<PAGE>

                                  SCHEDULE 14A
                                 (Rule 14a-101)
                     INFORMATION REQUIRED IN PROXY STATEMENT

                            SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant  [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ]     Preliminary Proxy Statement            

[ ]     CONFIDENTIAL, FOR USE OF THE
        COMMISSION ONLY (AS PERMITTED BY
        RULE 14A-6(E)(2))

[X]     Definitive Proxy Statement           

[ ]     Definitive Additional Materials      

[ ]     Soliciting Material Under Rule 14a-12



                           AMBAC FINANCIAL GROUP, INC.
................................................................................
                (Name of Registrant as Specified In Its Charter)


................................................................................
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)



Payment of Filing Fee (Check the appropriate box):

[X]  No fee required.

[ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
     0-11. 
     1)   Title of each class of securities to which transaction applies:


--------------------------------------------------------------------------------
     2)   Aggregate number of securities to which transaction applies:


--------------------------------------------------------------------------------
     3)   Per unit price or other underlying value of transaction computed
          pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
          filing fee is calculated and state how it was determined):

--------------------------------------------------------------------------------

     4)   Proposed maximum aggregate value of transaction:

--------------------------------------------------------------------------------
     5)   Total fee paid:

--------------------------------------------------------------------------------

[ ]  Fee paid previously with preliminary materials.

[ ]  Check box if any part of the fee is offset as provided by Exchange Act
     Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
     paid previously. Identify the previous filing by registration statement
     number, or the Form or Schedule and the date of its filing.

     1)  Amount Previously Paid:

--------------------------------------------------------------------------------
     2)  Form, Schedule or Registration Statement No.:

--------------------------------------------------------------------------------
     3)  Filing party:

--------------------------------------------------------------------------------
     4)  Date Filed:

--------------------------------------------------------------------------------

Notes:

Reg. (S) 240.14a-101

SEC 1913 (3-99)

<PAGE>
                                                                               
                                 AMBAC FINANCIAL GROUP, INC.                   
                                                                               
[LOGO] Ambac                     NOTICE OF                                      
                                 2001 ANNUAL MEETING                           

                                 OF STOCKHOLDERS                               
                                 AND                                           
 
                                PROXY STATEMENT                               
                                                                               
                                 Meeting Date:                                 
                                                                               
                                 Tuesday, May 1, 2001                          
                                 at 11:30 A.M. (local time)                    
                                                                               
                                 Meeting Place:                                
                                                                               
                                 Ambac Financial Group, Inc.                   
                                 One State Street Plaza                        
                                 New York, New York 10004                      

<PAGE>
                                                                               
                                                          AMBAC FINANCIAL      
                                                          GROUP, INC.          
                                                          One State Street     
                                                          Plaza                
                                                          New York, NY 10004   
                                                          212.668.0340         
                                                                               
                                                          PHILLIP B. LASSITER  
                                                          Chairman and         
                                                          Chief Executive      
                                                          Officer              
                                                                               
                         March 28, 2001                                        
                                                                               
[LOGO] Ambac                                                                   
                         Dear Stockholders:                                    
                                                                               
                         It is my pleasure to invite you to Ambac's 2001 Annual
                         Meeting of Stockholders.                              
                                                                               
                         We will hold the meeting on Tuesday, May 1, 2001, at  
                         11:30 a.m. at our executive offices in New York City. 
                         In addition to the formal items of business, I will   
                         review the major developments of 2000 and answer your 
                         questions.                                            
                                                                               
                         This booklet includes the Notice of Annual Meeting and
                         the Proxy Statement. The Proxy Statement describes the
                         business that we will conduct at the meeting.         
                                                                               
                         Your vote is important. Whether you plan to attend the
                         meeting or not, please complete, sign and return the  
                         enclosed proxy card in the envelope provided. If you  
                         attend the meeting you may vote in person, even if you
                         previously submitted your proxy.                      
                         We look forward to seeing you at the meeting.         
                                                                               
                         Sincerely,                                            
                                                                               
                         /s/ Phillip B. Lassiter                               

<PAGE>
                                                                               
                                                          AMBAC FINANCIAL      
                                                          GROUP, INC.          
                                                          One State Street     
                                                          Plaza                
                                                          New York, NY 10004   
                                                          212.668.0340         
                                                                               

                         NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS         
                                                                               
                         March 28, 2001                                        
                                                                               
[LOGO] Ambac                                                                   
                         Dear Stockholders:                                    
                                                                               
                         We will hold the 2001 Annual Meeting of Stockholders  
                         on Tuesday, May 1, 2001 at 11:30 a.m. (local time) at 
                         our executive offices at One State Street Plaza in New
                         York City. At our Annual Meeting, we will ask you to: 
                                                                               
                         .   Elect seven directors;                            
                                                                               
                         .   Ratify the selection of KPMG LLP as independent   
                             auditors for 2001; and                            
                                                                               
                         .   Consider any other business that is properly      
                             presented at the Annual Meeting.                  
                                                                               
                         You may vote at the Annual Meeting if you were an     
                         Ambac stockholder at the close of business on March   
                         14, 2001.                                             
                                                                               
                         Along with the attached Proxy Statement, we are also  
                         sending you the Ambac 2000 Annual Report, which       
                         includes our financial statements.                    
                                                                               
                         /s/ Anne G.Gill                                       
                         Anne G. Gill                                          
                         First Vice President, Corporate Secretary             
                         and Assistant General Counsel                         

<PAGE>
                                                                               
 
                              TABLE OF CONTENTS                               
                                                                               

<TABLE>                                                                        
<CAPTION>                                                                      
<S>                                                                                      <C> 
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING.........................................  1  
                                                                                             
   Why Did You Send Me this Proxy Statement?............................................  1  
   How Many Votes Do I Have?............................................................  1  
   How Do I Vote by Proxy?..............................................................  1  
   May I Vote by Telephone or Via the Internet?.........................................  2  
   May I Revoke My Proxy?...............................................................  2  
   How Do I Vote in Person?.............................................................  2  
   How Do Employees in the Ambac Stock Fund Vote?.......................................  3  
   What Votes Do We Need to be Present to Hold the Annual Meeting?......................  3  
   What Vote Is Required to Approve Each Proposal?......................................  3  
   What Is the Effect of Broker Non-Votes?..............................................  3  
   Is Voting Confidential?..............................................................  4  
   What Are the Costs of Soliciting these Proxies?......................................  4  
   How Do I Obtain an Annual Report on Form 10-K?.......................................  4  
   Where Can I Find the Voting Results?.................................................  4  
   Whom Should I Call If I Have Any Questions?..........................................  4  
                                                                                             
INFORMATION ABOUT AMBAC COMMON STOCK OWNERSHIP..........................................  5  
                                                                                             
   Which Stockholders own at least 5% of Ambac?.........................................  5  
   How Much Stock is Owned By Directors and Executive Officers?.........................  6  
   Did Ambac Insiders Comply with Section 16(a) Beneficial Ownership Reporting in 2000?.  7  
                                                                                             
INFORMATION ABOUT DIRECTORS.............................................................  8  
                                                                                             
   The Board of Directors...............................................................  8  
   The Committees of the Board..........................................................  8  
   How We Compensate Directors..........................................................  9  
                                                                                             
THE AUDIT COMMITTEE REPORT.............................................................. 11  
                                                                                             
INFORMATION ABOUT THE EXECUTIVE OFFICERS................................................ 12  
                                                                                             
   The Executive Officers............................................................... 12  
   How We Compensate Executive Officers................................................. 14  
   The Pension Plan..................................................................... 16  
   Employment Agreement with the Chief Executive Officer................................ 18  
   Management Retention Agreements with Executive Officers.............................. 20  
   Definitions.......................................................................... 20  
                                                                                             
REPORT ON EXECUTIVE COMPENSATION FOR 2000 BY THE COMPENSATION AND                            
  ORGANIZATION COMMITTEE................................................................ 22  
                                                                                             
   What is Our Executive Compensation Philosophy?....................................... 22  
   What is Our Position on Maximizing the Deductibility of Executive Compensation?...... 22  
   What are the Elements of Executive Compensation?..................................... 23  
   How Did We Determine Base Salaries for 2000?......................................... 23  
   How Did We Determine Bonuses for 2000?............................................... 24  
   What Were the Long-Term Incentive Awards in 2000?.................................... 25  
                                                                                             
PERFORMANCE GRAPH....................................................................... 27  
                                                                                             
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD........................................ 28  
                                                                                             

   Proposal 1: Elect Seven Directors.................................................... 28  
 
  Proposal 2: Ratify Selection of KPMG LLP as Independent Auditors for 2001............ 30  
                                                                                             
INFORMATION ABOUT STOCKHOLDER PROPOSALS................................................. 31  
</TABLE>
                                                                       

<PAGE>
                                                                               
              PROXY STATEMENT FOR THE AMBAC FINANCIAL GROUP, INC.              
                      2001 ANNUAL MEETING OF STOCKHOLDERS                      
                                                                               
                INFORMATION ABOUT THE ANNUAL MEETING AND VOTING                
                                                                               
WHY DID YOU SEND ME THIS PROXY STATEMENT?                                      
                                                                               
    We sent you this Proxy Statement and the enclosed proxy card because       
Ambac's Board of Directors is soliciting your proxy to vote at the 2001 Annual 
Meeting of Stockholders.                                                       
                                                                               
    This Proxy Statement summarizes the information you need to vote at the    
Annual Meeting. You do not need to attend the Annual Meeting to vote your      
shares. You may simply complete, sign and return the enclosed proxy card.      
                                                                               
    We will begin mailing this Proxy Statement on March 28, 2001 to all        
stockholders entitled to vote. If you owned Ambac common stock at the close of 
business on March 14, 2001, you are entitled to vote. On that date, there were 
105,652,028 shares of Ambac common stock outstanding. Ambac common stock is our
only class of voting stock.                                                    
                                                                               
HOW MANY VOTES DO I HAVE?                                                      
                                                                               
    You have one vote for each share of Ambac common stock that you owned at   
the close of business on March 14, 2001. The proxy card indicates the number.  
                                                                               
HOW DO I VOTE BY PROXY?                                                        
                                                                               
    If you properly fill in your proxy card and send it to us in time to vote, 
your "proxy" (one of the individuals named on your proxy card) will vote your  
shares as you have directed. If you sign the proxy card but do not make        
specific choices, your proxy will vote your shares as recommended by the Board:
                                                                               
    .  "FOR" Proposal 1 (Elect Seven Directors); and                           
                                                                               
    .  "FOR" Proposal 2 (Ratify Selection of KPMG LLP as Independent Auditors  
       for 2001).                                                              
                                                                               
    If any other matter is presented, your proxy will vote in accordance with  
his or her best judgment. At the time we began printing this Proxy Statement,  
we knew of no matters that needed to be acted on at the Annual Meeting, other  
than those discussed in this Proxy Statement.                                  

