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Item 8. Financial Statements and Supplementary Data

2024-02-27 compared with 2023-03-01 · 935 added, 1311 removed, 2335 unchanged (49% of the section changed)

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Background and Business Description 66

Goodwill and Intangible Assets 112

Basis of Presentation and Significant Accounting Policies 70

Variable Interest Entities 104

Segment Information 83

Basis of Presentation and Significant Accounting Policies 68

Long-term Debt 107

Business Combination 85

Segment Information 82

Revenues From Contracts with Customers 109

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Commitments and Contingencies 115

Goodwill and Intangible Assets 104

Ambac Financial Group, Inc 58

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Estimate of loss and loss adjustment expense reserves and subrogation recoverable

As described in Notes 2 and 8 to the consolidated financial statements, the Company estimates financial guarantee loss and loss expense reserves and subrogation recoverable (loss reserves) on a policy-by-policy basis based upon the present value of expected net claim cash outflows or expected net recovery cash inflows, discounted at risk-free rates.

As described in Notes 2 and 7 to the consolidated financial statements, the Company estimates financial guarantee loss and loss adjustment expense reserves and subrogation recoverable (loss reserves) on a policy-by-policy basis based upon the present value of expected net claim cash outflows or expected net recovery cash inflows, discounted at risk-free rates.

Expected net claim cash outflows represent the present value of expected claim cash outflows, less the present value of expected recovery cash inflows.

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$ 1,710 $ 1,395

Fixed maturity securities pledged as collateral, at fair value (amortized cost of $ — and $ 15 )

Fixed maturity securities - trading, at fair value 27 59

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Subrogation recoverable 137 271

Derivative assets 27 76

Intangible assets 326 362

Intangible assets, less accumulated amortization 307 326

Goodwill 70 61

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Accrued interest payable 475 427

Derivative liabilities 38 95

Other liabilities 199 201

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1,463,774 and 1,685,233

( 17 ) ( 15 )

Total Ambac Financial Group, Inc.

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Total revenues and other income 269 505 282

Losses and loss adjustment expenses (benefit) ( 396 ) ( 88 ) 225

Losses and loss adjustment expenses ( 33 ) ( 396 ) ( 88 )

Amortization of deferred acquisition costs, net 11 3 1

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Total other comprehensive income (loss), net of income tax 93 ( 310 ) ( 21 )

Total comprehensive income (loss), net of income tax 212 ( 38 ) ( 400 )

Total comprehensive income, net of income tax 98 212 ( 38 )

net (gain) loss attributable to noncontrolling interest ( 1 ) ( 1 ) ( 1 )

gain on purchase of auction market preferred shares — 1 —

Total comprehensive income (loss) attributable to common stockholders $ 212 $ ( 38 ) $ ( 400 )

Total comprehensive income attributable to common stockholders $ 96 $ 212 $ ( 38 )

Net income (loss) per shared attributable to common stockholders

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Ambac Financial Group, Inc.

($ in Millions) Total Retained Earnings Accumulated

($ in Millions) Total Preferred Stock Common Stock Additional Paid-in

Capital Accumulated

Comprehensive

Income (Loss) Preferred

Stock Additional Paid-in

Capital Treasury Stock,

at Cost Nonredeemable Noncontrolling

Balance at January 1, 2020 $ 1,536 $ 1,203 $ 42 $ — $ — $ 232 $ — $ 60

Income (Loss) Retained Earnings Common Stock Held in Treasury, at Cost Nonredeemable Noncontrolling

Balance at December 31, 2020 $ 1,140 $ — $ — $ 242 $ 79 $ 759 $ ( 1 ) $ 60

Total comprehensive income (loss) ( 38 ) — — — ( 21 ) ( 17 ) — —

Adjustment to initially apply ASU 2016-13 ( 4 ) ( 4 ) — — — — — —

Stock-based compensation 14 — — 14 — — — —

Cost of shares (acquired) issued under equity plan ( 6 ) — — — — ( 4 ) ( 2 ) —

Changes to noncontrolling interest ( 12 ) — — — — ( 12 ) — —

Balance at December 31, 2021 $ 1,098 $ — $ — $ 257 $ 58 $ 726 $ ( 3 ) $ 60

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Cost of shares (acquired) issued under equity plan ( 4 ) — — — — ( 5 ) 2 —

Changes to redeemable noncontrolling interest ( 12 ) ( 12 ) — — — — — —

Cost of shares repurchased ( 14 ) — — — — — ( 14 ) —

Changes to noncontrolling interest 3 — — — — 3 — —

Sale of noncontrolling interest in subsidiary 2 — — — — — — 2

Purchase of Ambac Assurance auction market preferred shares ( 8 ) — — — — 1 — ( 9 )

Balance at December 31, 2022 $ 1,305 $ — $ — $ 274 $ ( 253 ) $ 1,245 $ ( 15 ) $ 53

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Cost of shares repurchased ( 5 ) — — — — — ( 5 ) —

Changes to Redeemable noncontrolling interest 3 3 — — — — — —

Sale of noncontrolling interest in subsidiary 2 — — — — — — 2

Purchase of Ambac Assurance auction market preferred shares ( 8 ) 1 — — — — — ( 9 )

Changes to noncontrolling interest 5 — — — — 5 — —

Balance at December 31, 2023 $ 1,415 $ — $ — $ 292 $ ( 160 ) $ 1,246 $ ( 17 ) $ 53

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Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization 2 2 1

Depreciation 2 2 2

Amortization of bond premium and discount ( 15 ) ( 11 ) ( 13 )

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Variable interest entity activities ( 3 ) ( 21 ) ( 7 )

Derivative assets and liabilities ( 44 ) ( 23 ) 6

Other, net 13 ( 196 ) ( 56 )

Net cash provided by (used in) operating activities 1,335 ( 131 ) ( 175 )

Net cash provided by operating activities 200 1,335 ( 131 )

Cash flows from investing activities:

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Change in short-term investments 118 ( 52 ) 98

Change in cash collateral receivable 44 9 —

Change in cash collateral ( 42 ) 44 9

Change in consolidated VIE cash collateral 235 — —

Proceeds from paydowns of consolidated VIE assets 199 504 171

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Distributions to noncontrolling interest holders ( 2 ) ( 1 ) ( 1 )

Payments of consolidated VIE liabilities ( 591 ) ( 170 ) ( 178 )

Payments of consolidated VIE liabilities, net ( 315 ) ( 591 ) ( 170 )

Net cash used in financing activities ( 423 ) ( 2,163 ) ( 657 )

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Both AAC and Ambac UK have financial guarantee insurance portfolios that have been in runoff since 2008.

AFS uses derivatives to hedge interest rate risk in AAC's insurance and investment portfolios.

AFS provided interest rate derivatives to financial guarantee customers and used derivatives to hedge interest rate risk in AAC's insurance and investment portfolios.

Since June 2023, AFS' only remaining derivative positions include a limited number of legacy customer swaps and their associated hedges.

• Specialty Property and Casualty Insurance — Ambac's Specialty Property and Casualty Insurance program business includes five admitted carriers and an excess and surplus lines (“E&S” or “nonadmitted”) insurer (collectively, “Everspan”).

Three of the five admitted carrier were acquired in 2022.

Everspan carriers have an AM Best rating of 'A-' (Excellent).

• Insurance Distribution — Ambac's specialty property and casualty ("P&C") insurance distribution business, which could include Managing General Agents and Underwriters (collectively "MGA/Us"), insurance wholesalers, and other distribution businesses, currently includes (i) Xchange Benefits, LLC (“Xchange”), a P&C MGA/U specializing in accident and health products, (ii) All Trans Risk Solutions, LLC ("All Trans"), a full service managing general underwriter specializing in commercial automobile insurance for specific "for-hire" auto classes, and (iii) Capacity Marine Corporation ("Capacity Marine"), a wholesale retail brokerage and reinsurance intermediary specializing in marine and international risk.

Both All Trans and Capacity Marine Corporation were acquired in November 2022, refer to Note 4.

Business Combination for further information relating to these acquisitions.

• Insurance Distribution — Ambac's specialty property and casualty ("P&C") insurance distribution business, which currently includes Managing General Agents and Underwriters (collectively "MGAs") and insurance brokers.

Currently includes (i) Xchange Benefits, LLC (“Xchange”), a P&C MGA specializing in accident and health products, (ii) All Trans Risk Solutions, LLC ("All Trans"), an MGA specializing in specialty commercial automobile insurance for specific "for-hire" auto classes, (iii) Capacity Marine Corporation ("Capacity Marine"), a wholesale and retail brokerage and reinsurance intermediary specializing in marine and international risk, and (iv) Riverton Insurance Agency, Corp.

("Riverton"), which was acquired on August 1, 2023, an insurance services business specializing in professional liability lines and consisting of an MGA and a retail agency.

Both All Trans and Capacity Marine Corporation were acquired in November 2022.

Beginning in 2022, the Company began reporting these three business operations as segments;

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AFG’s Amended and Restated Certificate of Incorporation limits voting and transfer rights of stockholders in significant ways.

Article IV contains voting restrictions applicable to any person owning at least 10 % of AFG's common stock so that such person (including any group consisting of such person and any other person with whom such person or any affiliate or associate of such person has any agreement, contract, arrangement or understanding with respect to acquiring, voting,

holding or disposing of AFG’s common stock) shall not be entitled to cast votes in excess of one vote less than 10 % of the votes entitled to be cast by all common stock holders, except as otherwise approved by the OCI (as defined below).

associate of such person has any agreement, contract, arrangement or understanding with respect to acquiring, voting, holding or disposing of AFG’s common stock) shall not be entitled to cast votes in excess of one vote less than 10 % of the votes entitled to be cast by all common stock holders, except as otherwise approved by the OCI (as defined below).

Article XII contains substantial restrictions on the ability to transfer AFG’s common stock.

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Strategies to Enhance Shareholder Value

The Company's primary goal is to maximize long-term shareholder value through the execution of key strategies for its (i) Specialty Property and Casualty Insurance and Insurance Distribution businesses and (ii) Legacy Financial Guarantee Insurance.

The Company's primary goal is to maximize long-term shareholder value through the execution of targeted strategies for its (i) Specialty Property and Casualty Insurance and Insurance Distribution businesses and (ii) Legacy Financial Guarantee Insurance business.

Specialty Property and Casualty Insurance and Insurance Distribution strategic priorities include:

• Growing a Specialty Property and Casualty Insurance business which generates underwriting profits and an attractive return on capital from a diversified portfolio of

• Growing our Specialty Property and Casualty Insurance business to generate underwriting profits from a diversified

Ambac Financial Group, Inc 66

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(Dollar Amounts in Millions, Except Share Amounts)

commercial and personal liability risks accessed through program administrators.

• Building an Insurance Distribution business based on deep domain knowledge in specialty and niche classes of risk which generate attractive margins at scale.

This will be achieved through acquisitions, new business “de-novo” formation and incubation, and product expansion supported by a centralized technology led shared services offering.

portfolio of commercial and personal liability risks accessed primarily through program administrators.

• Expanding our Insurance Distribution business based on deep domain knowledge in specialty and niche classes of risk which generate attractive margins at scale.

This will be achieved through acquisitions, establishing new businesses “de-novo,” and organic growth and diversification supported by a centralized technology led shared services offering.

• Making opportunistic investments that are strategic to both the Specialty Property and Casualty Insurance and Insurance Distribution businesses.

Legacy Financial Guarantee Insurance strategic priorities include:

• Actively managing, de-risking and mitigating insured portfolio risk, and pursuing recovery of previously paid losses.

• Actively managing, de-risking and mitigating insured portfolio risk, and pursuing recoveries of previously paid losses.

• Improving operating efficiency and optimizing our asset and liability profile.

• Exploring strategic options to further maximize value for AFG.

The execution of Ambac’s strategy to increase the value of its investment in AAC is subject to the restrictions set forth in the Settlement Agreement, dated as of June 7, 2010, as amended (the "Settlement Agreement"), by and among AAC, Ambac Credit Products LLC ("ACP"), AFG and certain counterparties to credit default swaps with ACP that were guaranteed by AAC, as well as the Stipulation and Order among the Office of the Commissioner of Insurance for the State of Wisconsin (“OCI”), AFG and AAC that became effective on February 12, 2018, as amended (the “Stipulation and Order”), each of which requires OCI and, under certain circumstances, holders of surplus notes, to approve certain actions taken by or in respect of AAC.

The execution of Ambac’s strategy to increase the value of its investment in AAC is subject to the restrictions set forth in the Settlement Agreement, dated as of June 7, 2010, as amended (the "Settlement Agreement"), by and among AAC, Ambac Credit Products LLC ("ACP"), AFG and certain counterparties to credit default swaps with ACP that were guaranteed by AAC, as well as the Stipulation and Order among the OCI, AFG and AAC that became effective on February 22, 2024 (the “Stipulation and Order”), replacing the Stipulation and Order that became effective on February 12, 2018, as amended (the "2018 Stipulation and Order"), each of which requires OCI and, under certain circumstances contemplated by the Settlement Agreement, holders of surplus notes, to approve certain actions taken by or in respect of AAC.

In exercising its approval rights, OCI will act for the benefit of policyholders, and will not take into account the interests of AFG.

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The Settlement Agreement includes certain allowances with respect to these activities and generally requires the approval of OCI and, in some cases, holders of surplus notes issued pursuant to the Settlement Agreement, for consents, waivers or amendments.

The Stipulation and Order includes affirmative covenants, as well as restrictions on certain business activities and transactions, of AFG and AAC.

The Stipulation and Order requires AAC to maintain a level of surplus and contingency reserves as regards policyholders which provide reasonable security against contingencies affecting AAC’s financial position that are not otherwise fully covered by reserves or reinsurance;

discount loss reserves in a manner

approved by OCI;

maintain OCI’s Runoff Capital Framework according to parameters specified by OCI;

pay the costs of consultants and other experts retained by OCI;

limit affiliate transactions and the payment of any dividend or other distribution without the prior non-disapproval of OCI;

notify OCI of events that would or would be reasonably likely to cause a material adverse effect to AAC or its affiliates;

obtain OCI’s non-disapproval to exercise certain control rights with respect to certain policies that were previously allocated to the Segregated Account of AAC;

obtain OCI’s approval for non-ordinary course transactions involving consideration to be paid by AAC of $ 100 or more;

and obtain OCI’s approval of any changes to AAC’s investment policy or derivative use plan.

The Stipulation and Order also requires AFG to use its best efforts to preserve the use of NOLs for the benefit of AAC and its subsidiaries.

The Stipulation and Order differs from the 2018 Stipulation and Order in that the 2018 Stipulation and Order (i) did not refer to OCI’s Runoff Capital Framework;

(ii) included certain affirmative covenants concerning books and records, and reporting of information or events, that were not included in the Stipulation and Order;

and (iii) contained a more restrictive limitation on transactions with affiliates.

The Stipulation and Order has no fixed term and may be terminated or modified only with the approval of OCI.

OCI reserved the right to modify or terminate the Stipulation and Order in a manner consistent with the interests of policyholders, creditors and the public generally.

The execution of Ambac’s strategy to increase the value of its investment in AAC may also be affected by a new capital framework being developed by OCI ("OCI's Runoff Capital Framework") to assist OCI with making decisions related to capital and liquidity management at AAC.

OCI's Runoff Capital Framework is not yet complete and therefore we are not able to predict the results of such and what it may mean for our Legacy Financial Guarantee strategy, particularly as it relates to deleveraging AAC and distributing capital to AFG.

Opportunities for remediating losses on poorly performing insured transactions also depend on market conditions, including the perception of AAC’s creditworthiness, the structure of the underlying risk and associated policy as well as other counterparty specific factors.

The execution of Ambac’s strategy to increase the value of its investment in AAC may be affected by a new capital framework developed and implemented by OCI to assist OCI with making decisions related to capital management at AAC ("OCI's Runoff Capital Framework").

OCI’s Runoff Capital Framework applies risk-based and other adjustments to AAC’s assets and insured liabilities, as determined by OCI in its sole discretion.

OCI’s Runoff Capital Framework allows AAC to understand the likely impact of various developments and actions now or in the future on AAC’s capital position thereunder.

No changes in AAC’s current management of the business are required by OCI’s Runoff Capital Framework.

AAC’s ability to use capital for potential future deleveraging transactions or distributions will require AAC to sustain an excess of risk-adjusted assets over risk-adjusted insured liabilities according to OCI’s Runoff Capital Framework, and to obtain OCI’s approval, and there can be no assurance that OCI will approve any such use of capital.

The results of OCI’s Runoff Capital Framework are expected to vary over time based on changes in AAC’s financial position, insured portfolio developments, the impact of strategic actions taken by AAC, the impact of asset/liability management by AAC and, possibly, changes to the inputs and assumptions utilized by OCI.

Opportunities for remediating losses on poorly performing insured transactions depend on market conditions, including the perception of AAC’s creditworthiness, the structure of the underlying risk and associated policy as well as other counterparty specific factors.

