Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures . Ambac’s disclosure controls and procedures are designed to ensure that information required to be disclosed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including without limitation that information required to be disclosed by Ambac in its SEC filings is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) as appropriate to allow for timely decisions regarding required disclosure.
Ambac’s Disclosure Committee assists the CEO and CFO in their responsibilities to design, establish, maintain and evaluate the effectiveness of disclosure controls and procedures. The Disclosure Committee is responsible for, among other things, the oversight, maintenance and implementation of the disclosure controls and procedures, subject to the supervision and oversight of the CEO and CFO. Ambac’s management, with the participation of its CEO and CFO, has evaluated the effectiveness of Ambac’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2020 and, the CEO and CFO have concluded that at that date Ambac’s disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting . Management of Ambac is responsible for establishing and maintaining adequate internal control over financial reporting. Ambac’s internal control over financial reporting is a process designed under the supervision of the CEO and CFO and overseen by Ambac’s Board of Directors to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Ambac’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Ambac’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of Ambac; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of Ambac; and (iii) provide reasonable assurance regarding the prevention or timely detection and remediation of unauthorized acquisition, use or disposition of Ambac’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Ambac management conducted an assessment of the effectiveness of Ambac’s internal control over financial reporting based on the criteria established in the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Ambac management recognizes that any controls and procedures, no matter how well operated, can provide only reasonable assurance of achieving their objectives. Based on its evaluations, Ambac's management have concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on the criteria articulated in the 2013 Internal Control - Integrated Framework. The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which expressed an unqualified opinion on the effectiveness of Ambac’s internal control over financial reporting.
Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of 2020 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. We have not experienced any significant change to our internal controls over financial reporting despite the fact that our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assess the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
Item 9B. Other Information — No matters require disclosure.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information relating to AFG’s executive officers and directors, including its audit committee and audit committee financial experts will be in AFG’s definitive Proxy Statement for its 2021 Annual Meeting of Stockholders which will be filed within 120 days of the end of our fiscal year ended December 31, 2020 (the “2021 Proxy Statement”) and is incorporated herein by reference.
Ambac has a Code of Business Conduct which promotes management’s commitment to integrity and expresses Ambac’s standards for ethical behavior by providing guidelines for handling business situations appropriately. This code can be found on Ambac’s website at www.ambac.com on the “Environmental, Social & Governance” page under "Governance Documents". Ambac will disclose on its website any amendment to, or waiver from, a provision of its Code of Business Conduct that applies to its Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer. Ambac’s corporate governance guidelines and the charters for the committees of the Board of Directors are also available on our website under the “Governance Documents” page.
| Ambac Financial Group, Inc. 142 2020 FORM 10-K |
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Item 11. Executive Compensation
Information relating to Ambac’s executive officer and director compensation will be in the 2021 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information relating to security ownership of certain beneficial owners of AFG’s common stock and information relating to the security ownership of AFG’s management will be in the 2021 Proxy Statement and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information as of December 31, 2020, regarding securities issued under our 2013 Incentive Compensation Plan and 2020 Incentive Compensation Plan.
Plan
Category
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants and Rights
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in the
Third Column)
Equity compensation plans approved by security holders
2013 Incentive
Compensation Plan (1)
2,487,910
$0.00
—
2020 Incentive
Compensation Plan (1)
85,706 $0.00 2,096,092 (4)
Equity compensation plans not approved by security holders
None --- --- ---
Total 2,573,616 (2) (3)
$0.00 (5)
2,096,092 (4)
(1) Our 2020 Incentive Compensation Plan ("2020 Plan") was approved by the stockholders of AFG on June 2, 2020 as a successor to our 2013 Incentive Compensation Plan ("2013 Plan") which was approved on December 18, 2013. Effective June 2, 2020, awards may no longer be granted under the 2013 Plan; authorized and unissued shares under the 2013 Plan are available for issuance under the 2020 Plan.