<PAGE>
                                                                               
      Whether you plan to attend the Annual Meeting or not, we urge you to     
      complete, sign and date the enclosed proxy card and to return it promptly
      in the envelope provided. Returning the proxy card will not affect your  
      right to attend the Annual Meeting and vote.                             
                                                                               
MAY I VOTE BY TELEPHONE OR VIA THE INTERNET?                                   
                                                                               
    Yes. Instead of submitting your vote by mail on the enclosed proxy card,   
you may be able to vote via the Internet or by telephone. Please note that     
there are separate Internet and telephone arrangements depending on whether you
are a registered stockholder (that is, if you hold your stock in your own      
name), or whether you hold your shares in "street name" (that is, if your stock
is held in the name of your broker or bank).                                   
                                                                               
    If you are a registered stockholder, you may vote by telephone, or         
electronically through the Internet, by following the instructions provided on 
your proxy card.                                                               
                                                                               
    If your shares are held in "street name", you may need to contact your bank
or broker to determine whether you will be able to vote by telephone or        
electronically.                                                                
                                                                               
    The telephone and Internet voting procedures are designed to authenticate  
stockholders' identities, to allow stockholders to give their voting           
instructions and to confirm that stockholders' instructions have been recorded 
properly. If you vote via the Internet, you may incur costs, such as usage     
charges from Internet access providers and telephone companies. You will be    
responsible for those costs.                                                   
                                                                               
MAY I REVOKE MY PROXY?                                                         
                                                                               
    Yes. You may change your mind after you send in your proxy card by         
following any of these procedures. To revoke your proxy:                       
                                                                               
   .   Send in another signed proxy with a later date; or                      
                                                                               
   .   Send a letter revoking your proxy to Ambac's Corporate Secretary at the 
       address indicated on page 31 under "Information about Stockholder       
       Proposals"; or                                                          
                                                                               
   .   Attend the Annual Meeting and vote in person.                           
                                                                               
HOW DO I VOTE IN PERSON?                                                       
                                                                               
    If you plan to attend the Annual Meeting and vote in person, we will give  
you a ballot when you arrive.                                                  
                                                                               
    If your shares are held in the name of your broker, bank or other nominee, 
you must bring an account statement or letter from the nominee. The account    
statement or letter must show that you were the direct or indirect (beneficial)
owner of the shares on March 14, 2001.                                         
                                                                               
                                       2                                       

<PAGE>
                                                                               
HOW DO EMPLOYEES IN THE AMBAC STOCK FUND VOTE?                                 
                                                                               
    If you are an employee who participates in our Savings Incentive Plan      
("SIP"), you are receiving this material because of shares held for you in the 
Ambac Stock Fund in the SIP. The SIP Trustee will send you a voting instruction
card instead of a proxy card. This voting instruction card will indicate the   
number of shares of Ambac common stock credited to your account in the Ambac   
Stock Fund as of March 14, 2001.                                               
                                                                               
   .   If you complete, sign and return the voting instruction card on time,   
       the SIP Trustee will vote the shares as you have directed.              
                                                                               
   .   If you do not complete, sign and return the voting instruction card on  
       time, the SIP Trustee will not vote the shares credited to your account.
                                                                               
WHAT VOTES DO WE NEED TO BE PRESENT TO HOLD THE ANNUAL MEETING?                
                                                                               
    We need a majority of the shares of Ambac common stock outstanding on March
14, 2001 to be present, in person or by proxy, to hold the Annual Meeting.     
                                                                               
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?                                
                                                                               
PROPOSAL 1:             The seven nominees for director who receive the most   
ELECT SEVEN             votes will be elected. If you do not vote for a        
DIRECTORS               nominee, or you indicate "withhold authority to vote"  
                        for any nominee on your proxy card, your vote will not 
                        count either for or against the nominee.               

PROPOSAL 2:             The affirmative vote of a majority of the votes present
RATIFY SELECTION        and entitled to vote at the Annual Meeting is required 
OF AUDITORS             to ratify the selection of independent auditors. So, if
                        you "abstain" from voting, it has the same effect as if
                        you voted "against" this proposal.                     

WHAT IS THE EFFECT OF BROKER NON-VOTES?                                        
                                                                               
    Under the rules of the New York Stock Exchange, if your broker holds your  
shares in its "street" name, the broker may vote your shares on both proposals 
even if it does not receive instructions from you.                             
                                                                               
    However, if your broker does not vote on either of the proposals, it will  
have no effect on the outcome of the proposal.                                 
                                                                               
                                       3                                       

<PAGE>
                                                                               
IS VOTING CONFIDENTIAL?                                                        
                                                                               
    We maintain a policy of keeping all the proxies, ballots and voting        
tabulations confidential. The Inspectors of Election will forward to management
any written comments that you make on the proxy card.                          
                                                                               
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?                                
                                                                               
    Ambac will pay all the costs of soliciting these proxies. Although we are  
mailing these proxy materials, our directors and employees may also solicit    
proxies by telephone, by fax or other electronic means of communication, or in 
person. We will reimburse banks, brokers, nominees and other fiduciaries for   
the expenses they incur in forwarding the proxy materials to you. Georgeson    
Shareholder Communications, Inc. is assisting us with the solicitation of      
proxies for a fee of $8,500 plus out-of-pocket expenses.                       
                                                                               
HOW DO I OBTAIN AN ANNUAL REPORT ON FORM 10-K?                                 
                                                                               
    IF YOU WOULD LIKE A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR    
ENDED DECEMBER 31, 2000 THAT WE FILED WITH THE SECURITIES AND EXCHANGE         
COMMISSION, WE WILL SEND YOU ONE WITHOUT CHARGE. PLEASE WRITE TO:              
                                                                               
                     INVESTOR RELATIONS                                        
                     AMBAC FINANCIAL GROUP, INC.                               
                     ONE STATE STREET PLAZA                                    
                     NEW YORK, NEW YORK 10004                                  
                     ATTENTION: BRIAN MOORE, MANAGING DIRECTOR, INVESTOR       
                     RELATIONS                                                 
                                                                               
OR CONTACT MR. MOORE AT (212) 208-3333 OR AT BMOORE@AMBAC.COM.                 
                                                                               
WHERE CAN I FIND THE VOTING RESULTS?                                           
                                                                               
    We will publish the voting results in our FORM 10-Q for the second quarter 
of 2001, which we will file with the SEC in August 2001. You can also find the 
results on Ambac's website at WWW.AMBAC.COM.                                   
                                                                               
WHOM SHOULD I CALL IF I HAVE ANY QUESTIONS?                                    
                                                                               
    If you have any questions about the Annual Meeting or voting, please       
contact ANNE GILL, OUR CORPORATE SECRETARY, AT (212) 208-3355 OR AT            
AGILL@AMBAC.COM.                                                               
                                                                               
    If you have any questions about your ownership of Ambac common stock,      
please call BRIAN MOORE, MANAGING DIRECTOR, INVESTOR RELATIONS, AT (212)       
208-3333 OR AT BMOORE@ AMBAC.COM.                                              
                                                                               
                                       4                                       

<PAGE>
                                                                               
                INFORMATION ABOUT AMBAC COMMON STOCK OWNERSHIP                 
                                                                               
WHICH STOCKHOLDERS OWN AT LEAST 5% OF AMBAC?                                   
                                                                               
    The following table shows all persons we know to be direct or indirect     
owners of at least 5% of Ambac common stock as of December 31, 2000. Persons   
who are direct or indirect owners of Ambac common stock are sometimes referred 
to in this Proxy Statement as "BENEFICIAL OWNERS" or as persons who            
"BENEFICIALLY OWN" Ambac common stock. Our information is based on reports     
filed with the Securities and Exchange Commission by each of the firms listed  
in the table below. If you wish, you may obtain these reports from the SEC.    
                                                                               

<TABLE>                                                                        
<CAPTION>                                                                      
                                                             
                                      NUMBER OF              
                                     SHARES OWNED PERCENT OF 
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY   CLASS    
                                                             
------------------------------------------------------------
<S>                                  <C>          <C>        
                                                             
FMR CORP.                              12,631,764      12.0% 
   82 Devonshire Street                                      
   Boston, Massachusetts 02109                               
                                                             
J.P. MORGAN CHASE & CO.                 9,132,506       8.6% 
   270 Park Avenue                                           
   New York, New York 10017                                  
                                                             
GOLDMAN SACHS ASSET MANAGEMENT          5,946,050       5.6% 
   32 Old Slip                                               
   New York, NY 10005                                        
                                                             
</TABLE>
                                                                       
                                                                               
                                       5                                       

<PAGE>
                                                                               
HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?                   
                                                                               
    The following table shows the Ambac common stock owned directly or         
indirectly by Ambac's directors and executive officers as of February 15, 2001.
Except for Mr. Lassiter, no director or executive officer beneficially owns 1% 
or more of the shares of Ambac common stock. All directors and executive       
officers as a group beneficially own 3.0% of the shares of Ambac common stock. 
We have adjusted all shares, options, restricted stock units ("RSUS") and      
phantom stock units to reflect Ambac's three-for-two stock split in December   
2000.                                                                          
                                                                               

<TABLE>                                                                        
<CAPTION>                                                                      
                                                                                                     
                                               SHARES                                                
                                            BENEFICIALLY                             TOTAL HOLDINGS  
                                                OWNED      PERCENT  UNVESTED         (INCLUDING RSUs 
NAME OF BENEFICIAL OWNER                   (1)(2)(3)(4)(5) OF CLASS RSUs(6)  PSUs(7)    AND PSUs)    
                                                                                                     
----------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>      <C>      <C>     <C>             
                                                                                                     
OUTSIDE DIRECTORS                                                                                    
  Michael A. Callen.......................          26,487      --     4,628   7,576          38,691 
  Renso L. Caporali.......................          15,369      --     3,020   5,442          23,831 
  Jill M. Considine.......................             626      --     3,020     552           4,198 
  Richard Dulude..........................          17,229      --     4,628   8,318          30,175 
  W. Grant Gregory........................          38,053      --     4,628  10,061          52,742 
  C. Roderick O'Neil......................          33,087      --     4,628   4,011          41,726 
                                                                                                     
EXECUTIVE OFFICERS                                                                                   
  Phillip B. Lassiter.....................       1,543,976     1.5%   16,640      --       1,560,616 
  Robert J. Genader.......................         701,477      --    10,775      --         712,252 
  Frank J. Bivona.........................         438,327      --     5,517      --         443,844 
  David L. Boyle..........................         228,036      --     5,967      --         234,003 
  Kevin J. Doyle..........................          74,253      --     4,364      --          78,617 
  All executive officers and directors as                                                            
   a group (12 persons)...................       3,162,056     3.0%   70,072  35,960       3,268,088 
                                                                                                     
----------------------------------------------------------------------------------------------------
</TABLE>
                                                                       
                                                                               
 (1) To our knowledge, except for Messrs. Lassiter and Genader, who share      
     voting and investment power with their spouses, each of the directors and 
     executive officers has sole voting and investment power over his shares.  
                                                                               
 (2) The number of shares shown for Mr. Lassiter includes 12,000 shares owned  
     by his spouse. Mr. Lassiter disclaims beneficial ownership of these       
     shares.                                                                   
                                                                               
     The number of shares shown for Mr. Gregory includes 4,999 shares held in  
     the Gregory 1997 Children's Trust, of which his daughter is a beneficiary.
     Mr. Gregory disclaims beneficial ownership of these shares.               
                                                                               
 (3) The number of shares shown for each director and executive officer        
     includes shares that may be acquired upon exercise of stock options that  
     were exercisable as of February 15, 2001 or that will become exercisable  
     within 60 days after February 15, 2001. These shares are shown in the     
     following table                                                           
                                                                               

<TABLE>                                                                        
<CAPTION>                                                                      
OUTSIDE DIRECTORS NUMBER OF SHARES EXECUTIVE OFFICERS NUMBER OF SHARES 
----------------- ---------------- ------------------ ---------------- 
<S>               <C>              <S>                <C>              
Mr. Callen.......            9,000 Mr. Lassiter......          427,596 
Dr. Caporali.....            6,000 Mr. Genader.......          487,500 
Ms. Considine....              626 Mr. Bivona........          329,229 
Mr. Dulude.......            9,000 Mr. Boyle.........          222,500 
Mr. Gregory......            9,000 Mr. Doyle.........           68,875 
Mr. O'Neil.......            9,000                                     
</TABLE>
                                                                       
                                                                               
 (4) The number of shares shown for each executive officer also includes the   
     number of shares of Ambac common stock owned indirectly as of February 15,
     2001 by these executive officers in our Savings Incentive Plan ("SIP ").  
     Our information on these shares is based on reports from the SIP Trustee. 
                                                                               
                                       6                                       

<PAGE>
                                                                               
 (5) The number of shares shown for Messrs. Lassiter, Genader, Bivona, Boyle   
     and Doyle include vested restricted stock units ("RSUs") that we awarded  
     under our equity plans. These RSUs are shown in the following table:      
                                                                               

<TABLE>                                                                        
<CAPTION>                                                                      
EXECUTIVE OFFICERS NUMBER OF VESTED RSUs 
------------------ --------------------- 
<S>                <C>                   
Mr. Lassiter......               829,039 
Mr. Genader.......               170,455 
Mr. Bivona........                93,638 
Mr. Boyle.........                     0 
Mr. Doyle.........                     0 
</TABLE>
                                                                       
                                                                               
 (6) This column shows the 4,500 RSUs that were granted to each of Messrs.     
     Callen, Dulude, Gregory, and O'Neil at the 1998 Annual Meeting under the  
     1997 Non-Employee Directors Equity Plan and accrued dividends and the     
     3,000 RSUs that were granted to Mr. Caporali and Ms. Considine at the 2000
     Annual Meeting under the 1997 Non-Employee Directors Equity Plan and      
     accrued dividends. These RSUs generally will vest on the date of the      
     Annual Meeting held in the fifth calendar year following the date of      
     grant. At that time, each of these directors will receive one share of    
     Ambac common stock in settlement of each RSU. For more information on     
     these RSUs, see below at page 9 under "How We Compensate Directors."      
                                                                               
     This column also shows RSUs for Messrs. Lassiter, Genader, Bivona, Boyle  
     and Doyle that were awarded as part of each executive officer's 1999 bonus
     and 2000 bonus pursuant to the Ambac Deferred Compensation Sub-Plan of the
     1997 Equity Plan (the "SUB-PLAN") and accrued dividends. See page 25 for  
     more detailed descriptions of these awards made pursuant to the Sub-Plan. 
                                                                               