AAC's ability to commute policies or purchase certain investments may also be limited by available liquidity.

Surplus Note Exchanges and Repurchases

On January 19, 2021, AAC entered into a purchase agreement (the “Purchase Agreement”) with AFG and certain funds or accounts (the “Note Holders”), pursuant to which (i) the Note Holders agreed to sell to AAC all of the individual beneficial interests (the “Interests”) in the 5.1 % senior notes due August 28, 2039 (the “Corolla Notes”), issued by the Corolla Trust, a Delaware statutory trust formed by AFG in 2014 (the "Corolla Trust")(see Note 12.

Variable Interest Entities for a discussion of the establishment of the Corolla Trust), (ii) AFG agreed to sell to AAC the owner trust certificate for the Corolla Trust (the “Corolla Certificate”), which constituted all of the equity interests in the Corolla Trust, and (iii) AAC agreed to exchange the Interests and the Corolla Certificate for AAC’s surplus notes (collectively, the “Corolla Note Exchange”).

The Note Holders held 100 % of the outstanding Corolla Notes.

Pursuant to the Purchase Agreement, each $ 1.00 principal amount of the Corolla Notes (and the associated amount of accrued and unpaid interest thereon) was exchanged for $ 0.9125 principal amount of surplus notes (and the associated amount of accrued and unpaid interest thereon) on the date of the consummation of the Corolla Note Exchange (the “Closing”).

In addition, every $ 1.00 principal amount of the Corolla Certificate (and the associated amount of accrued and unpaid interest thereon) was exchanged for $ 0.64 principal amount of surplus notes (and the associated amount of accrued and unpaid interest thereon) on the date of Closing.

The Closing occurred on January 22, 2021.

At the Closing AAC issued $ 267 aggregate principal amount of surplus notes to consummate the Corolla Note Exchange and acquire all of the interests in the Corolla Trust.

Subsequent to the closing the Corolla Trust was dissolved and the junior surplus note that had been deposited in the Corolla Trust by AFG in 2014 was canceled.

In February 2021, AAC entered into a purchase agreement pursuant to which the holder of $ 15 principal amount of 5.1 % junior surplus notes issued by AAC agreed to sell such notes to AAC in exchange for surplus notes (the "JSN Exchange").

Pursuant to the purchase agreement, each $ 1.00 principal amount of the junior surplus notes (and the associated amount of accrued and unpaid interest thereon) was exchanged for $ 0.8581 principal amount of surplus notes (and the associated amount of

Ambac Financial Group, Inc 67

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(Dollar Amounts in Millions, Except Share Amounts)

accrued and unpaid interest thereon).

The closing of the JSN Exchange occurred on February 11, 2021, when AAC issued approximately $ 13 aggregate principal amount of surplus notes.

Subsequent to the closing of the JSN Exchange the junior surplus notes were canceled.

As a result of the Corolla Note Exchange and the JSN Exchange, AAC no longer has any junior surplus notes outstanding.

The surplus notes exchanged pursuant to the Corolla Note Exchange and the JSN Exchange are part of the same series as, and rank equally with, the surplus notes previously issued by AAC.

The Company recorded a gain of $ 33 for the year ended December 31, 2021, arising from AAC's purchases of junior surplus notes below their carrying values which is reported within Net realized gains (losses) on extinguishment of debt in the Consolidated Statements of Total Comprehensive Income (Loss).

In addition, the Company recorded a gain of $ 4 for the year ended December 31, 2021, from the exchange of the Corolla Certificate held by AFG above its carrying value, which is reported within Net realized investment gains (losses) in the Consolidated Statements of Total Comprehensive Income (Loss).

During 2022, AAC repurchased $ 266 current par of surplus notes from third party holders below the carrying value of the surplus notes including accrued interest, resulting in a gain of $ 134 which is reported within Net realized gains (losses) on extinguishment of debt in the Consolidated Statements of Total Comprehensive Income (Loss) for the year ended December 31, 2022.

In addition, in November 2022, AAC purchased all of the remaining surplus notes received by AFG following execution of the Corolla Trust Purchase Agreement described above.

AAC's repurchase of surplus notes from AFG had no impact on the consolidated financial statements of the Company.

Our financial guarantee insured exposure to Puerto Rico (the "Commonwealth") consisted of several different issuing entities (all below investment grade and whereby AAC has paid substantial claims since 2016) that have been part of the debt restructuring process under the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), a U.S.

federal law enacted in 2016 that, among other things, established a financial oversight board (the “FOMB”) and provided for a process for restructuring debt that roughly follows U.S.

Bankruptcy laws.

As of December 6, 2022, all AAC-insured Puerto Rico obligations have been restructured under PROMESA via court-approved plans of adjustment or qualifying modifications.

Secured Note Refinancing

On July 6, 2021, a newly formed variable interest entity and wholly-owned subsidiary of AFG, Sitka Holdings, LLC (“Sitka”), issued $ 1,175 par amount of LIBOR plus 4.5 % senior secured notes due 2026 (the “Sitka Senior Secured Notes”).

In connection with the issuance and sale of the Sitka Senior Secured Notes, AAC issued a secured note to Sitka in the same amount and with the same interest rate and maturity date as the Sitka Senior Secured Notes (the "Sitka AAC Note").

The proceeds from this offering of $ 1,163 were used to fund a

portion of the full redemption of the Ambac LSNI Secured Notes due 2023 (the “LSNI Secured Notes”) and the secured note issued by AAC concurrently with the issuance of the LSNI Secured Notes (the "LSNI Ambac Note").

The remaining balance of the LSNI Secured Notes were redeemed utilizing other available temporary sources of liquidity.

Ambac did not consolidate Sitka since it does not have a variable interest in the trust.

Accordingly, the Sitka AAC Note was reported within Long-term debt on the Consolidated Balance Sheet.

The Sitka AAC Note and the Sitka Senior Secured Notes were fully redeemed with the proceeds (net of reinsurance) of the BOA Settlement Payment from the BOA Parties (as such terms are defined below).

Settlement of RMBS Litigations and Redemption of Secured Notes:

Settlement of RMBS Litigations:

In October 2022, AAC entered into a Settlement Agreement and Release (the “BOA Settlement Agreement”) with Bank of America Corporation and certain affiliates thereof (together, the “BOA Parties”) pursuant to which the BOA Parties paid AAC the sum of $ 1,840 (the “BOA Settlement Payment”) following the dismissal of AAC’s lawsuits against the BOA Parties concerning certain residential mortgage-backed securities (“RMBS”) trusts, and the withdrawal by AAC of its objections, including any pending appeals, concerning the settlements that were the subject of certain trust instructional proceedings.

The BOA Settlement Payment received in October 2022 significantly reduced the subrogation recoverable asset on the Consolidated Balance Sheet.

In exchange for the BOA Settlement Payment, AAC, on its own behalf and on behalf of its affiliates, agreed to release the BOA Parties and related parties (the “Released Parties”) from claims asserted or which could have been asserted in AAC’s pending litigations against the BOA Parties as well as claims that AAC and its affiliates ever had, may currently have or may have in the future against the Released Parties, subject to certain limited exceptions.

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(“Nomura”) to settle its litigation against Nomura concerning certain RMBS trusts (the “Trusts”).

Pursuant to the Nomura Settlement Agreement, Nomura made a cash payment to AAC of $ 140 (the "Nomura Settlement Payment"), and AAC and Nomura agreed to release

| Ambac Financial Group, Inc.

69 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

each other and their respective affiliates and related persons from any claims relating to the Trusts, the financial guaranty policies issued by AAC in connection with Trusts (other than AAC’s obligations to pay insurance claims under such policies), the securities related to the Trusts, and the mortgage loans related to the Trusts.

The Nomura Settlement Payment received in January 2023 will further reduce the subrogation recoverable asset on the Consolidated Balance Sheet.

Redemption of Notes:

During 2022 and 2023, AAC wholly redeemed its secured debt, in accordance with the terms of such debt, utilizing the BOA Settlement Payment, the Nomura Settlement Payment and other resources as follows:

• Effective October 29, 2022, AAC wholly redeemed the Sitka AAC Note from the BOA Settlement Payment, for $ 1,218 (a price equal to 103 % of the principal amount plus accrued and unpaid interest) and Sitka wholly redeemed the Sitka Senior Secured Notes for the same amount.

Ambac recorded a loss of $ 53 reported in Net realized gains (losses) on extinguishment of debt in the Consolidated Statements of Total Comprehensive Income (Loss) for difference between the carrying value of the Sitka AAC Note and the redemption amount paid, excluding accrued interest.

• Effective October 29, 2022, AAC applied Net Proceeds (as defined below) of approximately $ 213 from the BOA Settlement Payment to partially redeem Tier 2 Notes plus accrued and unpaid interest as of the date of redemption.

The Tier 2 Notes were secured by proceeds from RMBS litigations net of reinsurance (“Net Proceeds”) in excess of $ 1,600 and were subject to mandatory redemption from Net Proceeds in excess of $ 1,600 .

• Effective January 15, 2023, AAC applied the Net Proceeds of $ 140 from the Nomura Settlement Payment plus approximately $ 6 from other sources to fully redeem the remaining Tier 2 Notes plus accrued and unpaid interest in the amount of approximately $ 146 as of the date of redemption.

Long-term Debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for the year ended December 31, 2022, for a description of Sitka, the Sitka AAC Note, the Sitka Senior Secured Notes and the Tier 2 Notes.

AAC also invested a portion of its assets in the Sitka Senior Secured Notes, reported as Fixed maturity securities - available-for-sale on the Consolidated Balance Sheet and recorded a realized investment gain of $ 5 in the Consolidated Statements of Total Comprehensive Income (Loss) on the redemption date.

Pursuant to the Nomura Settlement Agreement, Nomura made a cash payment to AAC of $ 140 (the "Nomura Settlement Payment"), and AAC and Nomura agreed to release each other and their respective affiliates and related persons from any claims relating to the Trusts, the financial guaranty policies issued by AAC in connection with Trusts (other than AAC’s obligations to pay insurance claims under such policies), the securities related to the Trusts, and the mortgage loans related to the Trusts.

The Nomura Settlement Payment received in January 2023 reduced the subrogation recoverable asset on the Consolidated Balance Sheet.

Long-term Debt .

Impact to the Consolidated Statement of Comprehensive Income (Loss):

The total gain recognized in net income attributable to common stockholders related to entering into the BOA Settlement Agreement and the Nomura Settlement Agreement, including the redemption of the Sitka AAC Note following the BOA Settlement, was as follows:

Quarter Fourth

The total gain recognized in net income attributable to common stockholders related to entering into the BOA Settlement Agreement and the Nomura Settlement Agreement, including

the redemption of the Sitka AAC Note following receipt of the BOA Settlement Payment, was as follows:

Year Ended December 31, 2022

Losses and loss benefit (1)

$ 319 $ 43 $ 362

Litigation recoveries 126

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Impact to net income attributable to common stockholders $ 440

(1) Full year 2022 losses and loss benefit relating to R&W recoveries were $ 123 .

(1) 2022 losses and loss benefit relating to R&W recoveries were $ 123 .

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures.

Such estimates that are particularly susceptible to change are used in connection with certain fair value measurements, valuation of financial guarantee loss reserves for non-derivative insurance policies and the valuation allowance on the deferred tax asset, any of which individually could be material.

There can be no assurance that actual results will conform to such estimates and any future changes in estimates could be material to the financial statements.

Consolidation

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or (3) the right to receive the entity’s expected residual returns.

The determination of whether a variable interest holder is the primary beneficiary involves performing a qualitative analysis of the VIE that includes, among other factors, its capital structure, contractual terms including the rights of each variable interest holder, the activities of the VIE, whether the variable interest holder has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, whether the variable interest holder has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could

An entity that is deemed the primary

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potentially be significant to the VIE, related party relationships and the design of the VIE.

An entity that is deemed the primary beneficiary of a VIE is required to consolidate the VIE.

Refer to Note 12.

Variable Interest Entities , for a detailed discussion of Ambac’s involvement in VIEs, Ambac’s methodology for determining whether Ambac is required to consolidate a VIE and the effects of VIEs being consolidated.

beneficiary of a VIE is required to consolidate the VIE.

AFG Unconsolidated Financial Information

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• The CECL impact on available-for-sale debt securities is discussed in the Investments sub-section below.

The CECL impact on amortized cost assets is addressed in the Premium, Reinsurance Recoverables and Loan sub-sections below.

• The CECL impact on amortized cost assets, including contract assets and receivables accounted for under the ASC 606 revenue recognition standard, is addressed in the Premiums, Reinsurance Recoverables, Loans and Revenue Recognition sub-sections below.

These amortized cost assets reflect management's current estimate of all expected lifetime credit losses.

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Available-for-sale debt securities are reported in the financial statements at fair value with unrealized gains and losses, net of deferred taxes, reflected in Accumulated Other Comprehensive Income (Loss) in Stockholders’ Equity and computed using amortized cost as the basis.

For purposes of computing amortized cost, premiums and discounts are accounted for using the effective interest method over the term of the security.

For structured debt securities with a large underlying pool of homogenous loans, such as

mortgage-backed and asset-backed securities, premiums and discounts are adjusted for the effects of actual and anticipated prepayments.

For purposes of computing amortized cost, premiums and discounts are accounted for using the effective interest method over the

term of the security.

For structured debt securities with a large underlying pool of homogenous loans, such as mortgage-backed and asset-backed securities, premiums and discounts are adjusted for the effects of actual and anticipated prepayments.

For other fixed maturity securities, such as corporate and municipal bonds, discounts are amortized or accreted over the remaining term of the securities and premiums are amortized to the earliest call date.

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Fair Value Measurements for further description of the methodologies used to determine the fair value of investments, including model inputs and assumptions where applicable.

Ambac has a formal credit impairment review process for fixed maturity available-for-sale securities in its investment portfolio.

Ambac has a formal impairment review process for fixed maturity available-for-sale securities in its investment portfolio.

Ambac conducts a review each quarter to identify and evaluate investments that have indications of impairment in accordance with the Investments - Debt Securities Topic of the ASC.

Under CECL, factors considered to identify and assess securities for other than temporary impairment included:

(i) fair values that have declined by 20 % or more below amortized cost;

(ii) recent downgrades by rating agencies;

(iii) the financial condition of the issuer and financial guarantor, as applicable,

If management either:

(i) has the intent to sell its investment in an impaired debt security or (ii) determines that the Company

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and an analysis of projected defaults on the underlying collateral;

(iv) whether scheduled interest payments are past due;

(v) whether Ambac has the intent to sell the security;

and (vi) whether it is more likely than not that Ambac will be required to sell a security before the anticipated recovery of its amortized cost basis.

more likely than not will be required to sell the debt security before its anticipated recovery of the amortized cost basis less any current period credit impairment, then an impairment charge is recognized in earnings, with the amortized cost of the security written-down to fair value.

If management does not intend to sell, or will not be required to sell the debt security, the security is reviewed for credit impairment.

Factors considered to identify and assess securities for credit impairment include:

(i) fair values that have declined by 20 % or more below amortized cost;

(ii) recent downgrades by rating agencies;

(iii) the financial condition of the issuer and financial guarantor, as applicable, and an analysis of projected defaults on the underlying collateral;

and (iv) whether scheduled interest payments are past due.

The recognition of credit impairment losses for available-for-sale debt securities are recorded as an allowance for credit losses with an offsetting charge to net income.

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If we believe a decline in the fair value of a particular fixed maturity available-for-sale investment is not credit impaired, we record the decline as an unrealized loss net of tax in Accumulated Other Comprehensive Income (Loss) in Stockholders’ Equity on our Consolidated Balance Sheets.

If management either:

(i) has the intent to sell its investment in a debt security or (ii) determines that the Company more likely than not will be required to sell the debt security before its anticipated recovery of the amortized cost basis less any current period credit impairment, then an impairment charge is recognized in earnings, with the amortized cost of the security written-down to fair value.

The evaluation of securities for credit impairment is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether, and to what extent, declines in the fair value of investments should be recognized in current period earnings.

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iii) presenting AIR separately in Other Assets on the balance sheet and iv) excluding AIR from amortized cost balances in required CECL disclosures found in Note 4.

Investments .

AIR at December 31, 2023 and 2022 was $ 14 and $ 10 , respectively.

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Ambac has a formal quarterly credit impairment review process for premium receivables.

Under CECL, management utilizes either a discounted cash flow ("DCF") or probability of default/loss given default ("PD/LGD") approach to estimate credit impairment.

Management utilizes either a discounted cash flow ("DCF") or probability of default/loss given default ("PD/LGD") approach to estimate credit impairment on premium receivables.

The DCF approach utilizes expected cash flows developed by Ambac's Risk Management Group using the same (or similar) models used for estimating loss reserves where such models can identify shortfalls in premiums.

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Unearned premiums and Deferred ceded premiums represents the portion of gross and ceded premiums written that relate to unexpired risk, respectively.