(2) Represents, as of December 31, 2020, the number of outstanding restricted stock unit awards and the maximum number of performance stock units that may be issued if certain performance goals are achieved. Refer to Note 15. Employment Benefit Plans to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for a description of the grants made under our 2013 and 2020 Incentive Compensation Plans. This amount includes 773,657 restricted stock units and 1,799,959 performance stock units which are based on the maximum number of shares potentially payable under the awards. Maximum number of shares potentially payable under performance awards range from 200% to 220% of target.
(3) Each restricted stock unit, stock option and performance stock unit awarded under our 2013 and 2020 Incentive Compensation Plans was granted at no cost to the persons receiving them. Restricted stock units represent the contingent right to receive the equivalent number of shares of AFG common stock and may vest after the passage of time. Stock options represent the right to acquire an equivalent number of shares of AFG common stock at a specified exercise price. Performance stock units granted pursuant to the Company's Long Term Incentive Plan represent the contingent right to receive a number of shares of AFG common stock ranging from 0% to 220% of the number of units granted depending upon the achievement of certain company-wide performance goals at the end of a specified performance period.
(4) Represents the number of securities remaining available for future issuance under compensation plans assuming the maximum number of shares are issued on settlement of performance stock units. The number of securities remaining available for future issuance under compensation plans assuming the target number of shares are issued on settlement of performance stock units would be 3,058,603.
(5) There are no outstanding options as of December 31, 2020. Performance shares and restricted stock units are not included in determining weighted-average price as they have no exercise price.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information relating to Ambac with respect to certain relationships and related transactions and director independence will be in the 2021 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information relating to principal accountant fees and services will be in the 2021 Proxy Statement and is incorporated herein by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as a part of this report:
1. Financial Statements
The consolidated financial statements included in Part II, Item 8 above are filed as part of this Annual Report on Form 10-K.
2. Financial Statement Schedules
The financial statement schedules filed herein, which are the only schedules required to be filed, are as follows:
Page
Schedule I — Summary of Investments Other Than Investments in Related Parties
148
Schedule II — Condensed Financial Information of Registrant (Parent Company Only)
149
Schedule IV — Reinsurance
154
(b) Exhibits
Incorporated by Reference
Exhibit Description Form Filing Date Exhibit Number Filed Herewith
(3) Articles of Incorporation and bylaws:
3.1 Amended and Restated Certificate of Incorporation of Ambac Financial Group, Inc.
8-A
05/01/13
3.2
3.2 Amended By-Laws of Ambac Financial Group, Inc.
10-K 03/02/20 3.2
(4) Instruments defining the rights of security holders, including indentures:
4.1 Description of Capital Stock
8-A
05/01/13
4.2 Specimen form of common stock certificate
8-A 05/01/13 4.1
4.3 Warrant Agreement between Ambac Financial Group, Inc. and Computershare Inc.
8-A 05/01/13 4.2
4.4 Specimen form of warrant certificate (included in Exhibit 4.2)
4.5 Junior Note Fiscal Agency Agreement, dated as of April 30, 2013, by and between the Segregated Account of Ambac Assurance Corporation and The Bank of New York Mellon, as fiscal agent
10-K 03/03/14 4.5
4.6 5.1% Junior Surplus Note due June 7, 2020 in the aggregate amount of $350 million issued by the Segregated Account of Ambac Assurance Corporation pursuant to the Junior Note Fiscal Agency Agreement, dated as of April 30, 2013
10-K 03/03/14 4.6
4.7 Form of 5.1% Non-Reducing Junior Surplus Note due June 7, 2020 issued by the Segregated Account of Ambac Assurance Corporation
10-K 03/03/14 4.7
4.8 Form of 5.1% Bankruptcy Reducing Junior Surplus Note due June 7, 2020 issued by the Segregated Account of Ambac Assurance Corporation
10-K 03/03/14 4.8
4.9 Form of 5.1% Reducing Junior Surplus Note due June 7, 2020, issued by the Segregated Account of Ambac Assurance Corporation
10-K 03/03/14 4.9
4.10 Fiscal Agency Agreement, dated as of July 19, 2010, by and between the Segregated Account of Ambac Assurance Corporation and The Bank of New York Mellon, as fiscal agent
10-K 03/03/14 4.10
4.11 Form of Surplus Note due June 7, 2020 issued by the Segregated Account of Ambac Assurance Corporation.(included in Exhibit 4.9)
4.12 Fiscal Agency Agreement, dated as of June 7, 2010, by and between Ambac Assurance Corporation and The Bank of New York Mellon, as fiscal agent
8-K 06/08/10 10.3
4.13 Amendment dated as of October 3, 2014 to Fiscal Agency Agreement dated as of June 7, 2010 by and between Ambac Assurance Corporation and The Bank of New York Mellon, as fiscal agent
10-Q 11/09/15 4.1
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Incorporated by Reference
Exhibit Description Form Filing Date Exhibit Number Filed Herewith
4.14 Indenture (including the form of Notes), dated as of February 12, 2018, between Ambac LSNI, LLC and The Bank of New York Mellon, as trustee and note collateral agent, providing for the issuance of insured secured notes
8-K 02/15/18 4.1
4.15 Indenture (including the form of Notes), dated as of February 12, 2018, between Ambac Assurance Corporation and The Bank of New York Mellon, as trustee and note collateral agent providing for the issuance of senior notes secured by certain interests in proceeds of certain RMBS litigation
8-K 02/15/18 4.3
4.16 Supplemental Fiscal Agency Agreement, dated as of February 12, 2018, among the Segregated Account of Ambac Assurance Corporation, Ambac Assurance Corporation and The Bank of New York Mellon, as fiscal agent
8-K 02/15/18 4.4
4.17 Promissory Note and Security Agreement dated as of February 12, 2018, of Ambac Assurance Corporation in favor of Ambac LSNI, LLC
10-K 02/28/19 4.16
(10) Material contract and management compensation plans and arrangements:
10.1 Amended and Restated Trust Agreement dated as of August 28, 2014, among Ambac Financial Group, Inc., The Bank of New York Mellon, and Wilmington Trust, National Association
8-K 08/28/14 99.2
10.2 Ambac Financial, Group, Inc.’s Incentive Compensation Plan
DEF 14A 11/08/13 A
10.3 Ambac Financial Group, Inc.'s Long-Term Incentive Compensation Plan
10-Q 08/11/14 10.1
10.4 Form of Amended and Restated Restricted Stock Unit Award Letter for executive officers
10-K 03/03/14 10.4
10.5 Form of Equity Award Letter for directors
10-K 03/03/14 10.5
10.6 Closing Agreement between Ambac Financial, Group, Inc. and Commissioner of Internal Revenue, dated April 30, 2013
8-K 05/03/13 10.2
10.7 Form of Expense Sharing and Cost Allocation Agreement among Ambac Assurance Corporation, Ambac Financial Group, Inc. and their respective subsidiaries and affiliates