 (7) Under Ambac's Deferred Compensation Plan, directors may defer their cash  
     compensation. If a director has elected to defer cash compensation into   
     Phantom Stock Units ("PSUs"), these PSUs are shown in this column. For    
     more information on the Deferred Compensation Plan, see below at page 10. 
                                                                               
DID AMBAC INSIDERS COMPLY WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING IN 
2000?                                                                          
                                                                               
    Section 16(a) of the Securities Exchange Act of 1934 requires that our     
insiders--our directors, executive officers, and greater-than-10%              
stockholders--file reports with the SEC and the New York Stock Exchange on     
their initial beneficial ownership of Ambac common stock and any subsequent    
changes. They must also provide us with copies of the reports.                 
                                                                               
    We reviewed copies of all reports furnished to us and obtained written     
representations that no other reports were required. Based on this, we believe 
that all of our insiders complied with their filing requirements for 2000.     
                                                                               
                                       7                                       

<PAGE>
                                                                               
                          INFORMATION ABOUT DIRECTORS                          
                                                                               
THE BOARD OF DIRECTORS                                                         
                                                                               
    The Board of Directors oversees the business of Ambac and monitors the     
performance of management. In accordance with corporate governance principles, 
the Board does not involve itself in day-to-day operations. The directors keep 
themselves informed by discussing matters with the Chairman, other key         
executives and our principal external advisers (legal counsel, outside         
auditors, investment bankers and other consultants) by reading the reports and 
other materials that we send them regularly and by participating in Board and  
committee meetings.                                                            
                                                                               
    Ambac's Board usually meets five times per year in regularly scheduled     
meetings, but will meet more often if necessary. The Board met five times      
during 2000. All directors attended at least 75% of the Board meetings and     
meetings of the Committees of which they were members.                         
                                                                               
    Each of our directors also serves as a director of our principal operating 
subsidiary, Ambac Assurance Corporation, a leading triple-A rated financial    
guarantee insurance company.                                                   
                                                                               
THE COMMITTEES OF THE BOARD                                                    
                                                                               
    The Board has three standing committees: the Audit Committee, the          
Compensation and Organization Committee and the Nominating Committee. None of  
the directors who serve as members of these committees is, or has ever been, an
employee of Ambac or our subsidiaries.                                         
                                                                               
                                                                               
T
HE AUDIT               The Audit Committee recommends the selection of the    
COMMITTEE               independent auditors to the Board, approves the scope  
                        of the annual audit by the independent auditors and our
                        internal auditors, reviews audit findings and          
                        accounting policies and oversees compliance with       
                        Ambac's Code of Business Conduct. The Committee also   
                        meets privately, outside the presence of Ambac         
                        management, with both the independent auditors and the 
                        internal auditors. Under the rules of the New York     
                        Stock Exhange, all of the members of the Audit         
                        Committee are independent. The Committee's Report is   
                        printed below at page 11.                              

                        In January 2000, the Audit Committee approved and      
                        adopted an Audit Committee Charter, which is attached  
                        to this Proxy Statement as Appendix A.                 
                                                                               
                        The Committee met three times during 2000.             
                                                                               
                        Messrs. Callen, Dulude, Gregory and O'Neil and Dr.     
                        Caporali and Ms. Considine currently serve as members  
                        of the Committee. Mr. O'Neil serves as Chairman of the 
                        Committee.                                             
                                                                               

THE COMPENSATION        The Compensation and Organization Committee establishes
AND ORGANIZATION        and approves all elements of compensation for the      
COMMITTEE               executive officers. Each year, as the SEC requires, the
                        Committee reports to you on executive compensation. The
                        Committee's Report on Executive Compensation for 2000  
                        is printed below, starting at page 22.                 

                                       8                                       

<PAGE>
                                                                               
                        The Committee administers Ambac's 1997 equity plan and 
                        has sole authority for awards under the plan. The      
                        Committee evaluates existing and proposed employee     
                        benefit plans and may approve of plan changes. The     
                        Committee also administers the 1997 Executive Incentive
                        Plan and Ambac's Deferred Compensation Plan for Outside
                        Directors and Ambac's Senior Officer Deferred          
                        Compensation Sub-Plan of the 1997 Equity Plan.         
                                                                               
                        The Committee met three times during 2000.             
                                                                               
                        Messrs. Callen, Dulude, Gregory and O'Neil and Dr.     
                        Caporali and Ms. Considine currently serve as members  
                        of the Committee. Mr. Dulude serves as Chairman of the 
                        Committee.                                             
                                                                               

THE NOMINATING          The Nominating Committee is responsible for identifying
COMMITTEE               and recommending qualified candidates to the Board for 
                        election as directors. In addition, our By-laws provide
                        a procedure for you to recommend candidates for        
                        director at an annual meeting. For more information,   
                        see below at page 31 under "Information About          
                        Stockholder Proposals."                                

                        The Committee met once during 2000.                    
                                                                               
                        Messrs. Callen, Dulude, O'Neil and Gregory currently   
                        serve as members of the Committee. Mr. Gregory serves  
                        as Chairman of the Committee.                          
                                                                               
HOW WE COMPENSATE DIRECTORS                                                    
                                                                               

ANNUAL                  We compensate directors who are not employees of Ambac 
CASH FEE                or our subsidiaries with an annual cash fee of $20,000 
                        per year.                                              


ANNUAL STOCK            We also grant each non-employee director 3,750 stock   
OPTION AWARD            options on the date of each annual meeting. (The Board 
                        adjusted the number of stock options awarded from 2,500
                        to 3,750 to reflect Ambac's three-for-two stock split  
                        in December 2000.) These options have an exercise price
                        equal to the average of the high and low trading price 
                        of our stock on the New York Stock Exchange on the date
                        of grant. The options generally will vest on the first 
                        anniversary of the date of the grant and expire on the 
                        date of the annual meeting held in the seventh calendar
                        year following the date of the grant.                  


AWARD OF                Ambac grants each non-employee director 3,000          
RESTRICTED STOCK        restricted stock units ("RSUs") at the annual meeting  
UNITS EVERY             at which the director is first elected to the Board.   
FIVE YEARS              (The Board adjusted the number of RSUs awarded from    
                        2,000 to 3,000 to reflect Ambac's three-for-two stock  
                        split in December 2000.)                               

                        .   These RSUs generally will vest on the date of the  
                            annual meeting held in the fifth year following the
                            date of grant and will be settled by the delivery  
                            of one share of Ambac common stock for each RSU.   
                                                                               
                                       9                                       

<PAGE>
                                                                               
                        .   If the director remains on the Board after the     
                            first award of RSUs vests, Ambac will grant the    
                            director a second award of 3,000 RSUs, subject to  
                            similar vesting conditions and restrictions on     
                            transfer.                                          
                                                                               

MEETING FEES            We also pay each non-employee director a meeting fee   
                        of:                                                    

                        .   $1,000 for attendance at each meeting of           
                            stockholders and each Board meeting; and           
                                                                               
                        .   $1,000 for attendance at each committee meeting.   
                                                                               
                                                                               
FEE FOR CHAIRING        We pay an annual fee of $1,500 to each non-employee    
A COMMITTEE               director who chairs a committee.                     



EXPENSES AND            Ambac reimburses all directors for travel and other    
BENEFITS                related expenses incurred in attending stockholder,    
                        Board and committee meetings.                          

                        We provide non-employee directors with life and health 
                        insurance benefits. We also allow them to participate  
                        in our Matching Gift Program up to $20,000. Under this 
                        Program, Ambac will match gifts by directors to        
                        qualified organizations.                               
                                                                               
                                                                               
THE DEFERRED            Under our Deferred Compensation Plan for Outside       
COMPENSATION            Directors, non-employee directors may elect to defer   
PLAN                    all or part of their director compensation that is paid
                        in cash.                                               

                        .   At the director's election, we credit deferrals to 
                            a bookkeeping account that we maintain on the      
                            director's behalf either as a cash credit (which we
                            credit with interest quarterly), or as phantom     
                            stock units ("PSU") based on the market value of   
                            Ambac common stock (on which we pay quarterly      
                            dividend equivalents in additional PSUs) or as     
                            performance units measured by the performance of   
                            those mutual funds the director selects out of a   
                            limited group of funds.                            
                                                                               
                        .   We do not fund the Deferred Compensation Plan. We  
                            settle accounts only in cash.                      
                                                                               

SERVICE ON THE          Although Ambac Assurance does not pay its non-employee 
AMBAC ASSURANCE         directors an annual fee for serving on its Board of    
BOARD                   Directors, it does pay them meeting fees (in the same  
                        amounts as we do for the Ambac Board) and reimburses   
                        all directors for expenses.                            

                                                                               
DIRECTORS WHO           We do not compensate our employees or employees of our 
ARE AMBAC               subsidiaries for service as a director. We do, however,
EMPLOYEES               reimburse them for travel and other related expenses.  
                                                                               
                                      10                                       

<PAGE>
                                                                               
                          THE AUDIT COMMITTEE REPORT                           
                                                                               
    The Audit Committee of Ambac is responsible for providing independent,     
objective oversight of Ambac's accounting functions and internal controls. The 
Audit Committee recommends the selection of the independent auditors to the    
Board. The Audit Committee is currently composed of six independent directors, 
each of whom is independent as defined under the rules of the New York Stock   
Exchange. The Audit Committee operates under a written charter adopted by the  
Board of Directors, attached to this Proxy Statement as Appendix A.            
                                                                               
    Management is responsible for Ambac's internal controls and financial      
reporting process. The independent accountants are responsible for performing  
an independent audit of Ambac's consolidated financial statements in accordance
with auditing standards generally accepted in the United States of America and 
to issue a report thereon. The Audit Committee's responsibility is to monitor  
and oversee these processes. However, none of the members of the Committee is  
professionally engaged in the practice of accounting or auditing nor are all of
our members experts in those fields. The Committee relies without independent  
verification on the information provided to it and on the representations made 
by management and the independent auditors.                                    
                                                                               
    In connection with these responsibilities, we met with management and KPMG 
LLP to review and discuss the December 31, 2000 financial statements. We also  
discussed with the independent accountants the matters required by Statement on
Auditing Standards No. 61 (Communication with Audit Committees). The           
Corporation's independent accountants also provided us the written disclosures 
required by Independence Standards Board Standard No. 1 (Independence          
Discussions with Audit Committees), and we discussed with KPMG its             
independence.                                                                  
                                                                               
    Based upon the review and discussions referred to above, we recommended to 
the Board of Directors, and the Board of Directors has approved, that Ambac's  
audited financial statements be included in Ambac's Annual Report on SEC Form  
10-K for the fiscal year December 31, 2000. We also recommended the selection  
of KPMG LLP as Ambac's independent auditors for 2001 and, based on that        
recommendation, the Board has selected KPMG LLP as Ambac's independent auditors
for 2001.                                                                      
                                                                               
PRINCIPAL ACCOUNTING FIRM FEES                                                 
                                                                               
    Fees paid to KPMG for the fiscal year ended December 31, 2000 were: Audit: 
$789,500; Financial Information Systems Design and Implementation Fees: $0 and 
All Other Fees: $682,193. Of the $682,193 All Other Fees, $148,200 were fees   
paid to KPMG for consents provided by KPMG in connection with the registration 
of securities of our clients which were guaranteed by Ambac Assurance. These   
fees were reimbursed to Ambac by the clients.                                  
                                                                               
                                          THE AUDIT COMMITTEE                  
                                                                               
                                          C. Roderick O'Neil, Chairman         
                                          Michael A. Callen                    
                                          Renso L. Caporali                    
                                          Jill M. Considine                    
March 22, 2001                            Richard Dulude                       
                                          W. Grant Gregory                     
                                                                               
                                                                               
                                      11                                       

<PAGE>
                                                                               
                   INFORMATION ABOUT THE EXECUTIVE OFFICERS                    
                                                                               
THE EXECUTIVE OFFICERS                                                         
                                                                               
    These are the biographies of Ambac's current executive officers, except for
Mr. Lassiter, the Chief Executive Officer, and Mr. Genader, the President and  
Chief Operating Officer, whose biographies are included below at pages 28 and  
29 under "Proposal 1: Elect Seven Directors."                                  
                                                                               
                                                 
FRANK J. BIVONA         VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER--FINANCE AND 
Age 45                  INVESTMENT GROUP.                                      

