. In addition, investors should not expect Ambac to update the information provided in this release in advance of the scheduled announcement date for its second quarter financial results.

Second Quarter Earnings Release and Conference Call

Ambac will host a conference call on August 5, 2009 at 11:00 a.m. Eastern time to discuss second quarter 2009 earnings, which are scheduled to be released at 8:30 a.m. Eastern time on that day. The dial in number for the call is 877-407-9210 (U.S.) and 201-689-8049 (outside the U.S.).

The conference call will also be broadcast live on Ambac's web site at www.ambac.com.

Beginning at 2:00 p.m. Eastern time on August 5 through August 14, the conference call will be available in replay. The replay numbers are 877-660-6853 (U.S.) and 201-612-7415 (outside the U.S.). The account and confirmation numbers for the replay are 286 and 327951, respectively. A recording will also be available on Ambac's web site approximately one hour after the end of the conference call.

About Ambac

Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac's principal operating subsidiary, Ambac Assurance Corporation, a guarantor of public finance and structured finance obligations, has a Ba3 rating (developing outlook) from Moody's Investors Service, Inc. and a BBB rating (CreditWatch negative) from Standard & Poor's Ratings Services. Ambac Financial Group, Inc. common stock is listed on the New York Stock Exchange (ticker symbol ABK).

Forward-Looking Statements

This release contains statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 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) difficult economic conditions, which may not improve in the near future, and adverse changes in the economic, credit, foreign currency or interest rate environment in the United States and abroad; (2) the actions of the U. S. Government, Federal Reserve and other government and regulatory bodies to stabilize the financial markets; (3) the risk that market risks impact assets in our investment portfolio or the value of our assets posted as collateral in respect of investment agreements and interest rate swap and currency swap transactions; (4) changes in Ambac's and/or Ambac Assurance's credit or financial strength ratings; (5) risks relating to the re-launch of Connie Lee as Everspan Financial Guarantee Corp.; (6) competitive conditions, pricing levels and reduction in demand for financial guarantee products; (7) credit and liquidity risks due to unscheduled and unanticipated withdrawals on investment agreements; (8) inadequacy of reserves established for losses and loss expenses; (9) changes in capital requirements whether resulting from downgrades in our insured portfolio or changes in rating agencies' rating criteria or other reasons; (10) 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; (11) 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 such a 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; (12) credit risk throughout our business, including credit risk related to residential mortgage-backed securities and collateralized debt obligations ("CDOs") and large single exposures to reinsurers; (13) market spreads and pricing on insured CDOs and other derivative products insured or issued by Ambac; (14) 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; (15) default by one or more of Ambac Assurance's portfolio investments, insured issuers, counterparties or reinsurers; (16) Ambac's financial position and lack of financial flexibility, resulting principally from the uncertainty of Ambac Assurance's ability to pay dividends to Ambac without the consent of the office of the Commissioner of Insurance of the State of Wisconsin; (17) legislative and regulatory developments, including the Troubled Asset Relief Program and other programs under the Emergency Economic Stabilization Act and other similar programs; (18) changes in accounting principles or practices relating to the financial guarantee industry or that may impact Ambac's reported financial results; (19) changes in expectations regarding future realization of gross deferred tax assets; (20) the risk of volatility in income and earnings, including volatility due to the application of fair value accounting, required under SFAS 133, to the portion of our credit enhancement business which is executed in credit derivative form; (21) 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; (22) operational risks, including with respect to internal processes, risk models, systems and employees; (23) factors that may influence the amount of installment premiums paid to Ambac; (24) 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; (25) changes in tax laws; (26) other factors described in the Risk Factors section in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 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 website at www.ambac.com and at the SEC's website, www.sec.gov; and (27) 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.



Ambac Financial Group, Inc

Investor Contact:

Peter Poillon, 212-208-3222

212-208-3333

ppoillon@ambac.com

or

Media Contact:

Susan Oehrig, 212-208-3248

soehrig@ambac.com

Source: Ambac Financial Group, Inc.