8-K 09/27/11 10.2
10.8 Lease, dated as of March 1, 2011, by and between One State Street, LLC and Ambac Assurance Corporation
10-K 03/16/11 10.34
10.9 Settlement, Discontinuance and Release Agreement, dated as of March 1, 2011, by and among One State Street, LLC, Ambac Financial Group, Inc., Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation
10-K 03/16/11 10.33
10.10 Settlement Agreement, dated as of June 7, 2010, by and among Ambac Assurance Corporation, Ambac Credit Products LLC, Ambac Financial Group, Inc. and the parties listed on Schedule A thereto
10-Q 11/15/10 10.1
10.11 Ambac Financial Group, Inc. Severance Pay Plan (Applicable to termination on or after January 1, 2010)
10-Q 05/17/10 10.26
10.12 Lease Modification dated as of September 8, 2015 to the Lease dated as of March 1, 2011, by and between One State Street, LLC and Ambac Assurance Corporation
10-K 02/29/16 10.27
10.13 Employment Agreement dated as of November 1, 2016 by and among Ambac Financial Group, Inc., Ambac Assurance Corporation and David Trick
10-Q 11/03/16 10.2
10.14 Employment Agreement dated as of December 8, 2016, by and among Ambac Financial Group, Inc., Ambac Assurance Corporation and Claude LeBlanc
8-K 12/13/16 10.1
10.15 Employment Agreement dated as of January 4, 2017 by and among Ambac Financial Group, Inc., Ambac Assurance Corporation and Stephen Ksenak
8-K 01/06/17 10.1
10.16 Rehabilitation Exit Support Agreement, by and among Ambac Assurance Corporation, Ambac Financial Group, Inc. and certain holders of Ambac Assurance Corporation’s 5.1% Surplus Notes due 2020 and certain holders of Ambac Assurance Corporation’s deferred payment obligations, dated as of July 19, 2017
8-K 07/20/17 10.1
10.17 Tier 2 Commitment Letter, dated as of July 19, 2017 from funds affiliated with or managed by investors party thereto
8-K 07/20/17 10.2
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Incorporated by Reference
Exhibit Description Form Filing Date Exhibit Number Filed Herewith
10.18 First Amendment to the Rehabilitation Exit Support Agreement, by and among Ambac Assurance Corporation, Ambac Financial Group, Inc. and certain holders of Ambac Assurance Corporation’s 5.1% Surplus Notes due 2020 and certain holders of Ambac Assurance Corporation’s deferred payment obligations, dated as of September 21, 2017
8-K 09/26/17 10.1
10.19 Financial Guaranty Insurance Policy, dated February 12, 2018, issued by Ambac Assurance Corporation
8-K 02/15/18 10.1
10.20 Collateral Agreement, dated as of February 12, 2018, made by Ambac LSNI, LLC in favor of The Bank of New York Mellon, as note collateral agent, trustee and paying agent for the secured parties
8-K 02/15/18 10.2
10.21 Pledge Agreement, dated as of February 12, 2018, made by Ambac Assurance Corporation in favor of The Bank of New York Mellon, as note collateral agent, trustee and paying agent
8-K 02/15/18 10.3
10.22 Collateral Agreement, dated as of February 12, 2018, made by Ambac Assurance Corporation in favor of The Bank of New York Mellon, as note collateral agent, trustee and paying agent for the secured parties
8-K 02/15/18 10.4
10.23 Waiver and Amendment, dated as of February 12, 2018, among Ambac Assurance Corporation, Ambac Credit Products, LLC, Ambac Financial Group, Inc. and the other signatories party thereto
8-K 02/15/18 10.5
10.24 Second Amended Plan of Rehabilitation of the Segregated Account of Ambac Assurance Corporation dated September 25, 2017, and effective as of February 12, 2018
10-K 02/28/18 10.38
10.25 Order Granting the Rehabilitator’s Motion to Further Amend the Plan of Rehabilitation and confirming the Second Amended Plan of Rehabilitation, as amended, Case No. 10-CV-1576 (Dane County, Wisconsin) dated January 22, 2018
10-K 02/28/18 10.39