                        In January 2001, Mr. Bivona was promoted to Vice       
                        Chairman and Chief Financial Officer--Finance and      
                        Investment Group of Ambac and Ambac Assurance. In      
                        February 2000, he was named as Head of the Finance and 
                        Investment Group, in addition to his position as       
                        Ambac's Chief Financial Officer. Mr. Bivona also has   
                        executive responsibility for managing Ambac's          
                        investment portfolio, asset and liability management   
                        services, corporate marketing, investor and public     
                        relations and corporate administration. Mr. Bivona     
                        served as Executive Vice President and Chief Financial 
                        Officer of Ambac and Ambac Assurance from January 1998 
                        to January 2001. Mr. Bivona served as Senior Vice      
                        President and Chief Financial Officer of Ambac from    
                        1993 to January 1998 and Ambac Assurance from 1987 to  
                        January 1998. Mr. Bivona also served as Treasurer of   
                        Ambac from 1993 to July 1998 and Ambac Assurance from  
                        1987 to July 1998. Mr. Bivona also serves as a trustee 
                        of Cadre Institutional Investors Trust. Mr. Bivona     
                        joined Ambac Assurance from Citibank in 1986.          
                                                                               
                                                 
DAVID L. BOYLE          VICE CHAIRMAN--PORTFOLIO RISK MANAGEMENT GROUP.        
Age 54                  In February 2000, Mr. Boyle was named Vice Chairman of 
                        Ambac's Portfolio Risk Management Group. The Portfolio 
                        Risk Management Group oversees our specialized finance 
                        and public finance portfolios, market risk management, 
                        reinsurance, technology and internal audit. Mr. Boyle  
                        previously served as Vice Chairman of the Municipal    
                        Financial Services Group from January 1998 to February 
                        2000. Mr. Boyle joined Ambac and Ambac Assurance in    
                        March 1997 as Senior Vice President of the Financial   
                        Management Services Division. He became an Executive   
                        Vice President in July 1997. Mr. Boyle joined Ambac    
                        from Citibank, where, as a managing director, he held  
                        various management positions in corporate banking over 
                        a 22-year career.                                      
                                                  
GREGG L. BIENSTOCK      MANAGING DIRECTOR, HUMAN RESOURCES AND EMPLOYMENT      
Age 36                  COUNSEL.                                               
                        Mr. Bienstock has been Managing Director, Human        
                        Resources and Employment Counsel since January 1999.   
                        Mr. Bienstock served as First Vice President, Director 
                        of Human Resources and Employment Counsel of Ambac and 
                        Ambac Assurance from February 1997 to January 1999. Mr.
                        Bienstock joined Ambac from the Bristol Myers-Squibb   
                        Corporation, where he served as a Director of Human    
                        Resources from February 1996 to February 1997. From    
                        September 1993 to February 1996, Mr. Bienstock was an  
                        associate with the New York law firm of Proskauer Rose 
                        LLP. Prior to joining Proskauer, from April 1992 to    
                        September 1993, Mr. Bienstock was an Assistant General 
                        Counsel for the Mayor's Office of Labor Relations for  
                        the City of New York.                                  

                                                                               
                                      12                                       

<PAGE>
                                                                               
                                                                             
KEVIN J. DOYLE   e      MANAGING DIRECTOR AND GENERAL COUNSEL.                 
Age 44                  Mr. Doyle was named Managing Director and General      
                        Counsel of Ambac and Ambac Assurance in January 2000.  
                        Mr. Doyle is Ambac's chief legal officer. From January 
                        1996 to January 2000, Mr. Doyle served as the Managing 
                        Director and General Counsel of the Specialized Finance
                        Division of Ambac Assurance. Mr. Doyle served as First 
                        Vice President and General Counsel of the Specialized  
                        Finance Division of Ambac Assurance from July 1995 to  
                        January 1996. Mr. Doyle joined Ambac Assurance as a    
                        Vice President and Assistant General Counsel from the  
                        New York law firm LeBoeuf, Lamb, Greene & MacRae in    
                        1991.
                                                                               
                                      13                                       

<PAGE>
                                                                               
HOW WE COMPENSATE EXECUTIVE OFFICERS                                           
                                                                               
    The tables on pages 14 through 16 show salaries, bonuses and other         
compensation paid during the last three years, options granted in 2000, options
exercised in 2000 and option values as of year-end 2000 for the Chief Executive
Officer and our next four most highly compensated executive officers. We have  
adjusted all share and option amounts to reflect Ambac's three-for-two stock   
split.                                                                         
                                                                               

                          SUMMARY COMPENSATION TABLE                           
                                                                               

<TABLE>                                                                        
<CAPTION>                                                                      
                                                                    LONG-TERM                      
                                        ANNUAL COMPENSATION    COMPENSATION AWARDS 
                                        ------------------- -------------------------
                                                            RESTRICTED   SECURITIES    ALL OTHER   
                                                               STOCK     UNDERLYING   COMPENSATION 
   NAME AND PRINCIPAL POSITION     YEAR SALARY($)  BONUS($) UNITS($)(1) OPTIONS($)(2)    ($)(3)    
---------------------------------------------------------------------------------------------------
<S>                                <C>  <C>        <C>      <C>         <C>           <C>          
PHILLIP B. LASSITER                2000   $620,000 $930,000    $413,335       287,232      $78,509 
 Chairman and                      1999    560,000  750,000     333,350       250,063       52,340 
 Chief Executive Officer           1998    560,000  840,000           0       187,811       50,200 
                                                                                                   
ROBERT J. GENADER                  2000    345,000  600,000     266,658       140,242       31,049 
 President and Chief               1999    310,000  487,500     216,650        63,888       28,973 
 Operating Officer                 1998    310,000  525,000           0        81,098       27,900 
                                                                                                   
FRANK J. BIVONA                    2000    270,000  318,750     141,687        86,731       24,301 
 Vice Chairman and                 1999    245,000  240,000     106,650        47,150       22,615 
 Chief Financial Officer--Finance  1998    245,000  260,000           0        42,820       22,050 
 and Investment Group                                                                              
                                                                                                   
DAVID L. BOYLE                     2000    330,000  318,750     141,687        90,000       29,699 
 Vice Chairman--Portfolio          1999    300,000  281,250     125,030        20,000       28,040 
 Risk Management Group             1998    300,000  300,000           0       100,000       18,300 
                                                                                                   
KEVIN J. DOYLE                     2000    174,000  232,500     103,346        21,750       15,660 
 Managing Director                 1999    164,000  206,250      91,667        15,000       15,327 
 and General Counsel               1998    164,000  210,000           0        15,000       14,520 
                                                                                                   
</TABLE>
                                                                       
                                                                               
--------------------------------------------------------------------------------
 (1) Pursuant to the Ambac Deferred Compensation Sub-Plan of the 1997 Equity   
     Plan (the "SUB-PLAN"), the Compensation and Organization Committee paid   
     25% of each executive officer's bonus for 1999 and 2000 in restricted     
     stock units ("RSUS"). Amounts shown in this column are based on the market
     value of the underlying Common Stock on the date of grant and do not      
     reflect the discount attributed to such value by the Committee to take    
     account of vesting requirements, restrictions on transfer and other       
     limitations. See page 25 for more detailed descriptions of these awards   
     made pursuant to the Sub-Plan. As dividends are paid on the common stock, 
     dividend equivalents are accrued on the RSUs as additional RSUs and vest  
     according to the same schedule.                                           
                                                                               
     The total number of RSUs held by the named executive officers as of       
     December 31, 2000, and the total value of these RSUs (based on the $58.31 
     per share closing price of Ambac common stock on the New York Stock       
     Exchange on Friday, December 31, 2000), were as follows: Mr.              
     Lassiter--767,719 RSUs ($44,765,695); Mr. Genader--175,565 RSUs           
     ($10,237,195); Mr. Bivona--96,112 RSUs ($5,604,291); Mr. Boyle--4,062 RSUs
     ($236,855); and Mr. Doyle--2,980 RSUs ($173,764).                         
                                                                               
 (2) The number of securities underlying options for 1998, 1999 and 2000       
     includes restoration options awarded upon the exercise of stock options in
     accordance with Ambac's Restoration Option Program. For the specific      
     breakdown of option and restoration option grants made in 2000, please    
     refer below to the table on page 15 under "Option Grants in 2000." For a  
     more detailed description of our Restoration Option Program, please see   
     footnote 3 under the "Option Grants in 2000" table on page 15.            
                                                                               
                                      14                                       

<PAGE>
                                                                               
                                                             
(3)  The column called "ALL OTHER COMPENSATION" includes the amounts that Ambac
     contributed or credited on behalf of the named officers in 2000 to (a) our
     Savings Incentive Plan (the "SIP"), and (b) our Non-Qualified SIP. We
     credit amounts that we are precluded from contributing to the SIP because
     of limitations under the Internal Revenue Code to accounts that we maintain
     under Ambac's Non-Qualified SIP.

                                                            CREDITS TO THE 
                                          CONTRIBUTIONS     NON-QUALIFIED  
                                            TO THE SIP           SIP       
                                          -------------    --------------  
Mr. Lassiter.........................        $15,000           $40,802 
Mr. Genader..........................         13,700            17,349 
Mr. Bivona...........................         14,700             9,601 
Mr. Boyle............................         14,403            15,296 
Mr. Doyle............................         13,700             1,960 
                                                                    
                                                         
                             OPTION GRANTS IN 2000                             
                                                                               

<TABLE>                                                                        
<CAPTION>                                                                      
                                                INDIVIDUAL GRANTS                                            
                    --------------------------------------------------------------------------               
                    NUMBER OF SECURITIES UNDERLYING PERCENT OF TOTAL                                         
                          OPTIONS GRANTED (#)       OPTIONS GRANTED                             GRANT DATE   
                                      RESTORATION   TO EMPLOYEES IN  EXERCISE PRICE EXPIRATION PRESENT VALUE 
       NAME           OPTIONS(1)      OPTIONS(2)          2000         ($/SH)(3)       DATE       ($)(4)     
------------------------------------------------------------------------------------------------------------
<S>                 <C>             <C>             <C>              <C>            <C>        <C>           
Phillip B. Lassiter         225,000                           12.53%         $31.02    1/24/07    $2,592,000 
                                             62,232            3.46           53.48    1/28/04       891,162 
Robert J. Genader           120,000                                           31.02    1/24/07     1,382,400 
                                             20,241            6.68           46.56    3/03/03       210,304 
                                                               1.13                                          
Frank J. Bivona              75,000                            4.18           31.02    1/24/07       864,000 
                                             11,730            0.65           46.56    3/03/03       121,875 
David L. Boyle               90,000                            5.01           31.02    1/24/07     1,036,800 
Kevin J. Doyle               21,750                            1.21           31.02    1/24/07       250,560 
                                                                                                             
------------------------------------------------------------------------------------------------------------
</TABLE>
                                                                       
                                                                               
(1) Options awarded to the named executive officers by the Compensation and    
    Organization Committee were long-term incentive awards granted on January  
    24, 2000. Each executive officer's options will vest in two equal          
    installments when the market price of Ambac common stock meets or exceeds  
    $43.33 and $56.66 for twenty consecutive trading days or no later than the 
    sixth anniversary of the grant date. Vesting is accelerated upon           
    retirement, death or permanent disability. Generally, all of the executive 
    officers' options will expire seven years from the date of grant or,       
    earlier, if employment terminates. We have adjusted all options awarded to 
    reflect Ambac's three-for-two stock split in December 2000.                
                                                                               
                                                                               
(2) Restoration options were awarded upon the exercise of stock options in     
    accordance with Ambac's Restoration Option Program. A restoration option is
    awarded automatically when the underlying option is exercised by tendering 
    shares of common stock to pay the exercise price. Each restoration option  
    will vest one year from the date of grant and has the same exercise,       
    transfer and expiration provisions as its underlying option. We have       
    adjusted all options awarded to reflect Ambac's three-for-two stock split  
    in December 2000.                                                          
(3) The exercise price per share is the fair market value of the common stock  
    on the date of grant. We determine this by calculating the average of the  
    high and low price of Ambac common stock on the New York Stock Exchange on 
    the date of grant. We have adjusted all share prices to reflect Ambac's    
    three-for-two stock split in December 2000.                                
                                                                               
(4) We calculated these values by using the Black-Scholes stock option pricing 
    model as follows:                                                          
                                                                               
   FOR THE JANUARY OPTION GRANTS. The model, as we applied, uses the grant date
   of January 24, 2000. The fair market value on that date was $31.02 per share
   as we discussed above. The model also assumes: (a) a risk-free rate of      
   return of                                                                   
                                                                               
