COMMUTATION AND RELEASE AGREEMENT

Exhibit 10.1

COMMUTATION AND RELEASE AGREEMENT

This Commutation and Release Agreement (the “Commutation Agreement”), dated July 20, 2009, is entered into by and among Ambac Assurance Corporation (“AAC”), Ambac Assurance UK Limited (“AUK” and, collectively with AAC, the “Company”) and Radian Asset Assurance Inc. (the “Reinsurer”). Each of the Company and the Reinsurer are referred to herein as a “Party” and collectively as the “Parties”.

WITNESSETH:

WHEREAS, the Reinsurer and the Company have entered into certain reinsurance agreements identified on the attached Appendix A-1 (the “Reinsurance Agreements”), under each of which the Reinsurer reinsures certain policies issued by the Company (the “Reinsured Policies”); and

WHEREAS, the Reinsurer and the Company have entered into certain reinsurance agreements identified on the attached Appendix A-2 (the “Retained Agreements”), under each of which the Reinsurer reinsures certain policies issued by the Company (the “Retained Policies”); and

WHEREAS, the Reinsurer and the Company have agreed that the Company shall reassume all of the Reinsured Policies under each of the Reinsurance Agreements; and

WHEREAS, the Reinsurer and the Company have agreed that the Reinsurer shall continue to reinsure all of the Retained Policies according to the Retained Agreements; and

WHEREAS, the Company and the Reinsurer now desire to terminate the reinsurance provided in each of the Reinsurance Agreements and fully and finally settle and commute their respective obligations and liabilities under each of the Reinsurance Agreements on the Effective Date (as defined in paragraph 1 below) on the terms and subject to the conditions set forth in this Commutation Agreement; and

WHEREAS, the Reinsurer has offered to pay, and the Company has agreed to accept, an all-inclusive net amount payable by the Reinsurer in respect of the Reinsurer’s past, present, and future obligations and liabilities under the Reinsurance Agreements comprised of a settlement payment of US One Hundred Million Dollars ($100,000,000.00) and payment of invoices submitted by the Company in respect of the Reinsurance Agreements through the Effective Date in an amount equal to US Four Million Two Hundred Seventy One Thousand Six Hundred Four and 43/100Dollars ($4,271,604.43), or a total of US One Hundred Four Million Two Hundred Seventy One Thousand Six Hundred Four and 43/100 Dollars ($104,271,604.43) (the “Settlement Amount”); such Settlement Amount to be paid in the manner set forth herein;

NOW, THEREFORE, in consideration of the covenants set forth herein and the payments to be made hereunder, it is agreed by and between the Company and the Reinsurer as follows:

1. Effective as of 12:01 a.m., Eastern time, on July 1, 2009 (such date being the “Effective Date”), and subject to the provisions hereof, it is mutually agreed by and between the

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Company and the Reinsurer that the reinsurance under the Reinsurance Agreements shall be fully and finally commuted and shall terminate.

2. No later than the close of business on July 24, 2009 (the “Payment Date”), the Reinsurer shall pay the Settlement Amount to the Company in immediately available funds (in United States currency) by wire transfer to the account of the Company as shown on Appendix B hereto. If payment of the Settlement Amount in such manner is not made on or prior to the Payment Date, the agreement set forth in paragraph 1 above shall be void and the Effective Date shall be deemed to have not occurred. The Company shall accept the Settlement Amount on or prior to the Payment Date as full and final settlement of any and all amounts claimed heretofore or hereinafter to be due by the Reinsurer to the Company relating to arising under or in respect of the Reinsurance Agreements including, without limitation, any and all amounts due or claimed to be due relating to, or arising out of, or in any way related to any Reinsured Policies. Upon receipt of the Settlement Amount on or prior to the Payment Date, the Company will execute and deliver to the Reinsurer a receipt in the form of the attached Appendix C .