10.26 Stipulation and Order - Office of the Commissioner of Insurance of the State of Wisconsin, in the Matter of the Rehabilitation of the Segregated Account of Ambac Assurance Corporation effective as of February 12, 2018
10-K 02/28/18 10.40
10.27 Amendment No. 1 to the Stipulation and Order - Office of the Commissioner of Insurance of the State of Wisconsin, in the Matter of the Rehabilitation of the Segregated Account of Ambac Assurance Corporation effective as of February 12, 2018
10-K 02/28/19 10.37
10.28 Form of 2018 Restricted Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick and Ksenak
10-Q 05/09/18 10.1
10.29 Form of 2018 Restricted Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. Barranco, Eisman, Reilly and Ms. Smith
10-Q 05/09/18 10.2
10.30 Form of 2018 Performance Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick and Ksenak
10-Q 05/09/18 10.3
10.31 Form of 2018 Performance Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. Barranco, Eisman, Reilly and Ms. Smith
10-Q 05/09/18 10.4
10.32 Form of 2018 Deferred Stock Unit Award Agreement between Ambac Financial Group, Inc. and each of the Company’s executive officers
10-Q 05/09/18 10.5
10.33 Preferred Stock Repurchase and Support Agreement dated as of June 22, 2018, by and among Ambac Assurance Corporation (“AAC”), Ambac Financial Group, Inc. and the holders of one or more series of the AAC’s outstanding Auction Market Preferred Shares
8-K 06/25/18 10.1
10.34 Form of 2019 Restricted Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick and Ksenak
10-Q 05/09/19 10.1
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Incorporated by Reference
Exhibit Description Form Filing Date Exhibit Number Filed Herewith
10.35 Form of 2019 Restricted Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. Barranco, Eisman, Reilly and Ms. Smith
10-Q 05/09/19 10.2
10.36 Form of 2019 Deferred Stock Unit Award Agreement between Ambac Financial Group, Inc. and each of the Company’s executive officers
10-Q 05/09/19 10.5
10.37 Form of 2019 Performance Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. LeBlanc, Trick and Ksenak
10-Q 08/08/19 10.1
10.38 Form of 2019 Performance Stock Unit Award Agreement between Ambac Financial Group, Inc. and Messrs. Barranco, Eisman, Reilly and Ms. Smith
10-Q 08/08/19 10.2
10.39 SUBLEASE dated as of January 30, 2019, between Advance Magazine Publishers Inc. (D/B/A CONDE NAST), and Ambac Assurance Group Corporation
10-K 03/02/20 10/45
10.40 Amended and Restated Employment Agreement dated as of February 27, 2020, by and among Ambac Financial Group, Inc., Ambac Assurance Corporation and Claude LeBlanc
10-K 03/02/20 10.46
10.41 2020 Incentive Compensation Plan
Def 14A 04/15/20 Ex. B
10.42 Purchase Agreement, by and among, Ambac Assurance Corporation, Ambac Financial Group, Inc. and certain funds or accounts affiliated with or managed by CVC Credit Partners, LLC, CVC Credit Partners Investment Management Limited and EJF Capital LLC, dated as of January 19, 2021
8-K 01/25/21 10.1
(99) Additional exhibits
99.1 Second Modified Fifth Amended Plan of Reorganization of Ambac Financial Group, Inc., effective as of May 1, 2013
10-K 03/03/14 99.3
Other exhibits, filed or furnished, as indicated:
21.1 List of Subsidiaries of Ambac Financial Group, Inc.
X
23.1 Consent of Independent Registered Public Accounting Firm
X
24.1 Power of Attorney for directors of Ambac Financial Group, Inc.
X
31.1 Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) Promulgated under the Securities Exchange Act of 1934, as amended
X
31.2 Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) Promulgated under the Securities Exchange Act of 1934, as amended
X
32.1++ Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
104 Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags or embedded within the Inline XBRL document
++ Furnished herewith.