                                      15                                       

<PAGE>
                                                                               
   6.6% (which was the yield on a U.S. Treasury Strip zero coupon bond with a  
   maturity that approximates the term of the option), (b) stock price         
   volatility of 30.1% (calculated using month-end closing prices of Ambac     
   common stock on the New York Stock Exchange for the period beginning with   
   January 31, 1997 and ending as of the end of the month preceding the grant  
   date); (c) a constant dividend yield of .95% based on the quarterly cash    
   dividend rate at the time of grant on Ambac common stock; and (d) an        
   exercise date, on average, of 5.5 years after grant.                        
                                                                               
   FOR THE RESTORATION OPTION GRANTS. We use the following assumptions in      
   applying the model for each Restoration Option Grant: (a) a risk-free rate  
   of return equal to the yield on grant date of a U.S. Treasury Strip zero    
   coupon bond with a maturity that approximates the term of the option; (b)   
   stock price volatility of Ambac common stock calculated using month-end     
   closing prices of Ambac common stock on the New York Stock Exchange for the 
   three year period prior to the grant date; (c) a constant dividend yield    
   based on the quarterly cash dividend rate at the time of grant on Ambac     
   common stock; and (d) exercise of the restoration option at the end of its  
   term.                                                                       
                                                                               
   WE DID NOT ADJUST THE MODEL FOR NON-TRANSFERABILITY, RISK OF FORFEITURE, OR 
   VESTING RESTRICTIONS. THE ACTUAL VALUE (IF ANY) AN EXECUTIVE OFFICER        
   RECEIVES FROM A STOCK OPTION WILL DEPEND UPON THE AMOUNT BY WHICH THE MARKET
   PRICE OF AMBAC COMMON STOCK EXCEEDS THE EXERCISE PRICE OF THE OPTION ON THE 
   DATE OF EXERCISE. THE HYPOTHETICAL VALUES ARE PRESENTED PURSUANT TO SEC     
   RULES AND THERE CAN BE NO ASSURANCE THAT THE AMOUNT STATED AS "GRANT DATE   
   PRESENT VALUE" WILL ACTUALLY BE REALIZED.                                   
                                                                               
      AGGREGATED OPTION EXERCISES DURING 2000 AND YEAR-END OPTION VALUES       
                                                                               

<TABLE>                                           
<CAPTION>                                          NUMBER OF SECURITIES                                 
                                                  UNDERLYING UNEXERCISED       VALUE OF UNEXERCISED     
                                                      OPTIONS HELD AT      IN-THE-MONEY OPTIONS HELD AT 
                    NUMBER OF SHARES                 DECEMBER 31, 2000     DECEMBER 31, 2000 ($)(1)(2)  
                      ACQUIRED ON       VALUE    ------------------------- ----------------------------
       NAME             EXERCISE     REALIZED($) EXERCISABLE UNEXERCISABLE  EXERCISABLE  UNEXERCISABLE  
-------------------------------------------------------------------------------------------------------
<S>                 <C>              <C>         <C>         <C>           <C>           <C>            
Phillip B. Lassiter          238,028  $6,224,755     427,596       234,732   $ 9,930,705     $4,659,250 
Robert J. Genader            123,146   3,494,240     487,500       110,241    16,975,472      2,519,425 
Frank J. Bivona               81,725   2,438,854     329,229        69,230    11,654,404      1,590,671 
David L. Boyle                     0           0     222,500        92,500     6,460,428      2,490,338 
Kevin J. Doyle                     0           0      68,875        15,875     2,274,100        404,152 
                                                                                                        
-------------------------------------------------------------------------------------------------------
</TABLE>
                                                                       
                                                                               
(1) We have adjusted all shares to reflect Ambac's three-for-two stock split in
    December 2000.                                                             
                                                                               
(2) This valuation represents the difference between $58.31, the closing price 
    of Ambac common stock on the New York Stock Exchange on Friday, December   
    31, 2000, and the exercise price of the stock options. "In-the-money" stock
    options are options for which the exercise price is less than the market   
    price of the underlying stock on a particular date.                        
                                                                               
THE PENSION PLAN                                                               
                                                                               
    Ambac's Pension Plan is a defined benefit pension plan intended to be      
tax-qualified under Section 401(a) of the Internal Revenue Code.               
                                                                               
   .   In general, officers and employees of Ambac and its subsidiaries become 
       participants in the Pension Plan after one year of service. All         
       executive officers participate in the Pension Plan. Non-employee        
       directors of Ambac and our subsidiaries are not eligible to participate 
       in the Pension Plan.                                                    
                                                                               
                                      16                                       

<PAGE>
                                                                               
   .   Benefits under the Pension Plan vest after five years. Upon normal      
       retirement at age 65, a retired employee receives an annual pension from
       the Pension Plan, subject to a statutory limit. The Pension Plan also   
       contains provisions for early retirement and survivor benefits.         
                                                                               
    The table below illustrates the annual pension benefits payable to         
executive officers under the Pension Plan. The table also reflects the excess  
and supplemental benefit plans that we have established to provide retirement  
benefits over Internal Revenue Code limitations. We calculated the benefits    
before offsetting (a) an employee's primary Social Security benefit and (b)    
benefits payable under the retirement plan of Citibank, N.A., Ambac's former   
parent company (the "CITIBANK PLAN"). Benefits shown in the table reflect a    
straight life form of annuity benefit. If payment is made in the form of a     
joint and survivor annuity, the annual amounts of benefit could be             
substantially below those illustrated.                                         
                                                                               

<TABLE>                                                                        
<CAPTION>                                                                      
                                                                                           
                                          TOTAL YEARS OF SERVICE AT RETIREMENT             
                               ------------------------------------------------------------
   AVERAGE        YEARS OF                                                                 
   COVERED       SERVICE AT                                                                
 COMPENSATION  TRANSITION DATE      10       15       20        25         30         35   
<S>          <C>               <C>      <C>      <C>      <C>        <C>        <C>        
-------------------------------------------------------------------------------------------
    $150,000       30                NA       NA       NA         NA $   90,000 $   97,500 
                   15                NA $ 45,000 $ 52,500 $   60,000     67,500     75,000 
                    0          $ 15,000   22,500   30,000     37,500     45,000     52,500 
-------------------------------------------------------------------------------------------
     200,000       30                NA       NA       NA         NA    120,000    130,000 
                   15                NA   60,000   70,000     80,000     90,000    100,000 
                    0            20,000   30,000   40,000     50,000     60,000     70,000 
-------------------------------------------------------------------------------------------
     500,000       30                NA       NA       NA         NA    300,000    325,000 
                   15                NA  150,000  175,000    200,000    225,000    250,000 
                    0            50,000   75,000  100,000    125,000    150,000    175,000 
-------------------------------------------------------------------------------------------
   1,000,000       30                NA       NA       NA         NA    600,000    650,000 
                   15                NA  300,000  350,000    400,000    450,000    500,000 
                    0           100,000  150,000  200,000    250,000    300,000    350,000 
-------------------------------------------------------------------------------------------
   1,500,000       30                NA       NA       NA         NA    900,000    975,000 
                   15                NA  450,000  525,000    600,000    675,000    750,000 
                    0           150,000  225,000  300,000    375,000    450,000    525,000 
-------------------------------------------------------------------------------------------
   2,000,000       30                NA       NA       NA         NA  1,200,000  1,300,000 
                   15                NA  600,000  700,000    800,000    900,000  1,000,000 
                    0           200,000  300,000  400,000    500,000    600,000    700,000 
-------------------------------------------------------------------------------------------
   2,500,000       30                NA       NA       NA         NA  1,500,000  1,625,000 
                   15                NA  750,000  875,000  1,000,000  1,125,000  1,250,000 
                    0           250,000  375,000  500,000    625,000    600,000    875,000 
</TABLE>
                                                                       
                                                                               

SERVICE FROM 1992       For service on or after January 1, 1992, the annual    
                        retirement benefit is equal to 1% (without an offset   
                        for any Social Security benefits) of an employee's     
                        Average Compensation (as described in the next         
                        sentence) multiplied by the employee's years of        
                        credited service. "Average Compensation" is defined,   
                        generally, as average annual base salary (which, in the
                        case of executive officers identified in the Summary   
                        Compensation Table on page 14, is the amount shown     
                        under the column called "SALARY") for the five highest 
                        consecutive paid years of the ten years of employment  
                        preceding retirement.                                  
                                                                               
                                      17                                       

<PAGE>
                                                                               
                                                    
SERVICE BEFORE          For service prior to January 1, 1992, the annual       
1992                    retirement benefit is equal to 2% (with an offset for  
                        Social Security benefits) of an employee's Average     
                        Compensation (determined as if the employee retired on 
                        December 31, 1991) multiplied by years of credited     
                        service up to thirty years.                            
                                                  
YEARS OF SERVICE        In view of the change in the formula for determining   
                        benefits under the Pension Plan that became effective  
                        as of January 1, 1992 (the "TRANSITION DATE"), we      
                        prepared the above table to show the benefits payable  
                        depending on how many years of service the executive   
                        officer would have:                                    

 
                        .   prior to the Transition Date, and                  
                                                                               
                        .   at Retirement.                                     
                                                                               
                        In order to simplify the chart, we show only 0, 15 and 
                        30 years of service at Transition, since those values  
                        cover the range for our executive officers.            
                                                                               
                        The years of credited service under the Pension Plan   
                        (including credit for years of past service under the  
                        Citibank Plan) as of December 31, 2000 for executive   
                        officers named in the Summary Compensation Table were  
                        as follows: Mr. Lassiter--31 years, Mr. Genader--26    
                        years, Mr. Bivona--23 years, Mr. Boyle--4 years, and   
                        Mr. Doyle--9 years.                                    
                                                                               
                        The benefits payable under the Pension Plan to         
                        employees who receive credit for years of past service 
                        under the Citibank Plan will be reduced by the amount  
                        of any benefits payable under the Citibank Plan.       
                                                                               
EMPLOYMENT AGREEMENT WITH THE CHIEF EXECUTIVE OFFICER                          
                                                                               
                                                 
IN GENERAL              Ambac's employment agreement with Mr. Lassiter provides
                        that he shall serve as the Chairman and Chief Executive
                        Officer and as a director.                             

 
                        .   The agreement has a two year term, which is        
                            extended on a daily basis, until Ambac or Mr.      
                            Lassiter terminates it.                            
                                                                               
                        .   Mr. Lassiter is to receive a base salary at a rate 
                            not less than his current rate.                    
                                                                               
                        .   He is to participate in bonus arrangements under   
                            which he is eligible to earn an annual bonus based 
                            on Ambac's achieving certain performance goals to  
                            be established by the Board.                       
                                                                               
                                                
SUPPLEMENTAL            Mr. Lassiter has a supplemental pension benefit that   
PENSION BENEFIT         will be based on the benefit formula of the Pension    
                        Plan that was in effect until the end of 1991. The     
                        formula, however, will take into account his bonus     
                        compensation (including that portion of his bonus paid 
                        in RSUs) and will be determined without giving effect  
                        to provisions of the Internal Revenue Code that limit  

                                                                               
                                      18                                       

<PAGE>
                                                                               
                        the amount of compensation that may be taken into      
                        account in calculating benefits and the amount of      
                        annual benefits that may be paid. Mr. Lassiter's       
                        supplemental pension benefit will be reduced, however, 
                        to take account of enhancements in Ambac's             
                        contributions to the Savings Incentive Plan ("SIP")    
                        that we introduced in 1992.                            
                                                                               
                                                                               
PAYMENTS AND            If Mr. Lassiter's employment is terminated other than  
BENEFITS                for "Cause" (as we define it below), or if he resigns  
                        for "Good Reason" (as we define it below), Mr. Lassiter
                        will:                                                  
                                                                               
-- AFTER TERMINATION    .   receive, for the remainder of the term (which
   OR RESIGNATION           typically would be for two years), compensation
                            at an annualized rate equal to the sum of his base
                            annual salary and target bonus at the time of
                            termination;
 
                        .   be fully vested in all awards under the 1991 Stock 
                            Incentive Plan and the 1997 Equity Plan;           
                                                                               
                        .   receive a lump-sum payment equal to the amount that
                            we would have contributed to his account under the 
                            SIP and any nonqualified plan we maintained during 
                            the two years following termination;               
                                                                               
                        .   be credited with an additional two years of service
                            under the Pension Plan; and                        
                                                                               
                        .   continue to participate in all Ambac medical and   
                            other welfare plans for a limited time following   
                            termination.                                       
                                                                               
                                                
-- AFTER CHANGE IN      All stock options and other awards under the 1997 
   CONTROL              Equity Plan that are made to Mr. Lassiter after
                        January 1, 1998 will vest in full upon the occurrence of
                        a "Change in Control" (as we define it below), whether
                        or not his employment is subsequently terminated.
 