Premium receivables represent balances currently due and amounts not yet due from policyholders, managing general agents or producers issuing insurance policies on Everspan's behalf.

Premium receivables are reported net of an allowance for expected lifetime credit losses.

Premium receivables represent balances currently due and amounts not yet due from policyholders, insurance carriers, managing general agents or producers issuing insurance policies on Everspan's behalf.

Premium receivables are reported net of an allowance for expected credit losses.

The allowance is based upon Everspan's ongoing review of amounts outstanding, including delinquencies and write-offs, and other relevant factors.

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Management utilizes a PD/LGD approach, similar to the one described above for financial guarantee premium receivables, which is applied to the loan carrying value.

• Loans held by VIEs consolidated as required under the Consolidation Topic of the ASC are carried at fair value under the fair value option election with changes in fair value recorded in Income (loss) on variable interest entities on the Consolidated Statements of Total Comprehensive

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Income (Loss).

on the Consolidated Statements of Total Comprehensive Income (Loss).

Such loans are reported as Loans, at fair value within the Variable interest entity assets section of the Consolidated Balance Sheet.

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The Company has entered into derivative contracts primarily to hedge certain economic risks inherent in its asset and liability portfolios.

None of Ambac’s derivative contracts are designated as hedges under the Derivatives and Hedging Topic of the ASC.

Ambac's derivatives consist primarily of interest rate swaps and futures contracts.

• Ambac maintains a portfolio consisting primarily of interest rate swaps and futures contracts to economically hedge interest rate risk in the financial guarantee and investment portfolios.

While this portfolio also includes certain legacy interest rate swaps executed in connection with financial guarantee client financings, the interest rate derivatives portfolio is managed on the basis of its net sensitivity to changes in interest rates.

None of Ambac’s derivative contracts were designated as hedges under the Derivatives and Hedging Topic of the ASC.

Ambac's derivatives have consisted primarily of interest rate swaps and futures contracts.

• Ambac's current derivatives portfolio consists of certain legacy interest rate swaps executed in connection with financial guarantee client financings.

In recent years, Ambac's interest rate derivatives portfolio consisted primarily of interest rate swaps and futures contracts to economically hedge interest rate risk in the financial guarantee and investment portfolios, managed on the basis of its net sensitivity to changes in interest rates.

The economic hedge positions of the portfolio were fully exited in early 2023.

Changes in the fair value of these interest rate derivatives are recorded, along with changes in fair value of other derivative contracts, within Net gains (losses) on derivative contracts on the Consolidated Statements of Total Comprehensive Income (Loss).

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All derivatives are recorded on the Consolidated Balance Sheets at fair value on a gross basis;

assets and liabilities are netted by counterparty only when a legal right of offset exists.

assets and liabilities are netted by counterparty only when a legal right of offset exists, and are included in Other assets and Other liabilities, respectively.

Variation payments on centrally cleared swaps and futures contracts are considered settlements of the associated derivative balances and are reflected as a reduction to derivative liabilities or assets on the Consolidated Balance Sheets.

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Deferred Acquisition Costs, Ceding Commissions and Deferred Program Fees

The Specialty Property and Casualty Program business defers acquisition costs incurred that are related directly to the

successful acquisition of new or renewal insurance contracts, including commissions paid to managing general agents.

The Specialty Property and Casualty Program business defers acquisition costs incurred that are related directly to the successful acquisition of new or renewal insurance contracts, including commissions paid to managing general agents for direct business, and paid to insurance carriers when acquired via assumed reinsurance.

Ceding commissions received from reinsurers represent a recovery of related acquisition costs.

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Ceding commissions received in excess of the related direct acquisition costs are deferred and amortized over the related policy period, and recognized as program fees.

Goodwill is attributable to acquisitions, discussed in Note 4.

Business Combination and represents the acquisition cost in excess of the fair value of net assets acquired, including identifiable intangible assets.

Goodwill is attributable to acquisitions in the Insurance Distribution segment and represents the acquisition cost in excess of the fair value of net assets acquired, including identifiable intangible assets.

Goodwill is assigned at acquisition to the applicable reporting unit of the acquired entity giving rise to the goodwill.

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Goodwill impairment tests are performed annually or more frequently if circumstances indicate a possible impairment.

Ambac tests goodwill for impairment as of October 1st of each year.

If, after assessing qualitative factors, management believes it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment evaluation is performed.

Management also has the option to bypass the qualitative evaluation and proceed directly to the quantitative evaluation.

The quantitative test compares the estimated fair value of the reporting unit with its carrying value (including goodwill and identifiable intangible assets).

The annual test of goodwill impairment is as of October 1st of each year.

Depending on the reporting unit, management utilizes one of two approaches for impairment testing.

Under the first approach, qualitative factors are first assessed to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

If it is more likely than not, then a quantitative impairment evaluation is performed.

Under the second approach, management bypasses the qualitative evaluation and proceeds directly to the quantitative evaluation.

The quantitative evaluation under both of the above approaches compares the estimated fair value of the reporting unit with its carrying value (including goodwill and identifiable intangible assets).

An impairment is recognized for the excess of the carrying amount of the reporting unit over it estimated fair value.

If the reporting unit’s estimated fair value exceeds its carrying value, goodwill is not impaired.

There have been no accumulated impairment losses since goodwill was established.

There have been no accumulated impairment losses since this goodwill was established.

Intangible Assets

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Pursuant to the Financial Services-Insurance Topic of the ASC, the insurance intangible is to be measured on a basis consistent with the related financial guarantee insurance and reinsurance contracts.

The initial insurance intangible asset was assigned to groups of insurance and reinsurance contracts with similar characteristics and has been amortized using a level-yield method based on par exposure of the related groups.

Finite-lived intangibles:

Ambac acquired identifiable intangible assets attributable to the Xchange, All Trans and Capacity Marine acquisitions further discussed in Note 4.

Business Combination .

The intangible assets primarily relate to distribution relationships, non-compete agreements and trade names, all of which have finite lives and are amortized over their estimated useful lives using the straight-

The initial insurance intangible asset was assigned to groups of insurance and reinsurance contracts with similar

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characteristics and has been amortized using a level-yield method based on par exposure of the related groups.

Finite-lived intangibles

Ambac acquired identifiable intangible assets attributable to the Insurance Distribution segment.

The Company tests finite-lived acquired intangible assets for impairment if certain events occur or circumstances change indicating that the carrying amount of the intangible asset may not be recoverable.

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Indefinite-lived intangibles

Ambac acquired identifiable intangible assets attributable to its acquisitions of admitted carriers in both 2021 and 2022, which were accounted for as asset acquisitions.

Ambac acquired identifiable intangible assets attributable to its acquisitions of carriers in both 2021 and 2022, which were accounted for as asset acquisitions (Specialty Property and Casualty Insurance segment).

The intangible assets relate to insurance licenses which have indefinite lives and therefore are not amortized.

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Fiduciary Funds

As an intermediary, we hold funds, generally in a fiduciary capacity, for the account of third parties, typically as the result of premiums received from retail brokers or insureds that are in transit to insurers and claims due that are in transit from insurers.

Since fiduciary assets are not available for corporate use, they are shown in the consolidated balance sheets as restricted cash and we present an equal and corresponding fiduciary liability relating to these funds representing amounts or claims or premiums due on our consolidated balance sheets (included in Other liabilities).

Fiduciary funds are generally required to be kept in bank accounts subject to guidelines which emphasize capital preservation and liquidity.

The Company is entitled to retain

investment income earned on certain of these fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds.

The Company is entitled to retain investment income earned on certain of these fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds.

Restricted cash for net uncollected premiums and claims and the related fiduciary liabilities were $ 12 and $ 14 at December 31, 2023 and 2022, respectively.

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The estimate for future net cash flows consider the likelihood of all possible outcomes that may occur from missed principal and/or interest payments on the insured obligation.

This estimate also considers future recoveries related to breaches of contractual representations and warranties by RMBS transaction sponsors (prior to the settlements as more fully described in Note 1.

Background and Business Description ), remediation strategies and other contractual or subrogation-related cash flows.

This estimate also considers future recoveries related to remediation strategies and other contractual or subrogation-related cash flows.

• Net claim cash outflow policies represent contracts where the PV of expected cash outflows are greater than the PV of expected recovery cash inflows.

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Ambac’s loss reserves are based on management’s ongoing review of the financial guarantee credit portfolio.

Active surveillance of the insured portfolio enables Ambac’s Risk Management Group ("RMG") to track credit migration of insured obligations from period to period and update internal classifications and credit ratings for each transaction.

Non-adversely classified credits are assigned a Class I rating while adversely classified credits are assigned a rating of Class IA through Class V.

The criteria for an exposure to be assigned an adversely classified credit rating includes the deterioration of an issuer’s financial condition, underperformance of the underlying

Active surveillance of the insured portfolio enables Ambac’s Risk Management Group ("RMG") to track credit migration of

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collateral (for collateral dependent transactions such as mortgage-backed or student loan securitizations), poor performance by the servicer of the underlying collateral and other adverse economic events or trends.

insured obligations from period to period and update internal classifications and credit ratings for each transaction.

Non-adversely classified credits are assigned a Class I rating while adversely classified credits are assigned a rating of Class IA through Class V.

The criteria for an exposure to be assigned an adversely classified credit rating includes the deterioration of an issuer’s financial condition, underperformance of the underlying collateral (for collateral dependent transactions such as mortgage-backed or student loan securitizations), poor performance by the servicer of the underlying collateral and other adverse economic events or trends.

The servicer of the underlying collateral of an insured securitization transaction is a consideration in assessing credit quality because the servicer’s performance can directly impact the performance of the related issue.

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CLASS II – “Substandard Requiring Intervention” - Credits whose fundamental credit quality has deteriorated to the point that timely payment of debt service may be jeopardized by adversely developing trends of a financial, economic, structural, managerial or political nature.

No claim payment is currently foreseen but the probability of loss or claim payment over the life of the transaction is now existent (generally 10% or greater probability).

No claim payment is currently

foreseen but the probability of loss or claim payment over the life of the transaction is now existent (generally 10% or greater probability).

Class II credits may be border-line or below investment grade (BBB- to B).

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For certain credit exposures, Ambac’s additional monitoring, loss remediation efforts and probabilities of potential settlement outcomes may provide information relevant to adjust this estimate of “base case” statistical expected losses.

Analysts may accept the “base case” statistical expected loss as the best estimate of expected loss or assign multiple probability weighted scenarios to determine an adjusted statistical expected loss that better reflects management’s view of a given transaction’s expected losses, as well as the potential for additional remediation activities (e.g., commutations).

RMG may accept the “base case” statistical expected loss as the best estimate of expected loss or assign multiple probability weighted scenarios to determine an adjusted statistical expected loss that better reflects management’s view of a given transaction’s expected losses, as well as the potential for additional remediation activities (e.g., commutations).

• The second approach entails the use of cash-flow based models to estimate expected losses (future claims, net of potential recoveries, expected to be paid to the holder of the insured financial obligation).

Ambac’s RMG group will consider the likelihood of all possible outcomes and develop appropriate cash flow scenarios.

This approach can include the utilization of internal or third party models and tools to project future losses and resultant claim payment estimates.

We utilize cash flow models for RMBS, student loans and other exposures.

RMBS and student loan models use historical performance of the collateral pools in order to then derive future performance characteristics, such as

Ambac’s RMG group will consider the likelihood of all possible outcomes and

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default and voluntary prepayment rates, which in turn determine projected future claim payments.

In other cases, such as many public finance exposures, including Puerto Rico, we do not specifically forecast resources available to pay debt service in the cash flow model itself.

develop appropriate cash flow scenarios.

This approach can include the utilization of internal or third party models and tools to project future losses and resultant claim payment estimates.

We utilize cash flow models for RMBS, student loans and other exposures.

RMBS and student loan models use historical performance of the collateral pools in order to then derive future performance characteristics, such as default and voluntary prepayment rates, which in turn determine projected future claim payments.

In other cases, such as many public finance exposures we do not specifically forecast resources available to pay debt service in the cash flow model itself.

Rather, we consider the issuers’ overall ability and willingness to pay, including the fiscal, economic, legal and political framework to develop projected future claim payment estimates.

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Ambac primarily utilizes a cash flow model (“RMBS cash flow model”) to develop estimates of projected losses for both our first and second lien transactions.

First, the RMBS cash flow model projects collateral performance utilizing:

(i) the transaction’s underlying loans' characteristics and status, (ii) projected home price appreciation (“HPA”) and (iii) projected interest rates.

Depending on the amount of collateral information available for each transaction, we project such performance either at the loan-level or the deal-level using a variety of data that helps dimension the risk of the loans and/or

Observed servicer-level behavior may also have an impact on projected transaction performance.

We source HPA projections from a market accepted vendor and interest rate projections are developed from market sources.

We use three HPA projection scenarios to develop a base case as well as stress and upside cases.

The RMBS cash flow model projects collateral performance utilizing a combination of

historical performance along with the most recent loan status information to project future collateral performance.

In addition to the base case, we analyze historical volatility of performance to develop stress and upside cases.

The highest probability is assigned to the base case, with lower probabilities to the stress and upside cases.

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As such, we conduct regular reviews of current models, alternative models and the overall approach to loss estimation.

RMBS Representation and Warranty Subrogation Recoveries

Prior to the settlement of all representation and warranty ("R&W") litigation settlements in 2022, as discussed in Note 1.

Background and Business Description, Ambac recorded, as a component of its loss reserve estimate, subrogation recoverables related to securitized loans in RMBS transactions that breached certain R&W described herein.

Generally, the sponsor of an RMBS transaction provided R&W with respect to the securitized loans, including R&W with respect to loan characteristics, the absence of borrower misrepresentations in the underlying loans and other misconduct in the origination process and attesting to the compliance of loans with the applicable underwriting guidelines.

In such cases, the sponsor of the transaction is obligated, in accordance with the underlying contract, to repurchase, cure or substitute collateral for any loan that breaches the R&W.

• Ambac or its counsel engaged consultants with significant mortgage underwriting experience to review the underwriting documentation for mortgage loans underlying certain insured RMBS transactions with significant collateral losses, resulting in significant claims payments by Ambac.

• Ambac's approach used to estimate RMBS R&W subrogation recoverables was based on obtaining loan files from the original pool and conducting loan file re-underwriting to derive a quantum of breaches and an estimated repurchase obligation..

• Multiple probability-weighted scenarios were developed by applying various realization factors to the estimated

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repurchase obligation.

The realization factors in these scenarios reflected Ambac’s own assumptions about the likelihood of outcomes based on all the information available to it including, but not limited to, (i) discussions with external legal counsel and their views on ultimate settlement and/or litigation outcomes;

(ii) assessment of the strength of the specific case;

(iii) changes in law or developments in RMBS litigation cases that impact our estimated recoveries;

and (iv) experience in settling similar claims.

The probability weightings were developed based on the unique facts and circumstances for each transaction.

The sum of these probability-weighted scenarios represented the undiscounted RMBS R&W subrogation recovery, which was then discounted using a factor derived from a risk-free discount rate term structure that corresponds to the estimated date of each respective recovery.

Student Loan Expected Loss Estimate

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As appropriate, we also develop other cases that incorporate various upside and downside scenarios that may include changes to defaults and recoveries.

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Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Specialty Property and Casualty

loss and loss adjustment expense reserves for Everspan represent management's estimate of the ultimate liability for unpaid losses and loss expenses for claims that have been reported and claims that have been incurred but not yet reported ("IBNR") as of the balance sheet date.

Loss and loss adjustment expense reserves for Specialty Property and Casualty policies represent management's estimate of the ultimate liability for unpaid losses and loss expenses for claims that have been reported and claims that have been incurred but not yet reported ("IBNR") as of the balance sheet date.

Loss and loss adjustment expense reserves do not represent an exact calculation of the liability, but instead represent management estimates, primarily utilizing actuarial expertise and projection methods that develop estimates for the ultimate cost of claims and claim adjustment expenses.

The reserves are estimated based upon experience and using a variety of actuarial methods.

These estimates are reviewed and are subject to the impact of future changes in factors such as claim severity and frequency, underwriting and claims practices, changes in social and economic conditions including the impact of inflation, legal and

judicial developments, medical cost trends and upward trends in damage awards.

Our actuarial methods may also rely on external data, such as industry loss ratios, loss development factors, or trend factors.

Such data while more mature than Everspan's own data may not be perfectly representative of the particular business written by Everspan.

The ultimate amount for loss and loss adjustment expenses may be in excess, or less than, the amounts recorded on our financial statements.

Because the establishment of claims and claim adjustment expense reserves is an inherently uncertain process involving estimates and judgment, currently estimated claims and claim adjustment expense reserves may change.

Adjustments will be reflected as part of the net increase or reduction in loss and loss adjustment expense reserves in the periods in which they become known.