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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE I — SUMMARY OF INVESTMENTS
Other Than Investments in Related Parties
December 31, 2020
Type of Investment
($ in millions)
Cost Estimated
Fair Value
Amount at Which
Shown in the
Balance Sheet
Municipal obligations $ 321 $ 358 $ 358
Corporate obligations 592 612 612
Foreign obligations 97 98 98
U.S. government obligations 120 121 121
Residential mortgage-backed securities 256 302 302
Collateralized debt obligations 74 74 74
Other asset-backed securities 263 303 303
Short-term 617 617 617
Other 507 544 544
Total $ 2,847 $ 3,028 $ 3,028
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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II— CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY ONLY)
Condensed Balance Sheets
($ in millions, except share data) December 31, 2020 2019
Assets:
Fixed maturity securities, at fair value (amortized cost: 2020—$ 76 and 2019—$ 71 )
$ 66 $ 70
Short-term investments, at cost (approximates fair value) 229 318
Other investments 54 46
Total investments (net of allowance for credit losses of $ 2 at December 31, 2020)
349 434
Cash 7 9
Investment in subsidiaries 714 993
Current taxes receivable (1)
— 30
Other assets 13 12
Total assets $ 1,082 $ 1,478
Liabilities and Stockholders' Equity:
Liabilities:
Current taxes $ — $ —
Accounts payable and other liabilities
2 2
Total liabilities 3 2
Stockholders’ equity:
Preferred stock, par value $ 0.01 per share; 20,000,000 shares authorized shares; issued and outstanding shares— none
— —
Common stock, par value $ 0.01 per share; 130,000,000 shares authorized; issued shares: 45,865,081 and 45,571,743
— —
Additional paid-in capital 242 232
Accumulated other comprehensive income (loss) 79 42
Retained earnings 759 1,203
Treasury stock, shares at cost: 55,942 and 16,343
( 1 ) —
Total Ambac Financial Group, Inc. stockholders’ equity 1,080 1,477
Total liabilities and stockholders’ equity $ 1,082 $ 1,478
(1) As of December 31, 2019, $ 28 relates to receivables from the Registrant's wholly-owned subsidiary, Ambac Assurance Corporation, pursuant to the intercompany tax sharing agreement, with the remainder being state income taxes.
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the following notes.
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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II— CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY ONLY)
Condensed Statement of Comprehensive Income
($ in millions) Year Ended December 31, 2020 2019 2018
Revenues:
Investment income $ 13 $ ( 1 ) $ ( 2 )
Net realized gains (losses) ( 1 ) ( 2 ) ( 2 )
Total revenues 12 18 26
Expenses:
Operating expenses 19 16 8
Total expenses 19 16 8
Income (loss) before income taxes and equity in undistributed net loss of subsidiaries
( 7 ) 2 17
Federal income tax provision (benefit) — ( 5 ) ( 11 )
Income before equity in undistributed net income (loss) of subsidiaries
( 7 ) 7 28
Equity in undistributed net income (loss) of subsidiaries
( 430 ) ( 223 ) 157
Net income (loss) $ ( 437 ) $ ( 216 ) $ 186
Other comprehensive income (loss), after tax:
Net income (loss) $ ( 437 ) $ ( 216 ) $ 186
Unrealized gains (losses) on securities, net of income tax provision (benefit) of $ 1 , $( 8 ) and $ 2
15 65 55
Gains (losses) on foreign currency translation, net of income tax provision (benefit) of $ 0 , $ 0 and $ 0
23 26 ( 48 )
Credit risk changes of fair value option liabilities, net of income tax provision (benefit) of $ 0 , $ 0 and $ 0
1 — 1
Changes to postretirement benefit, net of income tax provision (benefit) of $ 0 , $ 0 and $ 0
( 3 ) ( 1 ) ( 2 )
Total other comprehensive income (loss) 37 91 6
Total comprehensive income (loss) attributable to Ambac Financial Group, Inc.
$ ( 400 ) $ ( 125 ) $ 192
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the following notes.