                        In addition, if Mr. Lassiter's employment terminates   
                        following a Change in Control, his severance amount    
                        would be calculated and paid in the same manner as we  
                        describe below under "Management Retention Agreements  
                        with Executive Officers."                              
                                                                               
                        Mr. Lassiter would also be entitled to the "gross up"  
                        payment described in that section.                     
                                                                               
                                             
OTHER RESTRICTIONS      Mr. Lassiter will be subject to certain restrictions  
                        prohibiting him from engaging in competition with Ambac
                        or any of our subsidiaries (except that these          
                        restrictions will not apply following a Change in      
                        Control) and from divulging any confidential or        
                        proprietary information he obtained while he was our   
                        employee.                                              

                                                                               
                                      19                                       

<PAGE>
                                                                               
MANAGEMENT RETENTION AGREEMENTS WITH EXECUTIVE OFFICERS                        
                                                                               
                                                 
IN GENERAL              We have entered into management retention agreements   
                        with each of our executive officers (other than Mr.    
                        Lassiter) to provide for payments and certain benefits 
                        if they are terminated following a "Change in Control" 
                        (as we define it below).                               
                                                
PAYMENTS AND            If there is a Change in Control and, within three years
BENEFITS AFTER          of the Change in Control, the executive's employment is
CHANGE IN CONTROL       terminated by Ambac or its successor other than for    
                        "Cause" (as we define it below), or if the executive   
                        resigns for "Good Reason" (as we define it below), the 
                        executive will                                         

 
                        .   receive cash payments equal to two times the sum of
                            (a) the executive's highest annual base salary and 
                            (b) the product of the executive's highest bonus   
                            percentage (as a percentage of base salary) times  
                            his highest base salary;                           
                                                                               
                        .   be fully vested in all stock options and other     
                            awards under the 1991 Stock Incentive Plan and the 
                            1997 Equity Plan;                                  
                                                                               
                        .   receive a lump-sum payment equal to the amount that
                            we would have contributed to the executive's       
                            account under the SIP and any nonqualified plan we 
                            maintained during the two years following          
                            termination;                                       
                                                                               
                        .   be credited with an additional two years of service
                            under the Pension Plan; and                        
                                                                               
                        .   continue to participate in Ambac's medical and     
                            other welfare benefits programs for a limited time 
                            following termination.                             
                                                                               
                        All stock options and other awards under the 1997      
                        Equity Plan that are made to executive officers after  
                        January 1, 1998 will vest in full upon the occurrence  
                        of a Change in Control, whether or not the executive's 
                        employment is subsequently terminated.                 
                                                                               
                        The agreements also provide for a "gross up" payment in
                        an amount that is intended to make the executive whole,
                        on an after-tax basis, for any excise tax (but not any 
                        other tax) imposed on the payments described above.    
                                                                               
DEFINITIONS                                                                    
                                                                               
    The following definitions are used in the Management Retention Agreements  
and the Employment Agreement with the Chief Executive Officer described above: 
                                                                               
                                                  
"CHANGE IN              A "Change in Control" generally occurs if              
CONTROL"          
                        .   an individual, entity or group acquires beneficial 
                            ownership of 20% or more of the outstanding common 
                            stock. Acquisitions by Ambac and                   

                                                                               
                                      20                                       

<PAGE>
                                                                               
                            its affiliates or any employee benefit plan that   
                            they sponsor and certain acquisitions by persons   
                            who owned at least 15% of the outstanding shares of
                            common stock on January 31, 1996 are not considered
                            a change in control;                               
                                                                               
                        .   the individuals who, as of January 29, 1997,       
                            constitute the Board, and subsequently elected     
                            members of the Board whose election is approved or 
                            recommended by at least a majority of these members
                            or their successors whose election was so approved 
                            or recommended, cease for any reason to constitute 
                            at least a majority of the Board; or               
                                                                               
                        .   our stockholders approve a merger or similar       
                            business combination, or a sale of all or          
                            substantially all of Ambac's assets, unless the    
                            Ambac stockholders immediately prior to the        
                            completion of the transaction will continue to own 
                            at least 70% of outstanding shares and voting power
                            of the corporation that results from the           
                            transaction.                                       
                                                                               
                                                                               
"CAUSE"                 "Cause" for an executive's termination generally       
                        includes:                                              

 
                        .   the willful commission of acts that are dishonest  
                            and demonstrably and materially injurious to Ambac;
                                                                               
                        .   the conviction of certain felonies; or             
                                                                               
                        .   a material breach of any of the executive's        
                            agreements concerning confidentiality and          
                            proprietary information.                           
                                                                               
                        An executive's termination will not be considered to   
                        have been for Cause unless at least three-quarters of  
                        the members of the Board adopt a resolution finding    
                        that the executive has engaged in conduct that         
                        constitutes Cause as defined in the agreement.         
                                                                               
                                                  
"GOOD REASON"           An executive will generally have "Good Reason" to      
                        terminate his employment if:                           

 
                        .   there is substantial adverse change in the         
                            executive's duties or responsibilities;            
                                                                               
                        .   the office of the executive is relocated more than 
                            25 miles from the location where the executive     
                            worked immediately prior to the Change in Control; 
                            or                                                 
                                                                               
                        .   Ambac fails to honor its obligations under the     
                            agreement.                                         
                                                                               
                        During a 30-day period following the first anniversary 
                        of a Change in Control, a resignation by the executive 
                        for any reason will be considered a termination for    
                        Good Reason.                                           
                                                                               
                                      21                                       

<PAGE>
                                                                               
                   REPORT ON EXECUTIVE COMPENSATION FOR 2000                   
                BY THE COMPENSATION AND ORGANIZATION COMMITTEE                 
                                                                               
    The Compensation and Organization Committee of the Board administers       
Ambac's executive compensation program. The members of the Committee are       
independent non-employee, non-affiliated directors. The Committee has furnished
the following report on executive compensation for 2000:                       
                                                                               
WHAT IS OUR EXECUTIVE COMPENSATION PHILOSOPHY?                                 
                                                                               
    The Committee has designed Ambac's executive compensation program to       
support what we believe to be an appropriate relationship between executive pay
and the creation of stockholder value. To emphasize this relationship, we link 
a significant portion of executive compensation to the market performance of   
Ambac common stock. The objectives of our program are:                         
                                                                               
   .   To support a pay-for-performance policy that differentiates bonus       
       amounts among all executives based on both their individual performance 
       and the performance of Ambac;                                           
                                                                               
   .   To align the interests of executives with the long-term interests of    
       stockholders through stock option and restricted stock unit awards whose
       value over time depends upon the market value of Ambac's common stock;  
                                                                               
   .   To provide compensation comparable to that offered by other leading     
       companies in our industry, enabling Ambac to compete for and retain     
       talented executives who are critical to our long-term success; and      
                                                                               
   .   To motivate key executives to achieve strategic business initiatives and
       to reward them for their achievement.                                   
                                                                               
WHAT IS OUR POSITION ON MAXIMIZING THE DEDUCTIBILITY OF EXECUTIVE COMPENSATION?
                                                                               
    In 1997, our stockholders approved the 1997 Executive Incentive Plan       
("EIP") and the 1997 Equity Plan. We designed these plans to allow Ambac to    
receive a tax deduction for incentive compensation payments to our Chief       
Executive Officer and our other four most highly paid executive officers.      
Without these qualifying performance-based plans, Ambac could not deduct       
incentive compensation payments to the extent the amounts paid to any of these 
executive officers in any year exceeded $1 million.                            
                                                                               
    The Committee intends to pursue a strategy of maximizing the deductibility 
of the compensation we pay to our executives. However, we intend to retain the 
flexibility to take actions that we consider to be in the best interests of    
Ambac and our stockholders and which may be based on considerations in addition
to tax deductibility.                                                          
                                                                               
                                      22                                       

<PAGE>
                                                                               
WHAT ARE THE ELEMENTS OF EXECUTIVE COMPENSATION?                               
                                                                               
    We compensate our executives through base salary, bonus (paid in a         
combination of cash and restricted stock units) and long-term incentive awards 
in the form of stock options. We target total compensation for our executive   
officers so that at least 60% (and in the case of the Chairman, 75%) consists  
of bonus and long term incentive awards. In this way, a significant portion of 
the value ultimately realized by the executives will depend upon Ambac's       
performance and can be considered "at risk."                                   
                                                                               
    Our executives participate in a retirement plan, health plan, savings      
incentive plan and other voluntary benefit plans that we make available to all 
Ambac employees generally. We also provide our executives, and all Ambac       
employees who are eligible, with nonqualified savings incentive and pension    
plans. We also provide our executives with a voluntary deferred compensation   
arrangement, which is similar to those typically offered to executives by the  
corporations with which we compete for talent.                                 
                                                                               
    Ambac has also entered into management retention agreements with our       
executive officers to provide for certain payments and other benefits if they  
are terminated following a change in control of Ambac. These agreements, and   
the employment agreement with Ambac's Chief Executive Officer, which includes  
comparable change in control provisions, are discussed elsewhere in the Proxy  
Statement.                                                                     
                                                                               
HOW DID WE DETERMINE BASE SALARIES FOR 2000?                                   
                                                                               
IN GENERAL              We annually review the base salaries of our executives  
                        to determine if adjustments are appropriate to ensure  
                        that their salaries are competitive and that they      
                        reflect the executive's increased responsibilities as  
                        Ambac grows.                                           
 
                        For executives other than the Chief Executive Officer, 
                        we also consider the recommendations of Mr. Lassiter,  
                        Ambac's Chairman and Chief Executive Officer.          
                                                                               
COMPARATIVE DATA        In conducting our review for 2000, we considered        
                        comparative data prepared by both Ambac's senior human 
                        resources officer and by Johnson Associates, Inc., the 
                        Committee's outside consultant for executive           
                        compensation.                                          
 
                        The comparison group we chose for compensation purposes
                        (the "COMPARISON GROUP") consisted mainly of our       
                        competitors in the financial guarantee insurance       
                        industry. The index we chose for our performance graph 
                        was the Investor's Business Daily Insurance            
                        Property/Casualty/Title Index. This was the publicly   
                        available index that we found best corresponded to our 
                        business and included the greatest number of companies 
                        in the Comparison Group. The performance graph follows 
                        this Report in the Proxy Statement.                    
                                                                               
                        We obtained data for the Comparison Group from a number
                        of sources, including proxy statements, public         
                        information available from regulatory agencies and     
                        surveys by consulting firms. We used this comparative  
                        data as a benchmark in reaching our own determination  
                        of what were appropriate salary levels for our         
                        executives.                                            
                                                                               
                                                                               
                                      23                                       

<PAGE>
                                                                               
                                              
BASE SALARIES OF        The data for the Comparison Group supported an      
THE EXECUTIVES          increase in base salaries for 2000 and the          
                        Committee accepted Mr. Lassiter's recommendation to
                        increase base salaries for all of the named        
                        executives. We note that the base salaries of our  
                        executives (excluding the Chief Executive Officer) 
                        are generally at or below the median for salaries  
                        of executives in the Comparison Group. The base    
                        salary for each of the named executive officers is 
                        reported in the "Summary Compensation Table"       
                        elsewhere in the Proxy Statement.                  
                                               
BASE SALARY OF THE      The Committee increased the base salary of Mr.     
CHIEF EXECUTIVE         Lassiter for 2000 by approximately 10% from        
OFFICER                 $560,000 to $620,000. We note that Mr. Lassiter's  
                        base salary in 2000 was in the median for salaries 
                        of chief executive officers in the Comparison      
                        Group.                                             

HOW DID WE DETERMINE BONUSES FOR 2000?                                         
                                                                               
                                              
2000 OVERALL            In January 2001, the Committee evaluated Ambac's   
PERFORMANCE             performance during 2000 under each of the nine     
                        categories set out in the EIP: return on equity;   
                        core/operating earnings growth; total return to    
                        stockholders; expense management; risk management; 
                        market share; industry leadership/image building;  
                        new products/initiatives; and organizational       
                        development/corporate culture. We did not weight   
                        the categories but instead arrived at an overall   
                        "grade" for corporate performance. We determined   
                        Ambac's overall performance to be extremely strong 
                        based especially on its excellent performance in   
                        the categories of return on equity, core/operating 
                        earnings growth, total return to shareholders;     
                        expense management, market share and organizational
                        development/corporate culture.                     
                                              
BONUSES FOR THE         The Committee awarded bonus compensation for 2000   
EXECUTIVES              to each executive based on the executive's scope of 
                        responsibility, individual performance and specific
                        contribution to Ambac's overall performance. We    
                        again considered the Chief Executive Officer's     
                        recommendations and also took into account the     
                        comparative data. The bonus for each of the named  
                        executive officers is reported in the "Summary     
                        Compensation Table" elsewhere in the Proxy         
                        Statement.                                         
 
                        Under the Ambac Senior Officer Deferred Compensation   
                        Sub-Plan of the 1997 Equity Plan, 25% of each executive
                        officer's bonus is paid in RSUs unless the executive   
                        officer has satisfied the stock ownership target under 
                        the Ambac Stock Ownership Program. An executive who has
                        met the ownership target may elect to receive 25% of   
                        his or her bonus in the form of RSUs. Each executive   
                        officer is receiving 25% of his bonus in the form of   
                        RSUs. Bonus amounts are reported in the Summary        
                        Compensation Table elsewhere in this Proxy Statement.  
                                                                               
                                                                               
                                                                               
                                      24                                       

<PAGE>
                                                                               
                        The value we ascribed to the RSUs awarded under the    
                        Sub-Plan for 2000 was based on a 25% discount from the 
                        market value of Ambac's common stock on the date of    
                        grant. The Committee decided to discount these RSUs in 
                        order to account for vesting requirements and          
                        restrictions on transfer of the RSUs. Accordingly, the 
                        value we ascribed to the RSUs differs from the amounts 
                        reported in the Summary Compensation Table under the   
                        column headed "Annual Compensation--Restricted Stock   
                        Units", as those amounts, in accordance with SEC       
                        requirements, are based on the market price of the     
                        Common Stock on the date of grant.                     
                                                                               
                                                                               
BONUS FOR THE           At our meeting in January 2000, the Committee          
CHIEF EXECUTIVE         selected Mr. Lassiter as the only executive to         
OFFICER                 participate in the EIP. We then established a          
                        formula under the EIP for determining Mr.          
                        Lassiter's bonus for the performance year. The     
                        formula emphasized return on equity and core       
                        earnings growth.                                   