Cumulative amounts paid and case reserves held as of the balance sheet date are subtracted from the estimate of the ultimate cost of claims and claim adjustment expenses to derive incurred but not reported (IBNR) reserves.

There were no changes in methodology in the past year.

Detailed claim data is typically insufficient to produce a reliable indication of the initial estimate for ultimate claims and claim adjustment expenses for an accident year.

As a result, the initial estimate for an accident year is generally based on an exposure-based method using the loss ratio projection method.

The loss ratio projection method develops an initial estimate of ultimate claims and claim adjustment expenses for an accident year by multiplying earned premium for the accident year by a projected loss ratio.

The projected loss ratio is determined by analyzing prior period experience, and adjusting for loss cost trends, rate level differences, mix of business changes and other known or observed factors influencing the accident year relative to prior accident years.

For prior accident years, the following estimation and analysis methods are principally used by the Company’s actuaries to estimate the ultimate cost of claims and claim adjustment expenses.

These estimation and analysis methods are typically referred to as conventional actuarial methods.

• The paid loss development method assumes that the future change (positive or negative) in cumulative paid losses for

a given cohort of claims will occur in a stable, predictable pattern from year-to-year, consistent with the pattern observed in past cohorts.

• The case incurred development method is the same as the paid loss development method, but is based on cumulative case-incurred losses rather than paid losses.

• The Bornhuetter-Ferguson method uses an initial estimate of ultimate losses for a given product line reserve component, typically expressed as a ratio to earned premium.

The method assumes that the ratio of additional claim activity to earned premium for that component is relatively stable and predictable over time and that actual claim activity to date is not a credible predictor of further activity for that component.

The method is used most often for more recent accident years where claim data is sparse and/or volatile, with a transition to other methods as the underlying claim data becomes more voluminous and therefore more credible.

While these are the principal methods utilized, the Company’s actuaries have available to them the full range of actuarial methods developed by the casualty actuarial profession.

Most actuarial methods assume that past patterns demonstrated in the data will repeat themselves in the future.

The Company performs a continuing review of its loss and loss adjustment expense reserves, including its reserving techniques and the impact of reinsurance.

The reserves are also reviewed by qualified actuaries, including actuaries employed by the Company and third party actuaries.

Since the reserves are based on estimates, the ultimate liability may be more or less than such reserves.

Reinsurance Recoverable

The corresponding loss and loss adjustment expense reserve ceded to reinsurers is reported as reinsurance recoverable on paid and unpaid losses.

The reinsurance recoverable from reinsurers is estimated in a manner consistent with the associated loss and loss adjustment expense reserve.

Ambac has reinsurance in place pursuant to quota share, surplus share treaty and facultative reinsurance agreements.

The Company uses ceded reinsurance to transfer certain insurance risk, along with premiums written and earned, to other insurance carriers that agree to share in such risks.

The primary purpose of the reinsurance is to (i) protect the Company, at a cost, from losses in excess of amounts it is willing to accept, (ii) protect the Company's capital, and (iii) within the Specialty Property and Casualty Insurance operations, to manage the Company's net retention on individual risks and overall exposure to losses while providing the Company the ability to offer policies with sufficient limits to meet policyholder needs.

• Within its Specialty Property and Casualty Insurance segment, the Company generally enters into quota share reinsurance agreements whereby the Company cedes to the capacity providers (reinsurers) a substantial amount (generally 70 % or more) of its gross liability under all policies issued by and on behalf of the Company by the MGA/U.

Ambac is exposed to the credit risk of the reinsurer, or the risk that one of its reinsurers becomes insolvent or otherwise unable or unwilling to pay policyholder claims.

This credit risk is generally mitigated by either selecting well capitalized, highly rated authorized capacity providers or requiring that the capacity provider post collateral to secure the reinsured risks, which in some instances, exceeds the related reinsurance recoverable.

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Amounts recoverable from reinsurers are estimated in a manner consistent with the associated loss and loss adjustment expense reserves.

The Company reports its reinsurance recoverables net of an allowance for amounts that are estimated to be uncollectible.

The reinsurance of risk does not legally relieve Ambac of its original liability to its policyholders.

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For those reinsurance counterparties that do not currently post collateral, Ambac’s reinsurers are well capitalized, highly rated, authorized capacity providers.

Under CECL, Ambac has a formal quarterly credit impairment review process whereby Ambac has elected to use the practical expedient of considering the fair value of collateral posted by reinsurers when evaluating credit impairment.

Ambac has a formal quarterly credit impairment review process whereby Ambac has elected to use the practical expedient of considering the fair value of collateral posted by reinsurers when evaluating credit impairment.

To determine the total unsecured recoverable to be evaluated for credit impairment, Ambac nets the reinsurance recoverable amount by ceded premiums payable and the fair value of collateral posted, if any.

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Long-term debt issued by Ambac is carried at par value less unamortized discount.

Accrued interest and discount accretion

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on long-term debt is reported as Interest expense on the Consolidated Statements of Total Comprehensive Income (Loss).

Accrued interest and discount accretion on long-term debt is reported as Interest expense on the Consolidated Statements of Total Comprehensive Income (Loss).

To the extent Ambac repurchases or redeems its long-term debt, such repurchases or redemptions may be settled for an amount different than the carrying value of the obligation.

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For surplus note repurchases, the pro-rata purchase price related to principal and accrued interest is reported as a financing and operating activity, respectively, on the Statement of Cash Flows.

For long-term debt issued by consolidated VIEs in which Ambac's variable interest arises from financial guarantees written by Ambac's subsidiaries ("FG VIEs"), we may elect to use the fair value option on an instrument by instrument basis.

When the fair value option is elected, changes in the fair value of the FG VIEs' long-term debt is reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss), except for the portion of the total change in fair value of financial liabilities caused by changes in the instrument-specific credit risk which is presented separately in Other comprehensive income (loss).

In cases where the fair value option has not been elected, the FG VIEs' long-term debt is carried at par less unamortized discount, with interest expense reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss).

For long-term debt issued by consolidated VIEs in which Ambac's variable interest arises from financial guarantees written by Ambac's subsidiaries ("LFG VIEs"), we may elect to use the fair value option on an instrument by instrument basis.

When the fair value option is elected, changes in the fair value of the LFG VIEs' long-term debt is reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss), except for the portion of

the total change in fair value of financial liabilities caused by changes in the instrument-specific credit risk which is presented separately in Other comprehensive income (loss).

In cases where the fair value option has not been elected, the LFG VIEs' long-term debt is carried at par less unamortized discount, with interest expense reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss).

Noncontrolling Interests

Nonredeemable noncontrolling interests

At December 31, 2022 and 2021, AAC had 4,596 and 5,501 shares of issued and outstanding Auction Market Preferred Shares ("AMPS") with a liquidation preference of $ 115 and $ 138 (reported as nonredeemable noncontrolling interest of $ 53 and $ 60 on Ambac's balance sheet), respectively.

At December 31, 2023 and 2022, AAC had 4,596 shares of issued and outstanding Auction Market Preferred Shares ("AMPS") with a liquidation preference of $ 115 (reported as nonredeemable noncontrolling interest of $ 51 on Ambac's balance sheet).

In 2022, Ambac purchased 905 shares of AMPS for $ 8 .

The difference between this amount paid to AMPS holders and the carrying amount was reflected as an increase to Net income attributable to common shareholders for approximately $ 1 .

The auction occurs every 28 days and the dividend rate has continuously been reset at the maximum rate of one-month LIBOR plus 200 basis points.

The auction occurs every 28 days and the dividend rate has continuously been reset at the maximum, equal to the Reference Rate plus 200 basis points.

Beginning July 1, 2023, the Reference Rate for the AMPS is one-month CME Term SOFR plus 0.11448 percent.

Prior to July 1, 2023, the Reference Rate was one-month LIBOR.

Under the terms of the AMPS, dividends may not be paid on the common stock of AAC unless all accrued and unpaid dividends on the AMPS for the then current dividend period have been paid, provided, that dividends on the common stock may be made at all times for the purpose of, and only in such amounts as are necessary for, enabling AFG (i) to service its indebtedness for borrowed money as such payments become due or (ii) to pay its operating expenses.

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Redeemable noncontrolling interests

The All Trans, Capacity Marine and Xchange acquisitions, further described in Note 4.

Business Combination, resulted in 85 %, 80 % and 80 %, respectively, ownership of the acquired entities by Ambac.

Under the terms of the acquisition agreements, Ambac has a call option to purchase the remaining 15 %, 20 % and 20 %, respectively, from the minority owners (i.e., noncontrolling interests) and the minority owners have a put option to sell the remaining 15 %, 20 % and 20 %, respectively, to Ambac.

The Xchange, All Trans, Capacity Marine and Riverton acquisitions resulted in 80 %, 85 %, 80 % and 80 %, respectively, ownership of the acquired entities by Ambac.

Under the terms of all the acquisition agreements, Ambac has call options to purchase the remaining interest from the minority owners (i.e., noncontrolling interests) and the minority owners have put options to sell their remaining interests to Ambac.

Because the exercise of the put options are outside the control of Ambac, in accordance with the Distinguishing Liabilities from Equity Topic of the ASC, Ambac reports redeemable noncontrolling interests in the mezzanine section of its consolidated balance sheet.

1 unchanged sentence

the carrying value under ASC 810, which attributes a portion of consolidated net income (loss) to the redeemable noncontrolling interest, and

Ambac Financial Group, Inc 77

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

the redemption value of the put option under ASC 480 as if it were exercisable at the end of the reporting period.

7 unchanged sentences

Net income attributable to redeemable noncontrolling interest (ASC 810) 1 1

Distributions ( 2 ) ( 1 )

Adjustment to redemption value (ASC 480 ) ( 5 ) ( 3 )

1 unchanged sentence

Revenue Recognition

Revenues for the Insurance Distribution business operations are recognized in accordance with the Revenue from Contracts with Customers Topic of the ASC.

Revenues for the Insurance Distribution business operations and certain revenues of a consolidated VIE are recognized in accordance with the Revenue from Contracts with Customers Topic of the ASC.

The following steps are applied to recognize revenue:

1 unchanged sentence

A performance obligation is satisfied either at a point in time or over time depending on the nature of the product or service provided, and the specific terms of the contract with customers.

Insurance Distribution

Insurance Distribution performance obligations consist of underwriting and placing policies with insurers and, for certain products, providing claims servicing.

Revenue from insurance policies covering i) limited and short-term medical sold through affinity groups ("Affinity"), ii) commercial and "for hire" auto,

| Ambac Financial Group, Inc.

79 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

and iii) marine and international risks are recognized up front as no further performance obligations exist after policy placement.

Revenue from employer stop loss policies ("ESL") is apportioned to policy placement and claims servicing based on the relative stand-alone selling price of the respective performance obligations with policy placement revenue recognized upfront while claims servicing revenue is recognized over the claim adjustment period.

Revenue from other insurance policies are recognized up front as no further performance obligations exist after policy placement.

Revenue consists of base and profit-sharing commissions.

Base commissions, associated with policy placement and claims servicing, are estimated by applying the contractual commission percentages to estimated gross premiums written.

• Base commissions, associated with policy placement and claims servicing, are estimated by applying the contractual commission percentages to estimated gross premiums placed.

• Profit-sharing commissions represent variable consideration associated with policy placement only and are estimated based on expected loss ratios and the estimated gross premium for base commissions.

1 unchanged sentence

Revenue is reported in Commissions income on the Consolidated Statement of Total Comprehensive Income.

Contract assets represent the Company's right to future consideration for services it has already transferred to the customer, which is subject to certain contingencies such as the achievement of loss ratios on underlying insurance policies.

Contract assets represent the Company's right to future consideration for services it has already transferred to the customer, which is subject to certain contingencies.

Once the right to consideration becomes unconditional, it is reported as a receivable.

Contract assets are evaluated for credit loss under CECL.

Management utilizes a PD/LGD approach, similar to the one described above for financial guarantee premium receivables and loans.

Contract liabilities represent the Company's obligation to transfer services for which it has already received consideration from the customer.

Contract assets and contract liabilities are reported as other assets and other liabilities, respectively, on the Consolidated Balance Sheet.

The Company’s costs to fulfill customer contracts relate to certain commissions paid to independent agents for procuring policies.

Contract assets and receivables are reported as other assets, and contract liabilities are reported as other liabilities, on the Consolidated Balance Sheet.

The Company’s costs to obtain customer contracts relate to certain commissions paid to independent agents for procuring policies.

As these costs relate to the Company’s policy placement performance obligation to its customers, they are expensed as incurred.

These costs are reported in Commission expenses on the Consolidated Statement of Total Comprehensive Income.

The Company does not incur costs related to obtaining customer contracts.

Consolidated VIE

Refer to Note 11.

Variable Interest Entities for further discussion on Ambac's involvement with VIEs and triggering events resulting in consolidation.

Ambac consolidated a VIE on December 31, 2023 which has a contract with a governmental entity to provide construction and facilities management services in return for periodic concession payments.

These services have been identified as the VIE's performance obligations.

Revenue is apportioned to these performance obligations based on their respective stand-alone selling prices.

Revenue is estimated based on regularly updated cash flow projections.

This is a long-term contract that contains a significant financing component related to construction.

As the construction services have already been completed, revenue recognized for this performance obligation will solely consist of interest income.

Facilities management services are provided, and thus recognized, over time and will consist of services revenue.

Costs to fulfill the customer contract primarily relate to fees paid to vendors to provide the facilities management services and will be expensed as incurred.

All revenue and expense items will be reported within Income (loss) from variable interest entities.

Contract assets are evaluated for credit losses under CECL.

Management utilizes a PD/LGD approach, similar to the one described above for financial guarantee premium receivables and loans.

Contract assets are reported within Derivative and other assets in the Variable interest entity asset section of the Consolidated Balance Sheet.

Ambac Financial Group, Inc 78

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Employee Benefits

7 unchanged sentences

short term incentive compensation (consisting of an annual cash bonus) and long term incentive plan awards (consisting of deferred cash and awards of restricted and performance stock units).

Annual decisions with regard to incentive compensation

are generally made in the first quarter of each year and are based on the prior year's performance for the Company, the employee and the employee's business unit.

Annual decisions with regard to incentive compensation are generally made in the first quarter of each year and are based on the prior year's performance for the Company, the employee and the employee's business unit.

In 2020, the Ambac 2013 Incentive Compensation Plan (the “2013 Incentive Plan”) was superseded by the 2020 Incentive Compensation Plan ("2020 Incentive Plan").

9 unchanged sentences

• Performance stock units — require both future service and achieving specified performance targets to vest.

Certain performance stock unit grants also include a market condition TSR modifier that will cause the total payout at the end the performance period to increase or decrease depending on Ambac's stock performance relative to a peer group.

Performance stock unit grants also include a market condition TSR modifier that will cause the total payout at the end the performance period to increase or decrease depending on Ambac's stock performance relative to a peer

Compensation costs for all performance stock units are only recognized when the achievement of the performance conditions are considered probable.

3 unchanged sentences

In 2020, the Ambac UK Board of Directors adopted a long term incentive plan for Ambac UK employees, which includes both performance and time based awards.

Compensation costs for all performance based awards are based on the probable outcome of the performance conditions and adjusted for subsequent changes in the estimated or actual outcome each reporting period as

| Ambac Financial Group, Inc.

80 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Compensation costs for time-based awards are recognized evenly over the service period.

12 unchanged sentences

Depreciation and Amortization

Depreciation of furniture and fixtures, certain information technology development costs and electronic data processing equipment is charged over the estimated useful lives of the respective assets, ranging from three to five years, using the straight-line method.

Ambac Financial Group, Inc 79

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

straight-line method.

Amortization of leasehold improvements is charged over the remaining term of the respective operating lease using the straight-line method.

9 unchanged sentences

The impact of non-functional currency transactions and the remeasurement of non-functional currency assets and liabilities into the respective subsidiaries' functional currency (collectively "foreign currency transactions gains/(losses)") are $( 3 ), $ 11 and $( 7 ) for the years ended December 31, 2023, 2022 and 2021, respectively.

Foreign currency transactions gains/(losses) are primarily the result of remeasuring Ambac UK's assets and liabilities denominated in currencies other than its functional currency, primarily the U.S.

dollar and the Euro.

Foreign currency transactions gains/(losses) are primarily the result of remeasuring Ambac UK's assets and liabilities denominated in currencies (primarily the U.S.

dollar and the Euro) other than its functional currency (the British Pound Sterling).

Commitments and Contingencies

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The effect on current and deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

In June 2021, the United Kingdom legislation increasing the tax rate from 19 % to 25 % was fully enacted.

As such, we incorporated the effects of the tax rate increase in our current and deferred tax evaluation for the years ended December 31, 2021 and 2022.

The Income Taxes Topic of the ASC requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence using a ‘more likely than not' standard.

The Income Taxes Topic of the ASC requires that companies assess whether valuation allowances should be established against their deferred tax assets based on management's assessment and consideration of all available evidence using a ‘more likely than not' standard.