3. As of the Effective Date, the Company unconditionally hereby releases and discharges the Reinsurer, its predecessors, and their past and present parents, affiliates, agents, officers, directors, shareholders, policyholders, successors and assigns (collectively, the “Reinsurer Released Parties”) from any and all liabilities, including but not limited to, all obligations, adjustments, executions, offsets, actions, causes of action, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, damages, judgments, claims, demands, duties, doings, omissions, costs, expenses and/or losses whatsoever, whether known or unknown, reported or unreported, and whether arising in the past, present or future, which the Company, its predecessors and its successors ever had, now have, or hereafter may have whether grounded in law or in equity, in contract or in tort (including, without limitation, any claims based on fraud, bad faith, or extra-contractual liabilities), whether known or unknown, against the Reinsurer Released Parties by reason of any matter whatsoever arising out of the Reinsurance Agreements or the Trust Agreement (as defined in paragraph 11 below), including, without limitation, those arising under the Reinsured Policies, it being the intention of the parties that this Commutation Agreement operate as a full and final settlement of the Reinsurer Released Parties’ current and future liabilities to the Company, its predecessors and its successors under said Reinsurance Agreements and the Trust Agreement, including, without limitation, those arising under the Reinsured Policies, notwithstanding any provision to the contrary in any of the Reinsurance Agreements or the Trust Agreement; it being understood and agreed that any release or discharge contemplated by this paragraph 3 with respect to the Trust Agreement shall be subject to the provisions of paragraph 11 of this Commutation Agreement.

4. As of the Effective Date, the Reinsurer unconditionally hereby releases and discharges the Company, its predecessors, and their past and present parents, affiliates, agents, officers, directors, shareholders, policyholders, successors and assigns (collectively, the “Company Released Parties”) from any and all liabilities, including, but not limited to, all obligations, adjustments, executions, offsets, actions, causes of action, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, damages, judgments, claims, demands, duties, doings, omissions, costs, expenses and/or losses whatsoever, whether known or unknown, reported or unreported, and whether

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arising in the past, present or future, which the Reinsurer, its predecessors and successors ever had, now have, or hereafter may have whether grounded in law or equity, in contract or in tort (including, without limitation, any claims based on fraud, bad faith, or extra-contractual liabilities), whether known or unknown, against the Company Released Parties by reason of any matter whatsoever arising out of the Reinsurance Agreements or the Trust Agreement, including, without limitation, those arising under the Reinsured Policies, it being the intention of the parties that this Commutation Agreement operate as a full and final settlement of the Company Released Parties’ current and future liabilities to the Reinsurer, its predecessors and its successors under said Reinsurance Agreements and the Trust Agreement, including, without limitation, those arising under the Reinsured Policies, notwithstanding any provision to the contrary in any of the Reinsurance Agreements or the Trust Agreement; it being understood and agreed that any release or discharge contemplated by this paragraph 4 with respect to the Trust Agreement shall be subject to the provisions of paragraph 11 of this Commutation Agreement.

5. The Parties each acknowledge that the payment of the Settlement Amount as described in paragraph 1 herein is a complete accord, satisfaction, settlement and commutation of all the liability and obligations of each party under the Reinsurance Agreements and the Reinsured Policies. The Parties further agree that, notwithstanding the foregoing paragraphs, or anything to the contrary herein, this Commutation Agreement shall not alter the rights and obligations of the Parties in respect of the Retained Agreements and the Retained Policies reinsured by the Reinsurer thereunder.

6. The Reinsurer and the Company agree that, as of the Effective Date, the six notices of termination, dated May 20, 2009, from AAC to the Reinsurer shall be deemed to be withdrawn and of no further force or effect.

7. The Reinsurer and the Company agree that each will maintain the confidentiality of this Commutation Agreement, including the specific terms of the commutation and the Settlement Amount, except to the extent required by law, regulation or order, and except as may be made:

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The Reinsurer and the Company will have no obligation of confidentiality in respect of any information that may be generally available to the public or become available to the public other than as a result of a breach of such Partys’ obligations pursuant to this paragraph 7. Each Party acknowledges the other’s right to refer to the commutation in discussions with third parties, but specifically agrees that neither will issue, nor approve for issuance, any press or media releases regarding the fact of this Commutation Agreement or the subject matter hereof except as specifically permitted by this paragraph 7.

8. This Commutation Agreement is the product of arm’s length negotiations and the terms of this Commutation Agreement have been completely read and fully understood and voluntarily accepted by both the Company and Reinsurer, having the benefit of the advice of counsel. The Parties further state their intent to release known and unknown, and past, present and future, claims on the terms set forth herein and expressly waive and disavow the application of any statutory or common law protection against the release of unknown or future claims.

9. The rights, duties and obligations of the Commutation Agreement shall be final and binding upon and inure to the benefit of the parties hereto and their respective successors, liquidators, receivers and assigns.

10. Each Party represents and warrants to the other Party that:

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