 
                        In January 2001, we applied the formula and awarded Mr.
                        Lassiter a bonus of $1,240,000. Although we had the    
                        authority to award a bonus of less than the amount     
                        determined by the formula, in view of Ambac's very     
                        strong performance in 2000 under Mr. Lassiter's        
                        leadership, we decided to award Mr. Lassiter the       
                        maximum amount under the formula. Pursuant to the      
                        Sub-Plan, Mr. Lassiter elected to receive 25% of his   
                        bonus in the form of RSUs having the terms described   
                        above.                                                 
                                                                               
                        For 2001, we selected Messrs. Lassiter and Genader as  
                        the only executive officers to participate in the EIP. 
                                                                               
WHAT WERE THE LONG-TERM INCENTIVE AWARDS IN 2000?                              
                                                                               
2000 GRANTS             In 2000, we provided long-term incentive awards for    
                        executives by granting stock options. These awards 
                        provide compensation to executives only if         
                        shareholder value increases. We believe these      
                        awards focus executives on the Company's long-term 
                        success. In determining the number of stock options
                        awarded, we reviewed surveys of similar awards     
                        given by companies within the Comparison Group and 
                        the executive's past performance. We also          
                        considered the number of stock options previously  
                        granted to executives.                             
 
                        This year, we decided to award, for the first time,    
                        performance-based stock options. These options vest    
                        only if the share price of Ambac's common stock meets  
                        certain targets. For 2000, each of the options granted 
                        to the executives will vest in two equal installments  
                        when the market price of Ambac common stock meets or   
                        exceeds $43.33 and                                     
                                                                               
                                                                               
                                                                               
                                      25                                       

<PAGE>
                                                                               
                        $56.66 for twenty consecutive trading days or no later 
                        than the sixth anniversary of the grant date. (Please  
                        note that we have adjusted the share price to reflect  
                        Ambac's three-for-two stock split in December 2000.) As
                        we have done since 1997, we again limited the term of  
                        the stock options to seven years. The number of stock  
                        options awarded to each of the executives (including   
                        Mr. Lassiter) was in the top quarter of recent awards  
                        given by companies within the Comparison Group. The    
                        number of stock options awarded to each of the named   
                        executive officers is reported in the "Option Grants in
                        2000" table elsewhere in the Proxy Statement.          
                                                                               
                                                                               
STOCK OWNERSHIP         The Committee continues to apply our stock ownership  
GUIDELINES              guidelines to all managing directors and executive    
                        officers. The guidelines set an appropriate level of   
                        ownership of Ambac stock (based on the market value of 
                        Ambac common stock) as a multiple of the officer's     
                        total cash compensation (base salary plus cash bonus). 
                        The multiple ranges from a high of seven times total   
                        cash compensation (in the case of Mr. Lassiter) to a   
                        low of one and one-half times total cash compensation  
                        for managing directors. Messrs. Lassiter, Genader and  
                        Bivona have all met their stock ownership guidelines.  

 
                        The Committee believes these guidelines have the       
                        positive effect of further aligning the interests of   
                        the executives with all stockholders.                  
                                                                               
                                     THE COMPENSATION AND ORGANIZATION COMMITTEE
                                                                               
                                          Richard Dulude, Chairman             
                                          Michael A. Callen                    
                                          Renso L. Caporali                    
                                          Jill M. Considine                    
                                          W. Grant Gregory                     
                                          C. Roderick O'Neil                   
                                                                               
March 22, 2001                                                                 
                                                                               
                                                                               
                                                                               
                                      26                                       

<PAGE>
                                                                               
 
                              PERFORMANCE GRAPH                               
                                                                               
    The graph below compares the five-year total return to stockholders (stock 
price appreciation plus reinvested dividends) for Ambac common stock with the  
comparable return of two indexes: the Standard & Poor's 500 Stock Index and the
Investor's Business Daily Insurance--Property/Casualty/Title Index.            
                                                                               
    The graph assumes that you invested $100 in Ambac common stock and in each 
of the indexes on December 31, 1995, and that all dividends were reinvested.   
Points on the graph represent the performance as of the last business day of   
each of the years indicated.                                                   
                                                                               
                                                                               
                                     [CHART]

<TABLE>
<CAPTION>
                            12/31/95    12/31/96   12/31/97   12/31/98    12/31/99   12/31/00
<S>                         <C>         <C>        <C>        <C>         <C>        <C>

Ambac Financial Group, Inc.  $100.0      $143.2     $200.3     $263.9      $230.6     $389.6

S&P 500 Index                 100.0       123.0      164.0      210.9       255.2      232.0

IBD-INS. 
Property/Casualty/
Title Index                   100.0       105.0      129.2      103.3        78.5      110.2

</TABLE>


    If you had invested $100 in Ambac common stock on the date of our Initial  
Public Offering (July 18, 1991), your investment would have grown to           
approximately $925.58 by the end of 2000. This compares with a $100 investment 
growing to approximately $420.76 in the S&P 500 Index and to approximately     
$196.26 in the IBD Insurance Index.                                            
                                                                               
    For this computation, we assumed that all dividends were reinvested, just  
as we did for the five-year total return comparison above.                     
                                                                               
                                      27                                       

<PAGE>
                                                                               
               DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD                
                                                                               

PROPOSAL 1: ELECT SEVEN DIRECTORS                                              
                                                                               
    The Board has nominated seven directors for election at the Annual Meeting.
Each nominee is currently serving as one of our directors. Mr. Genader was     
appointed as a director in January 2001. If you re-elect them, they will hold  
office until the next annual meeting or until their successors have been       
elected.                                                                       
                                                                               
    As we noted above, each nominee also serves as a director of Ambac         
Assurance.                                                                     
                                                                               
    We know of no reason why any nominee may be unable to serve as a director. 
If any nominee is unable to serve, your proxy may vote for another nominee     
proposed by the Board, or the Board may reduce the number of directors to be   
elected. If any director resigns, dies or is otherwise unable to serve out his 
term, or the Board increases the number of directors, the Board may fill the   
vacancy until the next annual meeting.                                         
                                                                               
                                   NOMINEES                                    
                                                                               
                                           
PHILLIP B.              CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF 
LASSITER                AMBAC AND AMBAC ASSURANCE since April 1991. Mr.      
Age 57                  Lassiter also served as President of Ambac and Ambac 
Director since 1991     Assurance from August 1992 to January 2001. Mr.      
                        Lassiter joined Ambac in 1991 from Citibank, where he  
                        was a member of the Policy Committee and Finance       
                        Committee and served as Deputy Sector Head for         
                        Citibank's North American investment and corporate     
                        banking activities. Mr. Lassiter also serves as a      
                        director of Diebold Inc. and Worldinsure Limited.      
                                                                               
MICHAEL A. CALLEN       PRESIDENT, AVALON ARGUS ASSOCIATES, LLC (financial     
Age 60                  consulting) since April 1996. Mr. Callen was Special   
Director since 1991     Advisor to the National Commercial Bank located in     
                        Jeddah in the Kingdom of Saudi Arabia from April 1993  
                        through April 1996. He was an independent consultant   
                        from January 1992 until June 1993, and an Adjunct      
                        Professor at Columbia University Business School during
                        1992. He was a director of Citicorp and Citibank and a 
                        Sector Executive for Citicorp from 1987 until January  
                        1992. Mr. Callen also serves as a director of Intervest
                        Corporation of New York and Intervest Bancshares       
                        Corporation.                                           
                                                                              
RENSO L. CAPORALI       RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF GRUMMAN
Age 68                  CORPORATION (defense and aerospace). Dr. Caporali was  
Director since 1995     Senior Vice President of Raytheon Company (electronics,
                        aircraft, engineering and construction) from April 1995
                        until he retired in May 1998. Previously, Dr. Caporali 
                        had retired in June 1994 as Chairman and Chief         
                        Executive Officer of Grumman Corporation. He was       
                        Chairman and Chief Executive Officer of Grumman        
                        Corporation from July 1990 until June 1994. Dr.        
                        Caporali also serves as a director of Bank of Akron.   

                                                                               
                                      28                                       

<PAGE>
                                                                               
                                          
JILL M. CONSIDINE       CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF THE DEPOSITORY 
Age 56                  TRUST & CLEARING CORPORATION since November 1999 and   
Director since 2000     Chairman and Chief Executive Officer of The Depository 
                        Trust Company (securities depository and clearing      
                        house) since January 1999. Prior to joining The        
                        Depository Trust Company, Ms. Considine served as the  
                        President of the New York Clearing House Association,  
                        L.L.C. from 1993 to 1999. Ms. Considine served as a    
                        Managing Director, Chief Administrative Officer and as 
                        a member of the Board of Directors of American Express 
                        Bank Ltd., from 1991 to 1993. Prior to that, Ms.       
                        Considine served as the New York State Superintendent  
                        of Banks from 1985 to 1991. Ms. Considine also serves  
                        as a director of the Atlantic Mutual Insurance         
                        Companies and The Interpublic Group of Companies, Inc. 
                                               
RICHARD DULUDE          RETIRED VICE CHAIRMAN OF CORNING INCORPORATED          
Age 68                  (diversified manufacturing). Mr. Dulude was Vice       
Director since 1992     Chairman of Corning Incorporated from November 1990    
                        until he retired in April 1993. Mr. Dulude was Group   
                        President of Corning Incorporated from 1983 until 1990.
                        Mr. Dulude also serves as a director of Landec         
                        Corporation.                                           
                                         
ROBERT J. GENADER       PRESIDENT AND CHIEF OPERATING OFFICER OF AMBAC AND     
Age 54                  AMBAC. In January 2001, Mr. Genader was named as the   
Director since January  President and Chief Operating Officer of Ambac and     
2001                    Ambac Assurance. From February 2000 to January 2001,   
                        Mr. Genader served as Vice Chairman of Ambac's         
                        Financial Insurance Business Group. From January 1998  
                        to February 2000, Mr. Genader served as Vice Chairman  
                        of the Specialized Finance Division when the           
                        Specialized Finance Division and the Public Finance    
                        Division were combined to create the Financial         
                        Insurance Business Group. Mr. Genader has been a       
                        director of Ambac Assurance since 1992. Mr. Genader    
                        served as an Executive Vice President of Ambac from    
                        1991 to January 1998 and Ambac Assurance from 1986 to  
                        January 1998. He joined Ambac Assurance from Citibank  
                        in 1986. Mr. Genader also served as Chairman of the    
                        Association of Financial Guaranty Insurors from January
                        1994 to January 1996.                                  
                                              
W. GRANT GREGORY        CHAIRMAN OF GREGORY & HOENEMEYER, INC. (merchant       
Age 60                  banking) since 1988. Mr. Gregory retired in 1987 as    
Director since 1991     Chairman of the Board of Touche Ross & Co., now        
                        Deloitte and Touche. Mr. Gregory also serves as a      
                        director of DoubleClick Inc., an Internet advertising  
                        company. In addition, Mr. Gregory serves as a director 
                        of three private companies: yClip.com, an e-commerce   
                        enabled incentives company; zUniversity.com, an online 
                        network for higher education; and Class.com, an        
                        Internet leader in accredited distance learning.       