In making such judgments, significant weight is given to evidence that can be objectively verified.

The level of deferred tax asset recognition is influenced by management’s assessment of future profitability, which depends on the existence of sufficient

The level of deferred tax asset recognition is influenced by management’s assessment of future profitability, which depends on the existence of sufficient taxable income within the carry forward periods available under the tax law.

Net Income Per Share

Basic net income per share is computed by dividing net income attributable to common stockholders, including the adjustment to redemption value of the redeemable noncontrolling interest, by the weighted-average number of common shares outstanding and vested restricted stock units (together, "Basic Weighted Average Shares Outstanding").

Diluted net income per share is computed by dividing net income attributable to common stockholders, including the adjustment to redemption value of the redeemable controlling interest, by the Basic Weighted-Average Shares Outstanding plus all potentially dilutive common shares outstanding during the period.

All potentially dilutive common shares outstanding consider common stock deliverable pursuant to warrants, unvested restricted stock units and performance stock units granted under existing compensation plans.

Ambac Financial Group, Inc 80

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

taxable income within the carry forward periods available under the tax law.

Net Income Per Share

Diluted net income per share is

computed by dividing net income attributable to common stockholders, including the adjustment to redemption value of the redeemable controlling interest, by the Basic Weighted-Average Shares Outstanding plus all potentially dilutive common shares outstanding during the period.

All potentially dilutive common shares outstanding consider common stock deliverable pursuant to warrants, vested and unvested options, unvested restricted stock units and performance stock units granted under existing compensation plans.

Supplemental Disclosure of Cash Flow Information

4 unchanged sentences

Non-cash investing and financing activities:

Exchange of investments in Puerto Rico bonds for new securities issued in the restructuring transactions — 185 —

Decrease in long-term debt as a result of surplus notes exchanges — — 71

Securities acquired in transactions related to Puerto Rico restructurings 508 — —

Securities acquired (transferred) in transactions related to Puerto Rico restructurings ( 1 ) 508 —

Loans acquired through financial guarantee subrogation — 20 —

VIE long-term debt issued related to Puerto Rico restructurings — 583 —

2022 2021 2020

Decrease in VIE loans as a result of de-consolidations 133 — —

Decrease in VIE long-term debt as a result of de-consolidations 133 — —

Increase in VIE long-term debt as a result of consolidations 89 — —

December 31, 2023 2022 2021

Reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets to the Consolidated Statements of Cash Flow:

3 unchanged sentences

Total cash, cash equivalents, and restricted cash shown on the Consolidated Statements of Cash Flows 274 61 23

Reclassifications and Rounding

Reclassifications may have been made to prior years' amounts to conform to the current year's presentation.

Certain amounts and tables in the consolidated financial statements and associated notes may not add due to rounding.

Adopted Accounting Standards

There have been no new accounting standards adopted during 2023.

Future Application of Accounting Standards

Segment Reporting:

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures .

The ASU requires disclosure of the following:

• Significant segment expenses regularly provided to the chief operating decision maker (CODM) and included within the reported measure(s) of a segment’s profit or loss.

• The amount and composition of "other segment items".

This amount reconciles segment revenue, less significant expenses, to the reported measure(s) of a segment’s profit or loss.

• The CODM's title and position.

• How the CODM uses the reported measure(s) of a segment’s profit or loss to assess segment performance and decide how to allocate resources.

• All segment profit or loss and assets disclosures currently required annually by Topic 280, as well as those introduced by the ASU, to also be disclosed in interim periods.

The ASU also permits a public entity to report multiple measures of a segment’s profit or loss as long as:

i) all the reported measures of a segment’s profit or loss are used by the

CODM for purposes of assessing performance and allocating resources;

and ii) the measure closest to GAAP is also provided.

The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

Ambac will adopt this ASU for the annual reporting period ending December 31, 2024 and we are evaluating its impact on Ambac's financial statements.

Income Taxes:

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures .

The enhancements in the ASU include the following:

• Within the rate reconciliation table, disclosure of additional categories of information about federal, state and foreign income taxes and providing more details about the reconciling items in some categories if the items meet a quantitative threshold.

• Annual disclosure of income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign taxes and disaggregation of the information by jurisdiction based on a quantitative threshold.

• Other disclosures include:

i) income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and ii) income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.

The ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

Ambac will adopt this ASU on January 1, 2025 and we are evaluating its impact on Ambac's financial statements.

Ambac Financial Group, Inc 81

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

Reclassifications and Rounding

Reclassifications may have been made to prior years' amounts to conform to the current year's presentation.

Certain amounts and tables in the consolidated financial statements and associated notes may not add due to rounding.

Adopted Accounting Standards

The Company adopted the following accounting standards in 2022:

Contracts Assets and Liabilities in a Business Combination

In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Asset and Contract Liabilities from Contracts with Customers .

The business combination guidance in ASC 805 generally requires a company to recognize and measure the assets and the liabilities it acquires at fair value on the acquisition date.

ASC 805 further requires the acquired assets and liabilities to be subsequently measured in accordance with other relevant GAAP standards.

ASU 2021-08 creates an exception to the general rule and requires contract assets and liabilities acquired in a business combination to be recognized in accordance with ASC 606 at the acquisition date.

The ASU aligns the business combination accounting at the acquisition date with the subsequent accounting for contract assets and liabilities under ASC 606.

The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, including early adoption in an interim period.

Ambac early-adopted the ASU on November 1, 2022, and applied it to the acquisitions of All-Trans and Capacity Marine.

The adoption did not have a consequential impact on Ambac's financial statements.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

The ASU provides companies with optional guidance to ease the potential accounting burden related to transitioning away from reference rates, such as LIBOR, that are expected to be discontinued as a result of initiatives undertaken by various jurisdictions around the world.

For example, under current GAAP, contract modifications which change a reference rate are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts.

The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The ASU can be applied prospectively as of the beginning of the interim period that includes or is subsequent to March 12, 2020, or any date thereafter, but does not apply to contract modifications and other transactions entered into or evaluated after December 31, 2022.

In December 2022, the FASB issued ASU 2022-06 which extends the sunset date to December 31, 2024.

The ASU was adopted in 2022 for applicable financial instruments and contracts that transitioned to new reference rates and the adoption did not have a consequential impact on Ambac's financial statements.

Equity-classified Written Call Options

In May 2021, the FASB issued ASU 2021-04, Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options .

The ASU clarifies and reduces diversity in practice for an issuer's accounting for modifications or exchanges of equity-classified written call options (e.g.

warrants) that remain equity-classified after the modification or exchange.

The ASU requires an issuer to account for the modification or exchange based on the economic substance of the transaction.

For example, if the modification or exchange is related to the issuance of debt or equity, any change in the fair value of the written call option would be accounted for as part of the debt issuance cost in accordance with the debt guidance or equity issuance cost in accordance with the equity guidance, respectively.

The ASU was adopted on January 1, 2022 and did not have a consequential impact on Ambac's financial statements.

Convertible Instruments and Contracts in an Entity's Own Equity

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity .

The ASU i) simplifies the accounting for convertible debt and convertible preferred stock by reducing the number of accounting models, and amends certain disclosures, ii) amends and simplifies the derivative scope exception guidance for contracts in an entity's own equity, including share-based compensation, and iii) amends the diluted earnings per share calculations for convertible instruments and contracts in an entity's own equity.

The ASU was adopted on January 1, 2022 and did not have a consequential impact on Ambac's financial statements.

Future Application of Accounting Standards:

There are no material future accounting standards currently being evaluated.

SEGMENT INFORMATION

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Information provided below for “Corporate and Other” primarily relates to the operations of AFG, which will include investment income on its investment portfolio and costs to maintain the operations of AFG, including public company reporting, capital management and business development costs for the acquisition and development of new business initiatives.

Year Ended December 31, 2023 Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consolidated

Net premiums earned $ 26 $ 52 $ 78

Commission income $ 51 51

Program fees 8 8

Net investment income 127 4 — $ 9 140

Net investment gains (losses), including impairments ( 23 ) — — ( 22 )

Net gains (losses) on derivative contracts ( 1 ) — ( 1 )

Other income (expense), including VIEs 15 — — — 15

Total revenues (1)

144 64 52 9 269

Loss and loss adjustment expenses (benefit) ( 69 ) 37 ( 33 )

Amortization of deferred acquisition costs, net — 11 11

Commission expenses 29 29

General and administrative expenses (2)

106 16 11 21 155

Depreciation expense (2)

Intangible amortization 25 4 29

Interest expense 64 64

Total expenses 127 64 44 22 257

Pretax income (loss) 17 — 7 ( 13 ) 12

Income tax expense (benefit) 8 — — ( 1 ) 7

Net income (loss) $ 9 $ — $ 7 $ ( 11 ) $ 5

Total Assets $ 7,537 $ 523 $ 155 $ 213 $ 8,428

Ambac Financial Group, Inc 82

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consolidated

Year Ended December 31, 2022

Year Ended December 31, 2022 Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consolidated

Net premiums earned $ 42 $ 14 $ 56

5 unchanged sentences

Net realized gains (losses) on extinguishment of debt 81 81

Other income (1)

Other income (expense), including VIEs 30 — 1 — 31

Litigation recoveries 126 126

Total revenues and other income (1)

451 18 31 4 505

Loss and loss adjustment expenses (benefit) ( 406 ) 9 ( 396 )

2 unchanged sentences

General and administrative expenses (2)

102 13 6 17 139

Depreciation expense (2)

3 unchanged sentences

Pretax income (loss) $ 540 $ ( 6 ) $ 5 $ ( 14 ) $ 525

Income tax expense (benefit) 3 — — — 2

Net income (loss) $ 537 $ ( 6 ) $ 5 $ ( 13 ) $ 522

Total Assets $ 7,292 $ 316 $ 138 $ 226 $ 7,973

$ 7,292 $ 316 $ 138 $ 226 $ 7,973

(1) Other revenues include the following line items on the Consolidated Statements of Total Comprehensive Income:

Income (loss) on variable interest entities and other income (expense).

| Ambac Financial Group, Inc.

84 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consolidated (2)

Year Ended December 31, 2021

Year Ended December 31, 2021 Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consolidated (1)

Net premiums earned $ 46 $ 1 $ 47

5 unchanged sentences

Net realized gains (losses) on extinguishment of debt 33 33

Other income (expense) (1)

Other income (expense), including VIEs 8 — — — 8

Litigation recoveries — —

Total revenues and other income 250 2 26 5 282

Total revenue (1)

250 2 26 5 282

Loss and loss adjustment expenses (benefit) ( 89 ) — ( 88 )

2 unchanged sentences

General and administrative expenses (2)

77 9 5 19 110

Depreciation expense (2)

3 unchanged sentences

Pretax income (loss) $ 20 $ ( 8 ) $ 4 $ ( 15 ) $ 2

Income tax expense (benefit) 16 — — 2 18

Net income (loss) $ 4 $ ( 8 ) $ 4 $ ( 17 ) $ ( 16 )

Total Assets (1)

$ 11,871 $ 156 $ 93 $ 182 $ 12,303

(1) Other revenues include the following line items on the Consolidated Statements of Total Comprehensive Income:

Income (loss) on variable interest entities and other income (expense).

(2) Inter-segment revenues and inter-segment pre-tax income (loss) amounts are insignificant and are not presented separately.

Total assets noted in the Corporate and Other Column is net of AFG's investment in surplus notes issued by the Legacy Financial Guarantee Segment with fair values of $90 at December 31, 2021.

Prior to 2021, Ambac's business operations consisted solely of Legacy Financial Guarantee Insurance.

BUSINESS COMBINATION

Ambac has acquired the following entities that were accounted for as business combinations and advance Ambac's strategy of expanding into the Insurance Distribution sector.

• Effective November 1, 2022, Ambac completed the acquisition of 85 % of All Trans and 80 % of Capacity Marine for a combined purchase price of $ 26 in cash.

Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company's Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period as defined by ASC 805.

• On December 31, 2020, Ambac completed the acquisition of 80 % of the membership interests of Xchange for a purchase price of $ 81 in cash.

All amounts recorded at the time of the acquisitions are final and no subsequent adjustments were made within the permitted measurement period as defined by ASC 805.

The following table summarizes the consideration paid for these acquisitions and the estimated fair values of the aggregate assets and liabilities acquired, as well as the fair value of the noncontrolling interest, at the acquisition dates:

Ambac Financial Group, Inc 83

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(Dollar Amounts in Millions, Except Share Amounts)

Fair Value All Trans & Capacity Marine Xchange

Restricted cash 4 4

Intangible assets 16 36

Goodwill 15 46

Other assets 6 8

Total assets acquired $ 45 $ 96

Other liabilities 13 8

Total liabilities assumed 13 8

Redeemable noncontrolling interest 5 7

Total consideration $ 26 $ 81

Goodwill was recorded to reflect the excess purchase consideration over net assets acquired and primarily consists of the future economic benefits that we expect to receive as a result of the acquisitions, driven by the value potential future distribution and carrier relationships, and synergies with other Ambac business operations.

Tax deductible goodwill totaled $ 21 and $ 65 , deductible over 15 years for each of the All Trans and Capacity Marine and Xchange acquisitions, respectively.

The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed were based on management’s estimates and assumptions at the time of the acquisitions.

The fair value of the redeemable non-controlling interest of $ 5 and $ 7 , respectively on the acquisition dates for the All Trans and Capacity Marine and Xchange acquisitions were estimated based on the non-controlling interest’s respective share of each acquiree's enterprise value, adjusted for the value of Ambac's call options to purchase, and the minority owners' put options to sell to Ambac, respectively, the remaining non-controlling interests.

Please refer to the Noncontrolling Interests section of Note 2.

Basis of Presentation and Significant Accounting Policies, for further information regarding the terms of the call and put options, as well as the redeemable noncontrolling interest balance sheet classification.

The following table sets forth the estimated fair values of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition.

Value Weighted

Remaining Useful

All Trans & Capacity Marine

Distribution relationships $ 15 15.0

Trade name 1 15.0

Distribution relationships $ 33 15.0

Non-compete agreements 1 5.0

Trade name 1 8.0

The distribution relationships intangible represents existing relationships maintained with a variety of brokers and distributors across its product lines.

It excludes the value of potential future distribution relationships that may be developed, which is included in goodwill.

The trade name intangible represents the rights to the brand names which are well known in the marketplace that each company competes in.

The non-compete agreements intangible relates to agreements entered into with certain key management personnel.

The overall weighted average useful life of the identified amortizable intangible assets acquired is 15 years and 14 years for the All Trans and Capacity Marine and Xchange acquisitions, respectively.

Pro forma information related to the acquisitions was not presented as the impact was not material to the Company’s financial results.

Ambac’s non-VIE invested assets are primarily comprised of (i) fixed maturity securities classified as either available-for-sale or trading securities, (ii) interests in pooled investment funds which are reported within Other investments on the Consolidated Balance Sheets and (iii) preferred equity investments which are reported within Other investments on the Consolidated Balance Sheets.

(1) Inter-segment revenues and inter-segment pre-tax income (loss) amounts are insignificant and are not presented separately.

Total assets noted in the Corporate and Other Column is net of AFG's investment in surplus notes issued by the Legacy Financial Guarantee Segment with fair values of $ 90 at December 31, 2021.

(2) The Consolidated Statements of Comprehensive Income (Loss) presents the sum of these items as General & Administrative Expenses.

Interests in pooled investment funds in the form of common stock or in-substance common stock are classified as trading securities, while limited partner interests in such funds are reported using the equity method.

Fixed maturity securities classified as trading are unrated municipal bond and other obligations of Puerto Rico issuing entities that are part of the the PROMESA restructuring process as described further in Note 8.

Insurance Contracts.

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86 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Fixed maturity securities classified as trading are unrated municipal bond and other obligations of Puerto Rico issuing entities received in connection with the 2022 restructuring of AAC-insured Puerto Rico obligations.

Fixed Maturity Securities

The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at December 31, 2023 and 2022 were as follows:

December 31, 2023 December 31, 2022

Cost Allowance for Credit Losses Gross

Losses Estimated

December 31, 2022

Fair Value Amortized

Cost Allowance for Credit Losses Gross

Losses Estimated

Fixed maturity securities:

14 unchanged sentences

Short-term 27 — — — 27 64 — — — 64

Total available-for-sale investments $ 2,041 $ — $ 31 $ 106 $ 1,966

December 31, 2021

Fixed maturity securities:

Municipal obligations $ 315 — 28 3 340

Corporate obligations 612 — 10 9 613

Foreign obligations 89 — — 2 87

government obligations 45 — 1 1 45

Residential mortgage-backed securities 182 — 70 — 252

Collateralized debt obligations 128 — — — 128

Other asset-backed securities (1)

27 — — — 27 64 — — — 64

1,605 — 141 16 1,730

Short-term 415 — — — 414

2,020 — 141 16 2,145

Fixed maturity securities pledged as collateral:

government obligations 15 — — — 15

Short-term 105 — — — 105

120 — — — 120

Total available-for-sale investments $ 2,197 $ 3 $ 40 $ 71 $ 2,162 2,041 $ — $ 31 $ 106 $ 1,966

(1) Consists primarily of Ambac's holdings of military housing and student loan securities.

