Ambac Establishes Segregated Account for Certain Policies

The sentence following Contact Information for Policyholders and Investors should read: Additionally, OCI has established resources for policyholders at the following web address: www.ambacpolicyholders.com (sted www.ambacocidocsite.com).

The corrected release reads: AMBAC ESTABLISHES SEGREGATED ACCOUNT FOR CERTAIN POLICIES Wisconsin Insurance Department to Oversee Rehabilitation of the Segregated Account Ambac in Settlement Negotiations with CDO of ABS Counterparties Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) announced that, at the direction of the Office of the Commissioner of Insurance of the State of Wisconsin ("OCI"), Ambac Assurance Corporation ("AAC"), Ambac's principal operating subsidiary, has established a segregated account for certain of AAC's liabilities, primarily policies related to credit derivatives, residential mortgage-backed securities ("RMBS") and other structured finance transactions. This action derives from OCI's view that immediate action is necessary to address AAC's financial position. In conjunction with the establishment of the segregated account, OCI has commenced rehabilitation proceedings with respect to liabilities contained in the segregated account in order to facilitate an orderly run-off and/or settlement of those specific liabilities. In addition, Ambac announced that it has reached a non-binding agreement on the terms of a proposed settlement agreement with several counterparties to commute substantially all of its remaining collateralized debt obligations of asset-backed securities ("CDOs of ABS").

The segregated account established by AAC at OCI's direction will contain: (i) certain policies insuring or relating to credit default swaps; (ii) all of its RMBS obligations (some of which will be allocated to the segregated account after it is established); (iii) certain other identified policies insuring troubled credits; (iv) certain student loan policies; and (v) certain other contingent liabilities including, but not limited to all of AAC's liabilities as reinsurer under certain reinsurance agreements. The segregated account is supported by a $2 billion secured note issued by AAC and an aggregate excess of loss reinsurance agreement provided by AAC.

Pursuant to the verified petition filed on March 24, 2010 by OCI in connection with the rehabilitation proceedings with respect to the segregated account, OCI has stated that within approximately six months it will seek the rehabilitation court's approval for a plan of rehabilitation in connection with the segregated account. The verified petition states that the plan of rehabilitation will provide, among other things, that policies in the segregated account shall receive in respect of claims made, a combination of cash and surplus notes. Prior to approval of the plan of rehabilitation, claims in respect of segregated account liabilities will not be paid.

Policy obligations not transferred to the segregated account remain in the general account of AAC, and such policies are not subject to and, therefore, not directly impacted by, the segregated account rehabilitation plan. AAC is not, itself, in rehabilitation proceedings.

Michael Callen, Chairman of the Board of Directors, commented, "The Board has worked diligently over the past two years to forge the best possible outcome for Ambac and its various stakeholders. In light of OCI's determination to take some sort of rehabilitative action with respect to Ambac Assurance, the Board has determined, after thoughtful and careful consideration, that compliance with the direction of OCI to establish the segregated account of Ambac Assurance and to consent to the terms of the proposed settlement agreement of our CDO of ABS portfolio is the best alternative available. The actions taken today, together with the proposed settlement if effected, commute substantially all of our CDO of ABS exposure at a substantial discount to the expected present value of potential claims."

Mr. Callen commented further, "While certain structured finance asset classes and other credits have been segregated for rehabilitation, virtually the entire insured municipal portfolio remains outside the rehabilitation proceedings. The Ambac Board and management team are committed to continuing to work hard to manage our resources effectively in the service of all constituents."

The proposed settlement agreement with CDO of ABS counterparties provides that AAC will pay in the aggregate (i) $2.6 billion in cash and (ii) $2.0 billion of newly issued surplus notes of AAC. The surplus notes will have a maturity date of ten years from the date of the closing. Interest on the surplus notes will be payable at the annual rate of 5.1%. All payments of principal and interest on the surplus notes will be subject to the prior approval of OCI. If OCI does not approve the payment of interest on the surplus notes, such interest will accrue and compound annually until paid. The terms of the proposed settlement agreement, as negotiated to date, may change prior to the closing or the transactions as contemplated by the proposed settlement agreement may not close at all.

Counterparties to credit default swaps insured by AAC representing a significant portion of the net notional amount outstanding as of December 31, 2009, have agreed to temporarily forebear from accelerating the obligations of AAC under such credit default swaps or asserting any claims against AAC or any affiliate of AAC based upon the segregated account rehabilitation proceedings. Additional Information Management believes that it will have sufficient liquidity to satisfy its needs through the second quarter of 2011. However, as a result of the rehabilitation actions taken by OCI, it is highly unlikely that AAC will be able to make dividend payments to Ambac for the foreseeable future. While Ambac does not believe the segregated account rehabilitation constitutes an event of default under its bond indenture, Ambac may consider, among other things, a negotiated restructuring of its debt through a prepackaged bankruptcy proceeding or may seek bankruptcy protection without agreement concerning a plan of reorganization with major creditor groups.