 
T
he Board recommends that you vote "FOR" the election of all seven nominees for
                                   director.                                   
                                                                               
                                      29

<PAGE>
                                                                               

PROPOSAL 2: RATIFY SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS FOR 2001      
                                                                               
    We are asking you to ratify the Board's selection of KPMG LLP, certified   
public accountants, as independent auditors for 2001. The Audit Committee      
recommended the selection of KPMG to the Board. KPMG has served as the         
independent auditors of Ambac Assurance since 1985 and of Ambac since our      
incorporation in 1991.                                                         
                                                                               
    A representative of KPMG will attend the Annual Meeting to answer your     
questions.                                                                     
                                                                               
    We are submitting this proposal to you because the Board believes that such
action follows sound corporate practice. If you do not ratify the selection of 
independent auditors, the Board will consider it a direction to consider       
selecting other auditors for next year. However, even if you ratify the        
selection, the Board may still appoint new independent auditors at any time    
during the year if it believes that such a change would be in the best         
interests of Ambac and our stockholders.                                       
                                                                               
                                                                               
T
he Board recommends that you vote "FOR" ratification of the selection of KPMG 
                     LLP as independent auditors for 2001.                     
                                                                               
                                      30                                       

<PAGE>
                                                                               
                    INFORMATION ABOUT STOCKHOLDER PROPOSALS                    
                                                                               
    Under our By-laws, if you wish to nominate a director or bring other       
business before the stockholders:                                              
                                                                               
   .   You must notify the Corporate Secretary in writing not less than 60 days
       nor more than 90 days before the annual meeting.                        
                                                                               
   .   If we give you less than 70 days' notice of the meeting date, however,  
       you may notify us within 10 days after the notice was mailed or publicly
       disclosed.                                                              
                                                                               
   .   Your notice must contain the specific information required in our       
       By-laws.                                                                
                                                                               
    Please note that these By-laws requirements relate only to matters you wish
to bring before your fellow stockholders at an annual meeting. They do not     
apply to proposals that you wish to have included in our proxy statement.      
                                                                               
    If you wish to submit proposals to be included in our 2001 proxy statement,
we must receive them on or before Thursday, November 29, 2001. Please address  
your proposals to: ANNE G. GILL, CORPORATE SECRETARY, AMBAC FINANCIAL GROUP,   
INC., ONE STATE STREET PLAZA, NEW YORK, NEW YORK 10004.                        
                                                                               
    If you would like a copy of our By-laws, we will send you one without      
charge. Please write to the Corporate Secretary of Ambac.                      
                                                                               
                              By order of the Board of Directors,              
                                                                               
                                        /s/ Anne G.Gill                        
                                          Anne G. Gill                         
                         First Vice President, Corporate Secretary and         
                                   Assistant General Counsel                   
                                                                               
March 28, 2001                                                                 
                                                                               
                                      31                                       

<PAGE>
                                                                               
                                                                      APPENDIX A
                                                                               
                          AMBAC FINANCIAL GROUP, INC.                          
                                                                               
           CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS            
                                                                               
PURPOSE                                                                        
                                                                               
The purpose of the Ambac Financial Group, Inc. Audit Committee (the            
"COMMITTEE") is to understand, assess, and monitor the corporate control       
environment of Ambac Financial Group, Inc. (the "COMPANY"). The Committee will 
assist the Board of Directors in fulfilling its oversight responsibilities by  
reviewing the financial information that is provided to stockholders and       
others, the systems of internal controls established by management and the     
Board of Directors, and the audit process of the Company.                      
                                                                               
The Committee will meet at least three times per year. The Committee will      
comply with the requirements of the Securities and Exchange Commission (the    
"SEC") and the New York Stock Exchange (the "NYSE") regarding corporate audit  
committees.                                                                    
                                                                               
MEMBERSHIP REQUIREMENTS                                                        
                                                                               
The Committee will be comprised of at least three independent directors who are
financially literate or who become financially literate within a reasonable    
period of time. These directors will not have any relationship to the Company  
that will interfere with their exercise of independent judgment from management
and the Company as members of the Committee. At least one member of the        
Committee will have accounting or related financial management expertise.      
                                                                               
PRIMARY DUTIES                                                                 
                                                                               
In accordance with the SEC requirements, the Committee will provide a report in
the Company's proxy statement which states whether the Committee:              
                                                                               
   .   reviewed and discussed the audited financial statements with management;
                                                                               
   .   discussed with the independent auditors the matters required by         
       Statement on Auditing Standards No. 61 (which requires the outside      
       auditors to communicate to the Committee matters related to the conduct 
       of the audit);                                                          
                                                                               
   .   received the written disclosures and the letter from the auditors       
       regarding the auditors' independence and discussed the auditors'        
       independence as required by Independent Standards Board Standard No. 1  
       with the auditors; and                                                  
                                                                               
                                      A-1                                      

<PAGE>
                                                                               
   .   recommended to the Board of Directors that the financial statements be  
       included in the Company's annual report on Form 10-K (or 10-KSB) for the
       last fiscal year for filing with the SEC based upon its discussions with
       the auditors regarding the auditors' independence.                      
                                                                               
In accordance with the NYSE requirements, the Committee will:                  
                                                                               
   .   review and reassess the adequacy of the audit committee charter on an   
       annual basis;                                                           
                                                                               
   .   select, evaluate, and replace the outside auditor, who is ultimately    
       accountable to the Committee and the Board of Directors of the Company  
       (or nominate the outside auditor for stockholder approval in any proxy  
       statement);                                                             
                                                                               
   .   ensure that the outside auditor submits a formal written statement to   
       the Committee on a periodic basis that delineates all relationships     
       between the outside auditor and the Company;                            
                                                                               
   .   actively discuss with the outside auditor any relationships between the 
       outside auditor and the Company or any other relationships that may     
       impact the objectivity and independence of the outside auditor; and     
                                                                               
   .   recommend that the Board of Directors takes appropriate action in       
       response to the report of the outside auditor to satisfy itself of the  
       independence of the outside auditor.                                    
                                                                               
In general, the Committee will:                                                
                                                                               
   .   review the scope of the annual audit of the Company's financial         
       statements, the fees for the audit and for non-audit services, and the  
       findings and recommendations of the outside auditors;                   
                                                                               
   .   review the Company's accounting practices, internal auditing controls,  
       and business ethics practices, as appropriate, including the monitoring 
       and enforcement of the Company's Code of Business Conduct;              
                                                                               
   .   review the Company's internal audit function, including the scope of the
       audits and the findings of the internal auditors;                       
                                                                               
   .   review elements of the Company's financial statements on a periodic     
       basis; and                                                              
                                                                               
   .   meet with the internal auditors and other personnel of the Company, as  
       appropriate.                                                            
                                                                               
In carrying out its responsibilities, the Committee will comply with the SEC   
and the NYSE audit committee requirements. However, the policies and procedures
of the Committee will remain flexible, and the Committee may assume other      
responsibilities as it deems necessary to ensure that the corporate accounting 
and reporting practices are appropriate given the circumstances of the Company.
The evaluation of the Company's financial statements by the Committee is not of
the same quality as the audits performed by the outside auditors, nor does the 
Committee's evaluation supersede or alter the traditional responsibilities of  
the Company's management for preparing, or the outside auditors for auditing,  
the Company's financial statements.                                            
                                                                               
                                      A-2                                      

<PAGE>
                                                                               
                                 [LOGO] Ambac                                  
                  ONE STATE STREET PLAZA, NEW YORK, NY 10004                   

<PAGE>

                                ---------------------------------------------
                                              VOTE BY TELEPHONE

                                ---------------------------------------------
                                Have your proxy card available when you call the
                                TOLL-FREE NUMBER 1-800-250-9081 using a
                                touch-tone telephone. You will be prompted to
                                enter your Control Number and then you can
                                follow the simple prompts that will be presented
                                to you to record your vote.

                                ---------------------------------------------
                                              VOTE BY INTERNET

                                ---------------------------------------------
                                Have your proxy card available when you access
                                the website HTTP://WWW.VOTEFAST.COM. You will be
                                prompted to enter your Control Number and then
                                you can follow the simple prompts that will be
                                presented to you to record your vote.

                                ---------------------------------------------
                                                VOTE BY MAIL

                                ---------------------------------------------
                                 Please mark, sign and date your proxy card and
                                 return it in the POSTAGE-PAID ENVELOPE provided
                                 or return it to: Corporate Election Services,
                                 PO Box 1150, Pittsburgh, PA 15230.

                                ---------------------------------------------

------------------------  ------------------------   ----------------------
   VOTE BY TELEPHONE          VOTE BY INTERNET             VOTE BY MAIL
 Call Toll-Free using a    Access the website and       Return your proxy
 touch-tone telephone:        cast your vote:          in the postage-paid
     1-800-250-9081       http://www.votefast.com       envelope provided.
------------------------  ------------------------   ----------------------


                       VOTE 24 HOURS A DAY, 7 DAYS A WEEK!

     YOUR TELEPHONE OR INTERNET VOTE MUST BE RECEIVED BY 11:59 P.M. EASTERN
          DAYLIGHT TIME ON APRIL 30, 2001 TO BE COUNTED IN THE FINAL TABULATION.

             ======================================================
               YOUR CONTROL NUMBER IS:
             ======================================================

          Please fold and detach card at perforation before mailing.

AMBAC FINANCIAL GROUP, INC.                                            PROXY
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS ON MAY 1, 2001.

The undersigned hereby appoints Phillip B. Lassiter, Frank J. Bivona and Anne G.
Gill, and each of them, proxies, with power of substitution, to vote all shares
of Common Stock of Ambac Financial Group, Inc. which the undersigned is entitled
to vote at the Annual Meeting of Stockholders to be held on Tuesday, May 1, 2001
at 11:30 a.m., local time, at Ambac's executive offices, One State Street Plaza,
New York, New York, and at any adjournments of the Annual Meeting. The proxies
have the authority to vote as directed on the reverse side of this card with the
same effect as though the undersigned were present in person and voting. The
proxies are further authorized in their discretion to vote upon such other
business as may properly come before the Annual Meeting and any adjournments of
the Annual Meeting. The undersigned revokes all proxies previously given to vote
at the Annual Meeting.

                                        --------------------------------------
                                        Signature(s)

                                        --------------------------------------
                                        Signature(s)

                                         
                                        IMPORTANT: Please sign EXACTLY as your 
                                        name(s) appears on the left. Joint 
                                        owners should each sign. If you are 
                                        signing as an executor, administrator, 
                                        trustee, guardian, attorney or corporate
                                         officer, please give your full title.

                                        Date:                          , 2001
                                             --------------------------


<PAGE>

                             YOUR VOTE IS IMPORTANT!

If you do not vote by telephone or Internet, please sign and date this proxy
card and return it promptly in the enclosed postage-paid envelope, or otherwise
to Corporate Election Services, PO Box 1150, Pittsburgh, PA 15230, so that your
shares may be represented at the Meeting. If you vote by telephone or internet,
it is not necessary to return this proxy card.

           Please fold and detach card at perforation before mailing.

AMBAC FINANCIAL GROUP, INC.                                             PROXY
------------------------------------------------------------------------------

PLEASE INDICATE BELOW HOW YOU WISH YOUR SHARES TO BE VOTED. UNLESS YOU INDICATE
OTHERWISE, YOUR PROXY WILL VOTE "FOR" ALL OF THE PROPOSALS ON THIS CARD. WE
CANNOT VOTE YOUR SHARES UNLESS YOU SIGN, DATE AND RETURN THIS CARD.

THE BOARD OF DIRECTORS RECOMMEND THAT YOU VOTE "FOR" ALL PROPOSALS.

1. Elect Seven Directors

<TABLE>
<S>          <C>                       <C>                     <C>                     <C>
   Nominees: (01) Phillip B. Lassiter  (02) Michael A. Callen  (03) Renso L. Caporali  (04)  Jill M. Considine
             (05) Richard Dulude       (06) Robert J. Genader  (07) W. Grant Gregory
</TABLE>



      [ ] FOR all nominees listed above.       [ ] WITHHOLD AUTHORITY
          (Except as listed to the contrary        to vote for all nominees 
           below.)                                 listed above.

         To withhold authority to vote for any individual nominee, write that
nominee's name or number below.

--------------------------------------------------------------------------------

2. Ratify Selection of KPMG LLP as Independent Auditors for 2001.

     [ ] FOR      [ ] AGAINST      [ ] ABSTAIN

                     TO BE SIGNED AND DATED ON REVERSE SIDE