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87 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at December 31, 2023, by contractual maturity, were as follows:

13 unchanged sentences

This information is aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2023 and 2022:

Less Than 12 Months 12 Months or More Total

Fair Value Gross

Loss Fair Value Gross

December 31, 2022

Fixed maturity securities:

Municipal obligations $ 21 $ 1 $ 7 $ 1 $ 28 $ 2

Corporate obligations 280 21 279 42 559 63

Foreign obligations 27 2 47 7 73 9

government obligations 40 3 19 1 58 4

Residential mortgage-backed securities 132 19 — — 132 19

Commercial mortgage-backed securities 3 — — — 3 —

Collateralized debt obligations 90 3 36 1 126 4

Other asset-backed securities 198 4 5 1 203 5

791 53 392 53 1,183 106

Short-term 78 — 8 — 86 —

Total temporarily impaired securities $ 869 $ 53 $ 400 $ 53 $ 1,269 $ 106

Ambac Financial Group, Inc 84

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

Less Than 12 Months 12 Months or More Total

Fair Value Gross

December 31, 2023 December 31, 2022

Less Than 12 Months 12 Months or More Total Less Than 12 Months 12 Months or More Total

Loss Fair Value Gross

December 31, 2021

Loss Fair Value Gross

Fixed maturity securities:

4 unchanged sentences

Residential mortgage-backed securities 6 — 98 14 104 14 132 19 — — 132 19

Commercial mortgage-backed securities 3 — — — 3 — 3 — — — 3 —

Collateralized debt obligations 1 — 93 1 95 1 90 3 36 1 126 4

2 unchanged sentences

Short-term 4 — — — 4 — 78 — 8 — 86 —

768 14 41 1 810 16

Fixed income securities, pledged as collateral:

government obligations 15 — — — 15 —

Total collateralized investments 15 — — — 15 —

Total temporarily impaired securities $ 187 $ 4 $ 844 $ 68 $ 1,032 $ 71 $ 869 $ 53 $ 400 $ 53 $ 1,269 $ 106

12 unchanged sentences

Management believes that the full and timely receipt of all principal and interest payment on corporate obligations with unrealized losses as of December 31, 2023, is probable.

Residential mortgage-backed securities and Other asset-backed securities

Residential mortgage-backed securities

As of December 31, 2023, all of the $ 14 unrealized loss on residential mortgage-backed securities related to 11 Ambac-insured securities.

Five of these account for $ 18 of the unrealized loss and have an average unrealized loss equal to 15 % of amortized cost.

The $ 5 unrealized loss on other asset backed securities related to 14 Ambac-insured securities or resecuritization instruments collateralized with Ambac-insured securities and have an average unrealized loss equal to 2 % of amortized cost.

The majority of these unrealized losses for both residential mortgage-backed and other asset-backed securities relate to securities with long dated weighted average lives making their fair values more sensitive to interest rate changes.

Four of these account for $ 13 of the unrealized loss and have an average unrealized loss equal to 14 % of amortized cost.

The majority of these unrealized losses relate to securities with long dated weighted average lives making their fair values more sensitive to interest rate changes.

Also, most of these securities have below investment grade credit ratings or are unrated.

2 unchanged sentences

This assumption is included in the projection of model based cash flows used in evaluating credit impairments on beneficial interests in securitized financial assets, including the residential mortgage backed and student loan asset backed securities included in this group.

| Ambac Financial Group, Inc.

89 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Investment Income (Loss)

8 unchanged sentences

Total net investment income (loss) $ 140 $ 17 $ 139

Net investment income (loss) from Other investments primarily represents changes in fair value on equity securities including certain pooled investment funds, and income from investment limited partnerships and other equity interests accounted for under the equity method.

Net i nvestment income (loss) from Other investments primarily represents changes in fair value on equity securities including certain pooled investment funds, and income from investment limited partnerships and other equity interests accounted for under the equity method.

Ambac Financial Group, Inc 85

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Net Investments Gains (Losses), including Impairments

5 unchanged sentences

Credit impairments ( 3 ) — —

Intent / requirement to sell impairments — — —

Intent to sell impairments ( 12 ) — —

Net investment gains (losses), including impairments $ ( 22 ) $ 31 $ 7

Ambac had an allowance for credit losses $ 3 and $ 0 at December 31, 2023 and 2022, respectively.

The increase of $ 3 for the year ended December 31, 2023 relates to additions to the allowance for credit losses on residential mortgage-backed securities for which credit losses were not previously recorded.

Ambac did not purchase any financial assets with credit deterioration for the years ended December 31, 2023 and 2022.

2 unchanged sentences

Securities held directly in Ambac’s investment portfolio with a fair value of $ 27 and $ 64 at December 31, 2023 and 2022, respectively, were pledged to derivative counterparties.

Ambac’s derivative counterparties have the right to re-pledge the investment securities and as such, these pledged securities are separately classified on the Consolidated Balance Sheets as “Fixed maturity securities pledged as collateral, at fair value” and "Short-term investments pledged as collateral, at fair value".

pledged as collateral, at fair value".

Refer to Note 9.

3 unchanged sentences

Invested assets carried at $ 1 as December 31, 2023, were deposited as security in connection with a letter of credit issued for an office lease.

Securities with a fair value of $ 669 at December 31, 2021, were held by Ambac UK, the capital stock of which was pledged as collateral for the Sitka AAC Note.

The Sitka AAC Note was fully redeemed as of October 29, 2022, and therefore the pledge of Ambac UK's capital stock was subsequently released.

Refer to Note 13.

Long-term Debt for further information about the Sitka AAC Note.

| Ambac Financial Group, Inc.

90 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Fiduciary funds held by Ambac's insurance distribution subsidiaries, carried at $ 2 and $ — at December 31, 2023 and 2022, respectively, are included in invested assets.

Guaranteed Securities

Ambac’s fixed maturity portfolio includes securities covered by guarantees issued by AAC and other financial guarantors (“insured securities”).

The published rating agency ratings on these securities reflect the higher of the financial strength rating of the financial guarantor or the rating of the underlying issuer.

Rating agencies do not always publish separate underlying ratings (those ratings excluding the insurance by the financial guarantor).

In the event these underlying ratings are not available from the rating agencies, Ambac will assign an internal rating.

Ambac’s fixed maturity portfolio includes securities covered by guarantees issued by AAC or Ambac UK (“insured securities”).

The following table represents the fair value and weighted-average underlying rating of insured securities in Ambac's investment portfolio at December 31, 2023 and 2022, respectively:

Obligations Corporate

Obligations Mortgage

Securities Total Weighted

December 31, 2022:

Ambac Assurance Corporation $ 10 $ — $ 394 $ 403 B

Total $ 10 $ — $ 394 $ 403 B

December 31, 2021:

Ambac Assurance Corporation $ 316 $ — $ 439 $ 754 B

National Public Finance Guarantee Corporation 2 — — 2 BBB-

Assured Guaranty Municipal Corporation 1 — — 1 A-

Total $ 318 $ — $ 439 $ 757 B

December 31, Municipal

Obligations Mortgage-backed Securities Asset-backed Securities Total Weighted

$ 9 $ 240 $ 232 $ 482 B-

$ 10 $ 236 $ 157 $ 403 B

(1) Ratings are based on the lower of Standard & Poor’s or Moody’s rating.

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Class of Funds

2022 2021 Redemption Frequency Redemption Notice Period

December 31, 2023 2022 Redemption Frequency Redemption Notice Period

Hedge funds (1)

$ 112 $ 186 quarterly or semi-annually 90 days

Private credit (4)

84 88 quarterly if permitted 180 days if permitted

High yield and leveraged loans (2) (10)

85 80 daily 0 - 30 days

Equity market investments (3) (11)

64 98 daily or quarterly 0 - 90 days

Investment grade floating rate income (2)

63 107 weekly 0 days

Private credit (3)

84 84 quarterly if permitted 180 days if permitted

Private equity (4)

70 47 quarterly if permitted 90 days if permitted

Investment grade floating rate income (5)

52 63 weekly 0 days

Equity market investments (6) (10)

38 64 daily or quarterly 0 - 90 days

Real estate properties (7)

22 33 quarterly 10 business days

Convertible bonds (10)(11)

8 — daily 0 days

Emerging markets debt (8) (11)

— 24 daily 0 days

21 22 see footnote (7) see footnote (7)

Insurance-linked investments (8)

1 1 see footnote (9) see footnote (9)

Convertible bonds (9)(10)

— 8 daily 0 days

Total equity investments in pooled funds $ 463 $ 556

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(2) This class of funds includes investments in high quality floating rate debt securities including ABS and corporate floating rate notes.

(3) This class of funds aim to achieve long-term growth through diversified exposure to global equity markets.

Ambac Financial Group, Inc 86

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

(3) This class aims to obtain high long-term returns primarily through credit and preferred equity investments with low liquidity and defined term.

(5) This class of funds includes investments in a range of instruments including high-yield bonds, leveraged loans, CLOs, ABS and floating rate notes to generate income and capital appreciation.

(4) This class seeks to generate long-term capital appreciation through investments in private equity, equity-related and other instruments.

(5) This class of funds includes investments in high quality floating rate debt securities including ABS and corporate floating rate notes.

(6) This class of funds aim to achieve long-term growth through diversified exposure to global equity markets.

(7) Investments consist of UK property to generate income and capital growth.

(8) This class seeks long-term income and growth through investments in the bonds of issuers in emerging markets.

(8) This class seeks to generate returns from insurance markets through investments in catastrophe bonds, life insurance and other insurance linked investments.

2 unchanged sentences

(9) This class seeks to generate total return from portfolios focused primarily on convertible securities.

| Ambac Financial Group, Inc.

91 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

(11) These categories include fair value amounts totaling $ 61 and $ 106 at December 31, 2022 and 2021, respectively, that are readily determinable and are priced through pricing vendors, for Equity market investments of $ 53 and $ 82 ;

Convertible bonds investments $ 8 and $ — ;

and for Emerging markets debt of $ — and $ 24 .

(10) These categories include fair value amounts totaling $ 77 and $ 61 at December 31, 2023 and 2022, respectively, that are readily determinable and are priced through pricing vendors, including for Equity market investments of $ 38 and $ 53 , High yield and leveraged loans products $ 39 and $ 0 , and Convertible bonds investments $ 0 and $ 8 .

Other investments also includes preferred equity investments with a carrying value of $ 13 and $ 12 as of December 31, 2023 and 2022, respectively, that do not have readily determinable fair values and are carried at cost, less any impairments as permitted under the Investments — Equity Securities Topic of the ASC.

2 unchanged sentences

Year Ended December 31, 2023 2022 2021

Net gains (losses) recognized during the period on trading securities $ ( 48 ) $ 23 $ —

net gains (losses) recognized during the reporting period on trading securities sold during the period ( 26 ) 1 ( 18 )

Unrealized gains (losses) recognized during the reporting period on trading securities still held at the reporting date $ ( 22 ) $ 22 $ 18

Net gains (losses) recognized during the period on trading and equity securities $ 25 $ ( 48 ) $ 23

net gains (losses) recognized during the reporting period on trading and equity securities sold during the period 18 ( 26 ) 1

Unrealized gains (losses) recognized during the reporting period on trading and equity securities still held at the reporting date $ 7 $ ( 22 ) $ 22

FAIR VALUE MEASUREMENTS

26 unchanged sentences

As required by the Fair Value Measurement Topic of the ASC financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

December 31, 2023:

December 31, 2022:

Amount Total Fair

Value Fair Value Measurements Categorized as:

Level 1 Level 2 Level 3

December 31, 2022:

Amount Total Fair

Value Fair Value Measurements Categorized as:

Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Financial assets:

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Cash, cash equivalents and restricted cash 28 28 27 2 — 44 44 43 1 —

Derivative assets:

Other assets - Derivatives:

Interest rate swaps—asset position 25 25 — — 25 27 27 — 1 26

17 unchanged sentences

Long term debt, including accrued interest $ 983 $ 697 $ — $ 679 $ 18 $ 1,065 $ 878 $ — $ 864 $ 14

Derivative liabilities:

Interest rate swaps—liability position 38 38 — 38 —

Liabilities for net financial guarantees written (2)

159 476 — — 476

Variable interest entity liabilities:

Long-term debt (includes $ 2,788 at fair value)

3,107 3,145 — 2,992 154

Derivative liabilities:

Interest rate swaps—liability position 1,048 1,048 — 1,048 —

Total financial liabilities $ 5,418 $ 5,586 $ — $ 4,942 $ 644

| Ambac Financial Group, Inc.

93 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Amount Total Fair

Value Fair Value Measurements Categorized as:

Level 1 Level 2 Level 3

December 31, 2021:

Financial assets:

Fixed maturity securities:

Municipal obligations $ 340 $ 340 $ — $ 340 $ —

Corporate obligations 613 613 1 600 12

Foreign obligations 87 87 87 — —

government obligations 45 45 45 — —

Residential mortgage-backed securities 252 252 — 252 —

Collateralized debt obligations 128 128 — 128 —

Other asset-backed securities 265 265 — 187 79

Fixed maturity securities, pledged as collateral:

government obligations 15 15 15 — —

Short-term 105 105 105 — —

Short term investments 414 414 369 46 —

Other investments (1)

690 683 106 — —

Cash, cash equivalents and restricted cash 21 21 21 1 —

Derivative assets:

Interest rate swaps—asset position 76 76 — 5 71

Other assets-loans 3 3 — — 3

Variable interest entity assets:

Fixed maturity securities:

Corporate obligations, fair value option 3,320 3,320 — — 3,320

Fixed maturity securities:

Municipal obligations, available-for-sale 136 136 — 136 —

Restricted cash 2 2 2 — —

Loans 2,718 2,718 — — 2,718

Derivative assets;

Currency swaps-asset position 38 38 — 38 —

Total financial assets $ 9,268 $ 9,261 $ 750 $ 1,732 $ 6,202

Financial liabilities:

Long term debt, including accrued interest $ 2,806 $ 2,598 $ — $ 2,575 $ 22

Derivative liabilities:

Other liabilities - Derivatives:

Interest rate swaps—liability position 35 35 — 35 — 38 38 — 38 —

2 unchanged sentences

Variable interest entity liabilities:

Long-term debt (includes $ 4,056 at fair value)

Long-term debt (includes $ 2,710 and $ 2,788 at fair value)

2,967 2,980 — 2,760 220 3,107 3,145 — 2,992 154

15 unchanged sentences

When available, Ambac uses quoted active market prices specific to the financial instrument to determine fair value and classifies such items within Level 1.

The determination of fair value for financial instruments categorized in Level 2 or 3 involves judgment due to the complexity of factors contributing to the valuation.

Third-party sources from which we obtain

independent market quotes also use assumptions, judgments and estimates in determining financial instrument values and different third parties may use different methodologies or provide different values for financial instruments.

In addition, the use of internal valuation models may require assumptions about hypothetical or inactive markets.

As a result of these factors, the actual trade value of a financial instrument in the market, or exit value of a financial instrument position by

The determination of fair

value for financial instruments categorized in Level 2 or 3 involves judgment due to the complexity of factors contributing to the valuation.

Third-party sources from which we obtain independent market quotes also use assumptions, judgments and estimates in determining financial instrument values and

Ambac Financial Group, Inc 88

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

Ambac, may be significantly different from its recorded fair value.

different third parties may use different methodologies or provide different values for financial instruments.

In addition, the use of internal valuation models may require assumptions about hypothetical or inactive markets.

As a result of these factors, the actual trade value of a financial instrument in the market, or exit value of a financial instrument position by Ambac, may be significantly different from its recorded fair value.

Ambac’s financial instruments carried at fair value are mainly comprised of investments in fixed maturity securities, equity interests in pooled investment funds, derivative instruments, and certain variable interest entity assets and liabilities.

17 unchanged sentences

At December 31, 2023, approximately 2 %, 94 %, and 4 % of the fixed maturity investment portfolio (excluding variable interest entity investments) was valued using broker quotes, alternative pricing sources and internal valuation models, respectively.

At December 31, 2021, approximately 6 %, 90 %, and 4 % of the fixed maturity investment portfolio (excluding variable interest entity investments) was valued using broker quotes, alternative pricing sources and internal valuation models, respectively.

Ambac performs various review and validation procedures to quoted and modeled prices for fixed maturity securities, including price variance analyses, missing and static price

reviews, overall valuation analysis by portfolio managers and finance managers and reviews associated with our ongoing impairment analysis.

At December 31, 2022, approximately 5 %, 91 %, and 4 % of the fixed maturity investment portfolio (excluding variable interest entity investments) was valued using

broker quotes, alternative pricing sources and internal valuation models, respectively.