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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II— CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY ONLY)
Condensed Statement of Stockholders' Equity
($ in millions) Total Retained
Earnings
Accumulated
Other
Comprehensive
Income
Preferred
Stock
Common
Stock
Additional Paid-in
Capital
Common
Stock Held
in Treasury,
at Cost
Balance at January 1, 2020 $ 1,477 $ 1,203 $ 42 $ — $ — $ 232 $ —
Total comprehensive income (loss) ( 400 ) ( 437 ) 37 — — — —
Adjustment to initially apply ASU 2016-13 ( 4 ) ( 4 ) — — — — —
Stock-based compensation 11 — — — — 11 —
Cost of shares (acquired) issued under equity plan ( 3 ) ( 2 ) — — — — ( 1 )
Balance at December 31, 2020 $ 1,080 $ 759 $ 79 $ — $ — $ 242 $ ( 1 )
Balance at Balance at January 1, 2019 $ 1,592 $ 1,421 $ ( 49 ) $ — $ — $ 219 $ —
Total comprehensive income (loss) ( 125 ) ( 216 ) 91 — — — —
Stock-based compensation 12 — — — — 12 —
Cost of shares (acquired) issued under equity plan ( 3 ) ( 3 ) — — — — —
Balance at December 31, 2019 $ 1,477 $ 1,203 $ 42 $ — $ — $ 232 $ —
Balance at January 1, 2018 $ 1,381 $ 1,234 $ ( 52 ) $ — $ — $ 200 $ —
Total comprehensive income (loss) 192 186 6 — — — —
Adjustment to initially apply ASU 2016-01 — 3 ( 3 ) — — — —
Stock-based compensation 12 — — — — 12 —
Cost of shares (acquired) issued under equity plan ( 1 ) ( 1 ) — — — — —
Issuance of warrants 8 — — — — 8 —
Balance at December 31, 2018 $ 1,592 $ 1,421 $ ( 49 ) $ — $ — $ 219 $ —
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the following notes.
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AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II— CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY ONLY)
Condensed Statements of Cash Flow
($ in millions) Year Ended December 31, 2020 2019 2018
Cash flows from operating activities:
Net income (loss) $ ( 437 ) $ ( 216 ) $ 186
Adjustments to reconcile net income loss to net cash used in operating activities:
Equity in undistributed net (income) loss of subsidiaries 423 223 ( 157 )
Amortization of bond premium and discount ( 6 ) ( 6 ) ( 7 )
Net realized gains 1 2 2
Increase (decrease) in current income taxes payable 30 15 ( 15 )
Share-based compensation 11 12 12
(Increase) decrease in other assets ( 1 ) ( 8 ) 12
Other, net ( 10 ) ( 6 ) —
Net cash provided by (used in) operating activities 11 16 32
Cash flows from investing activities:
Proceeds from matured bonds 46 86 230
Purchases of bonds ( 45 ) ( 2 ) ( 137 )
Change in short-term investments 89 ( 125 ) ( 123 )
Change in other investments — — 25
Sale of auction market preferred shares of Ambac Assurance — 19 —
Purchase of auction market preferred shares of Ambac Assurance — — ( 11 )
Acquisition of Xchange, net of cash acquired ( 74 ) — —
Other, net — — ( 5 )
Net cash provided by (used in) investing activities 16 ( 22 ) ( 21 )
Cash flows from financing activities:
Capital contribution to subsidiaries ( 29 ) — —
Net cash (used in) financing activities (29) — —
Net cash flow ( 2 ) ( 6 ) 11
Cash at beginning of period 9 15 4
Cash at end of period $ 7 $ 9 $ 15
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ — $ 1 $ 4
Non-cash financing activity:
Issuance of warrants in connection with purchase of auction market preferred shares of Ambac Assurance $ — $ — $ 8
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the following notes.
| Ambac Financial Group, Inc. 152 2020 FORM 10-K |
Table of Contents
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II— CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY ONLY)
Notes to Condensed Financial Information
(Dollar Amounts in Millions)
The condensed financial information of Ambac Financial Group, Inc. (“AFG” or the “Registrant”) as of December 31, 2020 and 2019, and for the three years in the period ended December 31, 2020, should be read in conjunction with the consolidated financial statements of AFG Financial Group, Inc. and Subsidiaries and the notes thereto included in this 2020 Annual Report on Form 10-K for the year ended December 31, 2020.
AFG, headquartered in New York City, is a financial services holding company incorporated in the state of Delaware on April 29, 1991 .
Business Combination
On December 31, 2020, Ambac completed the acquisition of 80 % of the membership interests of Xchange for a purchase price of $ 81 in cash. Xchange, whose management principals retained the remaining 20 % of the company, will continue operating under its existing brand as it seeks to expand its underwriting partnership with its key carriers in connection with its planned growth strategy.
See Note 3. Business Combination to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for further information.
Income Taxes
AFG files a consolidated Federal income tax return with its U.S. subsidiaries. AFG and its subsidiaries also file separate or combined income tax returns in various states, local and foreign jurisdictions. As of December 31, 2020, Ambac had consolidated U.S. federal loss carryforwards ("NOLs") totaling approximately $ 3,639 , which, if not utilized, will begin expiring in 2029, and will fully expire in 2041.
Pursuant to an intercompany tax sharing agreement, taxable income generated by AAC after September 30, 2011, is offset by $ 3,440 of NOLs allocated to AAC. In December 2020, AFG and certain affiliates amended their existing tax sharing agreement (the "Third TSA Amendment"). Under the Third TSA Amendment, AAC and AFG agreed to reallocate $ 210 of net operating loss carry-forwards (“NOLs”) from AAC to AFG and to eliminate AAC's requirement to make future payments based on its utilization of NOLs ("tolling payments") for any taxable year beginning on or after January 1, 2019. In connection with the Third TSA Amendment, AAC paid to AFG approximately $ 28 of accrued tolling payments based on NOLs used by AAC in 2017. For the year ended December 31, 2020, the AAC sub-group generated an NOL of $ 270 , that will expire in 2041.
The NOLs allocated to AFG as of December 31, 2020, were $ 1,457 , and begin expiring in 2029 and fully expire in 2033.
| Ambac Financial Group, Inc. 153 2020 FORM 10-K |
AMBAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE IV— REINSURANCE
Years Ended December 31, 2020, 2019 and 2018
Insurance Premiums Written
($ in millions)
Gross
Amount
Ceded to Other
Companies
Assumed from
Other
Companies
Net
Amount
Percentage of
Amount
Assumed to
Net
Year Ended December 31, 2020 $ ( 1 ) $ ( 1 ) $ — $ — — %
Year Ended December 31, 2019 ( 28 ) 31 $ — ( 60 ) — %
Year Ended December 31, 2018 ( 24 ) 17 — ( 41 ) — %
| Ambac Financial Group, Inc. 154 2020 FORM 10-K |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMBAC FINANCIAL GROUP, INC.
Dated: March 1, 2021 By: /S/ DAVID TRICK
David Trick
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ JEFFREY S. STEIN* Chairman of the Board and Director March 1, 2021
Jeffrey S. Stein
/S/ CLAUDE LEBLANC President, Chief Executive Officer and Director March 1, 2021
Claude LeBlanc (Principal Executive Officer)
/S/ DAVID TRICK Executive Vice President and Chief Financial Officer March 1, 2021
David Trick (Principal Financial Officer)
/S/ ROBERT B. EISMAN Senior Managing Director and Chief Accounting Officer March 1, 2021
Robert B. Eisman (Principal Accounting Officer)
/S/ ALEXANDER D. GREENE* Director March 1, 2021
Alexander D. Greene
/S/ IAN D. HAFT* Director March 1, 2021
Ian D. Haft
/S/ DAVID L. HERZOG* Director March 1, 2021
David L. Herzog
/S/ C. JAMES PRIEUR* Director March 1, 2021
C. James Prieur
/S/ JOAN LAMM-TENNANT* Director March 1, 2021
Joan Lamm-Tennant
/S/ STEPHEN M. KSENAK Attorney-in-fact March 1, 2021
*By: Stephen M. Ksenak
| Ambac Financial Group, Inc. 155 2020 FORM 10-K |