Ambac performs various review and validation procedures to quoted and modeled prices for fixed maturity securities, including price variance analyses, missing and static price reviews, overall valuation analysis by portfolio managers and finance managers and reviews associated with our ongoing impairment analysis.

Unusual prices identified through these procedures will be evaluated further against alternative third-party quotes (if available), internally modeled prices and/or other relevant data, and the pricing source values will be challenged as necessary.

10 unchanged sentences

Coupon rate 5.97 % 5.98 %

Average Life 13.46 years

Yield 12.60 %

December 31, 2021:

Coupon rate 5.97 %

Average Life 14.14 years

Average Life 12.80 years 13.46 years

Yield 12.00 % 12.60 %

9 unchanged sentences

Refer to Note 4.

Investments for additional information about

Investments for additional information about such investments in pooled funds that are reported at fair value using NAV as a practical expedient.

Ambac Financial Group, Inc 89

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

such investments in pooled funds that are reported at fair value using NAV as a practical expedient.

Derivative Instruments

12 unchanged sentences

Counterparty credit risk related to such customer derivative assets is included in our determination of their fair value.

All of Ambac's credit derivatives ("CDS") positions have terminated as of June 30, 2022 and were not significant to Ambac's financial position or results of operations for the periods presented.

As of December 31, 2023 Ambac holds warrants to purchase preferred stock of a development stage company.

5 unchanged sentences

Long-term Debt

As of December 31, 2022, long-term debt includes AAC surplus notes, Tier 2 Notes issued in connection with the conclusion of the rehabilitation of the Segregated Account of AAC, and the Ambac UK debt issued in connection with the Ballantyne commutation.

As described in Note 1.

Background and Business Description , the Sitka AAC Note was wholly redeemed effective October 29, 2022, and Tier 2 Notes were partially redeemed effective October 29, 2022 and fully redeemed effective January 15, 2023.

The fair values of surplus notes, Sitka AAC Note and Tier 2 Notes are classified as Level 2.

As of December 31, 2023, long-term debt includes AAC surplus notes and the Ambac UK debt issued in connection with a policy commutation.

As further described in Note 12.

Long-term Debt the Tier 2 Notes were fully redeemed effective January 15, 2023.

The fair values of surplus notes and Tier 2 Notes are

classified as Level 2.

The fair value of Ambac UK debt is classified as Level 3.

2 unchanged sentences

Variable Interest Entity Assets and Liabilities

The financial assets and liabilities of Legacy Financial Guarantee Insurance VIEs ("FG VIEs") consolidated under the Consolidation Topic of the ASC consist primarily of fixed maturity securities and loans held by the VIEs, derivative instruments and notes issued by the VIEs which are reported as long-term debt.

The financial assets and liabilities of Legacy Financial Guarantee Insurance VIEs ("LFG VIEs") consolidated under the Consolidation Topic of the ASC consist primarily of fixed maturity securities and loans held by the VIEs, derivative instruments and notes issued by the VIEs which are reported as long-term debt.

As described in Note 11.

Variable Interest Entities, these FG VIEs are securitization entities which have liabilities and/or assets guaranteed by AAC or Ambac UK.

The fair values of FG VIE long-term debt are based on price quotes received from independent market sources when available.

Variable Interest Entities, these LFG VIEs are securitization entities which have liabilities and/or assets guaranteed by AAC or Ambac UK.

The fair values of LFG VIE long-term debt are based on price quotes received from independent market sources when available.

Such quotes are considered Level 2 and generally consider a variety of factors, including recent trades of the same and similar securities.

For those instruments where quotes were not available or cannot be reasonably corroborated, fair values are based on internal valuation models.

Comparable to the sensitivities of investments in fixed maturity securities described above, longer (shorter) expected maturities or higher (lower) yields used in the valuation model will, in isolation, result in decreases (increases) in fair value liability measurement for FG VIE long-term debt.

FG VIE derivative asset and liability fair values are determined using vendor-developed valuation models, which incorporated observable market data related to specific derivative contractual terms including interest rates, foreign exchange rates and yield curves.

The fair value of FG VIE fixed maturity securities and loan assets are generally based on Level 2 market price quotes received from independent market sources when available.

When FG VIE asset fair values are not readily available from market quotes, values are estimated internally.

Internal valuations of FG VIE’s fixed maturity securities or loan assets are derived from the fair values of the notes issued by the respective VIE and the VIE’s derivatives, determined as described above, adjusted for the fair values of Ambac’s financial guarantees associated with the VIE.

For those instruments where quotes were not available or cannot be reasonably corroborated, fair values are based on internal valuation models and classified Level 3.

LFG VIE derivative asset and liability fair values are determined using vendor-developed valuation models, which incorporated observable market data related to specific derivative contractual terms including interest rates, foreign exchange rates and yield curves.

The fair value of LFG VIE fixed maturity securities and loan assets are generally based on Level 2 market price quotes received from independent market sources when available.

When LFG VIE asset fair values are not readily available from market quotes, values are estimated internally and classified Level 3.

Internal valuations of LFG VIE’s fixed maturity securities or loan assets are derived from the fair values of the notes issued by the respective VIE and the VIE’s derivatives, determined as described above, adjusted for the fair values of Ambac’s financial guarantees associated with the VIE.

The fair value of financial guarantees consist of:

(i) estimated future premium cash flows discounted at a rate consistent with that implicit in the fair value of the VIE’s liabilities and (ii) estimates of future claim payments discounted at a rate that includes Ambac’s own

Estimated future premium payments to be paid by the VIEs were discounted at a weighted average rate of 6.3 % and 6.8 % at December 31, 2023 and 2022, respectively.

At December 31, 2023, the range of these discount rates was between 5.3 % and 7.8 %.

At December 31, 2022, the range of these discount rates was between 5.8 % and 8.5 %.

Ambac Financial Group, Inc 90

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

Estimated future premium payments to be paid by the VIEs were discounted at a weighted average rate of 6.8 % and 3.0 % at December 31, 2022 and 2021, respectively.

At December 31, 2022, the range of these discount rates was between 5.8 % and 8.5 %.

At December 31, 2021, the range of these discount rates was between 2.2 % and 4.1 %.

Additional Fair Value Information for Financial Assets and Liabilities Accounted for at Fair Value

The following tables present the changes in the Level 3 fair value category for the periods presented in 2023, 2022 and 2021.

Ambac classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model.

Ambac classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant

unobservable input to the valuation model.

In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

2 unchanged sentences

VIE Assets and Liabilities

Year ended December 31, 2022 Investments (1)

Assets Derivatives Investments Loans Total

Year ended December 31, 2023 Investments Derivatives Investments Loans Total

Balance, beginning of period $ 79 $ 26 $ 1,828 $ 1,829 $ 3,762

11 unchanged sentences

VIE Assets and Liabilities

Year Ended December 31, 2021 Investments (1)

Derivatives Investments Loans Total

Year Ended December 31, 2022 Investments Derivatives Investments Loans Total

Balance, beginning of period $ 91 $ 70 $ 3,320 $ 2,718 $ 6,199

17 unchanged sentences

VIE Assets and Liabilities

Year Ended December 31, 2020 Investments (1)

Derivatives Investments Loans Total

Year Ended December 31, 2021 Investments Derivatives Investments Loans Total

Balance, beginning of period $ 78 $ 1 $ 84 $ 3,215 $ 2,998 $ 6,376

9 unchanged sentences

The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date $ ( 1 ) $ — $ — $ ( 32 ) $ ( 26 ) $ ( 59 )

(1) Investments classified as Level 3 consist of a one other asset-backed security and two convertible notes acquired in 2021.

(2) Other assets carried at fair value and classified as Level 3 relate to an equity interest in an Ambac sponsored VIE liquidated in 2021.

Invested assets and VIE long-term debt are transferred into Level 3 when internal valuation models that include significant unobservable inputs are used to estimate fair value.

3 unchanged sentences

Gains and losses (realized and unrealized) relating to Level 3 assets and liabilities included in earnings for the affected periods are reported as follows:

Income Net Gains

Derivative Contracts Income (Loss)

Entities Other

Year Ended December 31, 2023

9 unchanged sentences

Legacy financial guarantees outstanding includes the exposures of policies that insure variable interest entities (“VIEs”) consolidated in accordance with ASC Topic 810, Consolidation.

Financial guarantees outstanding include the exposure of policies that insure capital appreciation bonds which are

reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds.

Financial guarantees outstanding exclude the exposures of policies that insure bonds which have been called, pre-refunded or refunded and excludes exposure of the policies insuring the Sitka Senior Secured Notes as defined in Note 1.

Background and Business Description.

The gross par amount of financial guarantees outstanding was $ 27,551 and $ 34,122 at

Financial guarantees outstanding include the exposure of policies that insure capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds.

Financial guarantees outstanding exclude the exposures of policies that insure bonds which have been refunded, pre-refunded or synthetically commuted.

The gross par amount of financial guarantees outstanding was $ 26,005 and $ 27,551 at December 31, 2023 and 2022, respectively.

The par amount of financial guarantees outstanding, net of reinsurance, was $ 19,541 and $ 22,613 at December 31, 2023 and 2022, respectively.

As of December 31, 2023, the aggregate amount of financial guarantee insured par ceded to reinsurers under

reinsurance agreements was $ 6,464 with the largest reinsurer accounting for $ 2,766 or 10.6 % of gross par outstanding at December 31, 2023.

Ambac Financial Group, Inc 92

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

December 31, 2022 and 2021, respectively.

The par amount of financial guarantees outstanding, net of reinsurance, was $ 22,613 and $ 28,020 at December 31, 2022 and 2021, respectively.

As of December 31, 2022, the aggregate amount of financial guarantee insured par ceded to reinsurers under reinsurance agreements was $ 4,938 with the largest reinsurer accounting for $ 2,187 or 7.9 % of gross par outstanding at December 31, 2022.

As of December 31, 2023 and 2022, the legacy financial guarantee portfolio consisted of the types of guaranteed bonds as shown in the following table:

29 unchanged sentences

Australia 266 259

France 14 219

Other international

14 unchanged sentences

Earned 62 — 15 47

Included in net earned premiums are accelerated financial guarantee premium revenues for retired obligations for the years ended December 31, 2022, 2021 and 2020, of $ 8 , $ 1 and $ 12 , respectively.

Included in net earned premiums are accelerated financial guarantee premium revenues for retired financial guarantee obligations for the years ended December 31, 2023, 2022 and 2021, of $ 0 , $ 8 and $ 1 , respectively.

The following table summarizes net premiums earned by location of risk:

6 unchanged sentences

Premium receivables at December 31, 2023 and 2022 were $ 290 and $ 269 , respectively.

Management evaluates premium receivables for expected credit losses ("credit impairment") in accordance with the CECL standard adopted January 1, 2020, which is further described in Note 2.

Basis of Presentation and Significant Accounting Policies .

The key indicator management uses to assess the credit quality of legacy financial guarantee premium receivables is Ambac's internal risk classifications for the insured obligation determined by the Risk Management Group.

Below is the gross premium receivable roll-forward, net of the allowance for credit losses, for the affected periods:

Year Ended December 31,

2023 2022 2021

Beginning premium receivable $ 269 $ 323 $ 370

Premiums written on new business, net of commissions

Premium receipts ( 208 ) ( 139 ) ( 43 )

Adjustments for changes in expected and contractual cash flows for contracts (1)

6 ( 31 ) ( 27 )

Accretion of premium receivable discount for contracts 8 8 8

Consolidation of VIEs

Changes to allowance for credit losses 1 4 8

Other adjustments (including foreign exchange) (2)

4 ( 12 ) ( 4 )

Ending premium receivable (3)

$ 290 $ 269 $ 323

(1) Adjustments for changes in expected and contractual cash flows are primarily due to indexation offset by reductions in insured exposure as a result of early policy terminations and unscheduled principal paydowns for financial guarantee policies.

Ambac Financial Group, Inc 93

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(Dollar Amounts in Millions, Except Share Amounts)

(2) Includes foreign exchange gains/(losses) of $ 4 , ($ 13 ) and $( 2 ) for 2023, 2022,and 2021 respectively.

(3) Premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros.

At December 31, 2023, 2022 and 2021 premium receivables include British Pounds of $ 72 (£ 57 ), $ 71 (£ 59 ) and $ 108 (£ 80 ), respectively, and Euros of $ 13 (€ 12 ), $ 14 (€ 13 ) and $ 16 (€ 14 ), respectively.

Management evaluates premium receivables for expected credit losses ("credit impairment") in accordance with the CECL

standard, which is further described in Note 2.

Basis of Presentation and Significant Accounting Policies .

Below is the amortized cost basis of financial guarantee premium receivables by risk classification code and asset class as of December 31, 2023 and 2022:

Surveillance Categories as of December 31, 2022

Type of Guaranteed Bond I IA II III IV Total

Surveillance Categories as of December 31, 2023 Surveillance Categories as of December 31, 2022

Type of Guaranteed Bond I IA II III IV Total I IA II III IV Total

Public Finance:

5 unchanged sentences

Student loan — — — 7 — 7 1 1 — 7 — 8

Structured insurance — — — — — —

Other 4 — — — — 4 4 — — — — 4

7 unchanged sentences

$ 210 $ 16 $ 5 $ 7 $ 11 $ 248 $ 217 $ 10 $ 5 $ 16 $ 11 $ 259

Surveillance Categories as of December 31, 2021

Type of Guaranteed Bond I IA II III IV Total

Public Finance:

Housing revenue $ 149 $ 3 $ 5 $ — $ — $ 157

Other 2 — — — — 2

Total Public Finance 151 3 5 — — 159

Structured Finance:

Mortgage-backed and home equity 1 — 1 2 12 16

Student loan 1 1 — 9 — 12

Structured insurance 10 — — — — 10

Other 7 — — — — 7

Total Structured Finance 19 1 1 12 12 45

International:

Sovereign/sub-sovereign 74 8 — 11 — 93

Investor-owned and public utilities 28 — — — — 28

Other 5 — — — — 5

Total International 107 8 — 11 — 125

$ 277 $ 12 $ 6 $ 22 $ 12 $ 329

(1) Excludes specialty property and casualty premium receivables of $ 16 and $ 2 at December 31, 2022 and 2021, respectively.

(1) Excludes specialty property and casualty premium receivables of $ 46 and $ 16 at December 31, 2023 and 2022, respectively and has recorded an allowance for credit losses of less than a million in both periods.

(2) The underwriting origination dates for all policies included are greater than five years prior to the current reporting date.

| Ambac Financial Group, Inc.

100 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Below is a rollforward of the premium receivable allowance for credit losses as of December 31, 2023 and 2022:

6 unchanged sentences

At December 31, 2023 and 2022, $ 1 and $ 0 of premiums were past due.

Legacy Financial Guarantee Premium Receivables

Gross premiums are received either upfront or in installments.

For premiums received upfront, an unearned premium revenue (“UPR”) liability is established, which is initially recorded as the cash amount received.

For installment premium policies, a premium receivable asset and offsetting UPR liability is initially established in an amount equal to:

(i) the present value of future contractual premiums due (the “contractual” method) or (ii) if the assets underlying the insured obligation are homogenous pools which are contractually prepayable, the present value of premiums to be collected over the expected life of the transaction (the “expected” method).

Below is the gross premium receivable roll-forward (direct contracts), net of the allowance for credit losses, for the affected periods:

December 31, 2022 2021 2020

Beginning premium receivable $ 320 $ 370 $ 416

Adjustment to initially apply ASU 2016-13 — — ( 3 )

Premium receipts ( 36 ) ( 35 ) ( 46 )

Adjustments for changes in expected and contractual cash flows for contracts (1) ( 31 ) ( 27 ) ( 6 )

Accretion of premium receivable discount for contracts 8 8 9

Changes to allowance for credit losses 4 8 ( 4 )

Other adjustments (including foreign exchange) (2) ( 12 ) ( 4 ) 5

Ending premium

receivable (3) $ 254 $ 320 $ 370

(1) Adjustments for changes in expected and contractual cash flows are primarily due to higher discount rates and reductions in insured exposure as a result of early policy terminations and unscheduled principal paydowns .

(2) Includes foreign exchange gains/(losses) of ($ 13 ), ($ 2 ) and $ 4 for 2022, 2021,and 2020 respectively.

(3) Premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros.

At December 31, 2022, 2021 and 2020 premium receivables include British Pounds of $ 71 (£ 59 ), $ 108 (£ 80 ) and $ 117 (£ 86 ), respectively, and Euros of $ 14 (€ 13 ), $ 16 (€ 14 ) and $ 19 (€ 16 ), respectively.

The following table summarizes the future gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at December 31, 2022:

Ambac Financial Group, Inc 94

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

The following table summarizes the future Legacy Financial Guarantee gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at December 31, 2023:

Future Premiums

18 unchanged sentences

December 31, 2053 2 1

December 31, 2057 — —

Total $ 310 $ 173

7 unchanged sentences

If those bonds types are retired early, premium earnings may be negative in the period of call or refinancing.

| Ambac Financial Group, Inc.

101 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Loss and Loss Adjustment Expense Reserves

1 unchanged sentence

Below are the components of the loss and loss adjustment expense reserves and the subrogation recoverable asset at December 31, 2023 and 2022:

Legacy Financial Guarantee

Specialty Property and Casualty Present Value of Expected

December 31, 2023:

December 31, 2022:

SPC Present Value of Expected

Net Cash Flow SPC Present Value of Expected

Net Cash Flow

3 unchanged sentences

Revenue Gross Loss and

December 31, 2022:

Loss and loss adjustment expense reserves $ 90 $ 787 $ ( 44 ) $ ( 28 ) $ 805

Subrogation recoverable — 5 ( 276 ) — ( 271 )

Totals $ 90 $ 791 $ ( 319 ) $ ( 28 ) $ 534

December 31, 2021:

Reserves Gross Loss and

Reserves Claims and

Loss Expenses Recoveries Unearned

Revenue Gross Loss and

Loss and loss adjustment expense reserves $ 197 $ 779 $ ( 55 ) $ ( 28 ) $ 893 $ 90 $ 787 $ ( 44 ) $ ( 28 ) $ 805

1 unchanged sentence

Totals $ 197 $ 780 $ ( 194 ) $ ( 28 ) $ 756 $ 90 $ 791 $ ( 319 ) $ ( 28 ) $ 534

SPC = Specialty Property and Casualty, LFG = Legacy Financial Guarantee

Ambac Financial Group, Inc 95

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Below is the loss and loss reserve expense roll-forward, net of subrogation recoverable and reinsurance, for the affected periods.

4 unchanged sentences

Losses and loss expenses (benefit) incurred:

Current year 37 4 —

Prior years ( 69 ) ( 401 ) ( 89 )

1 unchanged sentence

Loss and loss adjustment expenses (recovered) paid:

Current year 4 7 —

Prior years ( 194 ) ( 1,867 ) 59

( 1,860 ) 59 149

Total ( 190 ) ( 1,860 ) 59

Foreign exchange effect — ( 2 ) —

1 unchanged sentence

Impact of VIE consolidation (3)

( 7 ) ( 464 ) —

Reinsurance recoverable (4)

1 unchanged sentence

(1) Total losses and loss expenses (benefit) includes $( 110 ), $( 41 ) and $ 5 for the years ended December 31, 2023, 2022 and 2021, respectively, related to ceded reinsurance.

(2) Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties ("R&W's") by transaction sponsors within losses and loss expenses (benefit) for the Legacy Financial Guarantee segment.

The losses and loss expense (benefit) incurred associated with changes in estimated R&W's for the year ended December 31, 2022, 2021 and 2020 was $( 123 ), $ 20 and $( 23 ),

respectively.

The losses and loss expense (benefit) incurred associated with changes in estimated R&W's for the year ended December 31, 2023, 2022 and 2021 was $ 0 , $( 123 ) and $ 20 , respectively.

Refer to Note 1.

Background and Business Description to the Consolidated Financial Statements in this Annual Report on Form 10-K for details of the RMBS litigation settlements reached in October and December 2022.

(3) In connection with the Puerto Rico restructuring, three new trusts were established for the year ended December 31, 2022.

These trusts were consolidated by Ambac as further discussed in Note 12.

Background and Business

Description to the Consolidated Financial Statements in this Annual Report on Form 10-K for details of the RMBS litigation settlements reached in October and December 2022.

(3) Ambac consolidated one , three and zero LFG VIEs during the years ended December 31, 2023, 2022 and 2021, respectively as further discussed in Note 11.

Variable Interest Entities .

1 unchanged sentence

Additionally, the Balance Sheet line "Reinsurance recoverable on paid and unpaid losses" includes reinsurance recoverables (payables) of $ 8 , $ 0 and $ 0 as of December 31, 2023, 2022 and 2021, respectively, related to previously presented loss and loss adjustment expenses and subrogation.

For 2022, the positive development in prior years was primarily attributable to the Puerto Rico restructuring and favorable RMBS development due to the positive impact of discount rates and the impact of the litigation settlements with Bank of America Corporation and certain affiliates thereof and Nomura Credit & Capital, Inc.

For 2023, the favorable development in prior years was largely driven by RMBS recoveries and favorable development related to student loans, partially offset by the negative impact of discount rates on the RMBS portfolio, all in the Legacy Financial Guarantee Insurance segment.

For 2022, the favorable development in prior years was primarily attributable to the Puerto Rico restructuring and favorable RMBS development due to the positive impact of discount rates and the impact of the litigation settlements with Bank of America Corporation and certain affiliates thereof and Nomura Credit & Capital, Inc.

as described in Note 1.

Background and Business Description to the Consolidated Financial Statements in this Annual Report on Form 10-K;

both in the legacy financial guarantee segment.

For 2022, prior years' loss and loss expenses recovered includes $ 1,687 related the litigation settlement with Bank of America Corporation and certain affiliates.

For 2021, the positive development in prior years was primarily due to favorable development in Public Finance credits (largely Puerto Rico) and the RMBS portfolio.

For 2020, the adverse development in prior years was primarily a result of deterioration in Public Finance credits, largely Puerto Rico, partially offset by favorable development in the RMBS portfolio.

| Ambac Financial Group, Inc.

102 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

both in the Legacy Financial Guarantee Insurance segment.

For 2022, prior years' loss and loss expenses recovered includes $ 1,687 related the litigation settlement with Bank of America Corporation and certain affiliates thereof.

For 2021, the favorable development in prior years was primarily due to Public Finance credits (largely Puerto Rico) and the RMBS portfolio.

Legacy Financial Guarantee Loss Reserves:

2 unchanged sentences

The weighted average risk-free rate used to discount loss reserves at December 31, 2023 and 2022 was 3.9 % and 3.9 %, respectively.

Surveillance Categories as of December 31, 2022

I IA II III IV V Total

Number of policies 37 6 9 12 93 5 162

Remaining weighted-average contract period (in years) (1) 7 19 14 14 12 7 13

Gross insured contractual payments outstanding:

Principal $ 709 $ 200 $ 459 $ 1,000 $ 1,646 $ 34 $ 4,047

Interest 526 198 286 156 565 19 1,750

Total $ 1,235 $ 399 $ 745 $ 1,156 $ 2,210 $ 53 $ 5,797

Gross undiscounted claim liability $ 4 $ 4 $ 43 $ 446 $ 729 $ 53 $ 1,279

Discount, gross claim liability ( 1 ) ( 1 ) ( 7 ) ( 162 ) ( 316 ) ( 9 ) ( 496 )

Gross claim liability before all subrogation and before reinsurance $ 3 $ 3 $ 36 $ 284 $ 413 $ 43 $ 783

Gross RMBS subrogation (2) $ — $ — $ — $ — $ ( 140 ) $ — $ ( 140 )

Discount, RMBS subrogation — — — — — — —

Discounted RMBS subrogation, before reinsurance — — — — ( 140 ) — ( 140 )

Gross other subrogation (3) ( 14 ) ( 4 ) — ( 31 ) ( 172 ) ( 12 ) ( 233 )

Discount, other subrogation 2 — — 5 42 4 54

Discounted other subrogation, before reinsurance ( 12 ) ( 3 ) — ( 26 ) ( 130 ) ( 8 ) ( 179 )

Gross claim liability, net of all subrogation and discounts, before reinsurance $ ( 9 ) $ — $ 36 $ 258 $ 143 $ 35 $ 464

Unearned premium revenue $ ( 2 ) $ ( 2 ) $ ( 5 ) $ ( 8 ) $ ( 10 ) $ ( 1 ) $ ( 28 )

Loss expense reserves 1 1 — 2 4 — 8

Gross loss and loss adjustment expense reserves

$ ( 10 ) $ ( 2 ) $ 32 $ 252 $ 137 $ 34 $ 444

Reinsurance recoverable reported on

Balance Sheet (4) $ 1 $ — $ 8 $ 21 $ 3 $ — $ 33

(1) Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.

(2) RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.

(3) Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.

(4) Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $ 33 related to future loss and loss adjustment expenses and $ 0 related to presented loss and loss adjustment expenses and subrogation.

Ambac Financial Group, Inc 96

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

Surveillance Categories as of December 31, 2021

I IA II III IV V Total

Surveillance Categories as of December 31, 2023 Surveillance Categories as of December 31, 2022

I IA II III IV V Total I IA II III IV V Total

Number of policies 18 8 9 13 88 5 141 37 6 9 12 93 5 162

Remaining weighted-average contract period (in years) (1)

9 9 13 13 12 7 12 7 19 14 14 12 7 14

Gross insured contractual payments outstanding:

6 unchanged sentences

Gross RMBS subrogation (2)

$ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ ( 140 ) $ — $ ( 140 )

Discount, RMBS subrogation — — — — — — — — — — — — — —

1 unchanged sentence

Gross other subrogation (3)

( 13 ) ( 2 ) — ( 27 ) ( 208 ) ( 11 ) ( 263 ) ( 14 ) ( 4 ) — ( 31 ) ( 172 ) ( 12 ) ( 233 )

Discount, other subrogation 2 — — 4 60 3 69 2 — — 5 42 4 54

5 unchanged sentences

$ ( 10 ) $ 6 $ 30 $ 215 $ 292 $ 27 $ 559 $ ( 10 ) $ ( 2 ) $ 32 $ 252 $ 137 $ 34 $ 444

Reinsurance recoverable reported on

Balance Sheet (4) $ 1 $ 1 $ 10 $ 22 $ ( 11 ) $ — $ 23

Reinsurance recoverable reported on Balance Sheet (4)

$ 1 $ — $ 8 $ 18 $ 3 $ — $ 30 $ 1 $ — $ 8 $ 21 $ 3 $ — $ 33

(1) Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.

1 unchanged sentence

(3) Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.

(4) Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $ 24 related to future loss and loss adjustment expenses and $ 0 related to presented loss and loss adjustment expenses and subrogation.

Ambac has remaining exposure to the Commonwealth of Puerto Rico (the "Commonwealth") and its instrumentalities on two different issuing entities with total net par exposure of $ 244 .

Components of the remaining Puerto Rico net par outstanding include capital appreciation bonds which are reported at the par amount at the time of issuance of the related insurance policy as opposed to the current accreted value of the bonds.

We have been paying claims for several years on most of our exposure to Puerto Rico, which had consisted of several different issuing entities.

These issuing entities had been part of the PROMESA restructuring process that began in 2016.

On December 6, 2022, the Fifth Amended Title III Plan of Adjustment of The Puerto Rico Highways and Transportation Authority ("PRHTA POA") became effective and concluded the debt restructuring of all AAC-insured Puerto Rico obligations under PROMESA.

The consummation of the PRHTA POA followed previous plans of adjustment and qualifying modifications related to AAC's insured Puerto Rico exposure, including the Eighth Amended Plan Title III Joint Plan of Adjustment for the Commonwealth of Puerto Rico, et al.

("Eighth Amended POA") together with the Qualifying Modifications for PRIFA and CCDA ("PRIFA QM" and "CCDA QM"), respectively, in March 2022, which resolved the PROMESA restructuring process for the GO, PBA, PRIFA and CCDA issuing entities that had portions of their bonds insured by AAC;

and COFINA Plan of Adjustment in February 2019, which resolved the restructuring process for the COFINA issuing entity that had portions of their bonds insured by AAC.

PRHTA / CCDA PSA

Creditor recoveries under the PRHTA POA were based upon the PRHTA/CCDA PSA, which was originally executed on May 5, 2021, and provides for certain consideration for holders of bonds issued by certain Commonwealth instrumentalities, PRHTA, and CCDA on account of their claims against the Commonwealth arising from such bonds ("Clawback" claims).

Under the PRHTA/CCDA PSA, PRHTA creditors shared $ 389 of cash proceeds that was paid on July 8, 2022, once the PRHTA distribution condition was met pursuant to the Eighth Amended POA (the “Interim Distribution”).

In addition, PRHTA creditors received an approximately 69 % share, subject to a lifetime nominal cap of $ 3,698 , of the Clawback Creditors' portion of the

(4) Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $ 30 and $ 33 related to future loss and loss adjustment expenses and $ 8 and $ 0 related to presented loss and loss adjustment expenses and subrogation at December 31, 2023 and 2022, respectively.

Representation and Warranty Recoverable

Ambac recorded RMBS R&W subrogation recoverables of $ 0 , ($ 0 net of reinsurance) and $ 140 , ($ 140 net of reinsurance) at December 31, 2023 and 2022, respectively.

On December 29, 2022, AAC entered into a Settlement Agreement and Release with Nomura Credit & Capital, Inc.

whereby the parties settled all RMBS litigation brought by AAC against Nomura and AAC received $ 140 on January 3, 2023, bringing to a close all of AAC's legacy litigation against RMBS sponsors.

Specialty Property & Casualty Loss Reserves

Claims Development

The following is a summary of loss and loss adjustment expense reserves, including certain components, for the Company’s major product lines by reporting segment at December 31, 2023.

Ambac Financial Group, Inc 97

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

outperformance of the Commonwealth's sales and use tax ("SUT") relative to the certified 2020 Commonwealth Fiscal Plan's projections (the "Clawback CVI").

The Clawback CVI instrument was also distributed as part of the Interim Distribution on July 8, 2022.

PRHTA bondholder also received new PRHTA bonds with a face amount of $ 1,245 .

Of the $ 1,245 in new bonds, approximately $ 646.4 was allocated to holders of PRHTA '68 bonds and approximately $ 598.6 was allocated to holders of PRHTA '98 bonds.

The new PRHTA bonds were distributed to creditors on December 6, 2022, upon the effective date of the PRHTA POA.

AAC and other PRHTA creditors also received restriction fees and consummation costs on the effective date of the PRHTA POA.

PRHTA Interim Distribution

On July 8, 2022, following satisfaction of the PRHTA distribution condition, AAC received its share of the Interim Distribution of cash and Clawback CVI related to the Ambac-insured PRHTA ’68 and ’98 bonds in satisfaction of the Clawback claims against the Commonwealth under the Eighth Amended POA.

On the PRHTA POA effective date, a portion of the cash and Clawback CVI, or the proceeds thereof, were:

(i) distributed to PRHTA ’98 commuting bondholders together with the new PRHTA bonds in connection with the PRHTA POA and a commutation payment from AAC in full satisfaction of in full and final discharge of Ambac’s obligations under the Ambac insurance policies or (ii) deposited into a trust, as described below, together with the new PRHTA bonds in connection with the PRHTA POA.

PRHTA Effective Date Transactions

On December 6, 2022, 1) all remaining outstanding AAC-insured PRHTA '68 bonds or about $ 4 of net par exposure were fully satisfied and eliminated via acceleration, and 2), pursuant to bondholder election, about 21 % or $ 83 of net par exposure of AAC-insured PRHTA '98 bonds were fully satisfied and eliminated via commutation.

The AAC-insured PRHTA '98 bondholders who failed to elect commutation had their bondholders’ share of plan consideration under the PRHTA POA and the interim distribution under the Eighth Amended POA deposited into a newly formed trust.

These trusts with initial net par exposure of about $ 312 were consolidated by Ambac as further discussed in Note 12.

Variable Interest Entities.

Following the effective date, trust units were redeemed, reducing the PRHTA '98 net par exposure to about $ 178 at December 31, 2022.

Since year-end, AAC-insured PRHTA exposure has been further reduced through redemptions of trusts units.

Eighth Amended POA Effective Date Transactions

On March 15, 2022, and pursuant to bondholder elections:

(i) all of the remaining outstanding AAC-insured GO and PBA bonds or about $ 94 in insured par were satisfied and eliminated via commutation or acceleration and (ii) about 39 % and 19 % of the par of AAC's outstanding AAC-insured PRIFA and CCDA bonds, respectively, or about $ 172 , were eliminated via commutation.

The AAC-insured PRIFA and CCDA bondholders who failed to elect commutation had their respective shares of consideration available under the Commonwealth Plan and the PRIFA QM, or CCDA QM, as applicable, deposited into newly

formed trusts.

These trusts were consolidated by Ambac as further discussed in Note 12.

Variable Interest Entities .

Since the effective date, the remainder of those PRIFA and CCDA bonds belonging to bondholders who elected not to commute their AAC insurance policies and that were deposited into trusts together with the related AAC policies have all been accelerated, satisfying and eliminating all of the Ambac-insured PRIFA and CCDA bonds.

Representation and Warranty Recoverable

Ambac records estimated RMBS R&W subrogation recoverables for breaches of R&W by sponsors of certain RMBS transactions.

For a discussion of the approach utilized to estimate RMBS R&W subrogation recoverables, see Note 2.

Basis of Presentation and Significant Accounting Policies.

Ambac has recorded RMBS R&W subrogation recoverables of $ 140 , ($ 140 net of reinsurance) and $ 1,730 , ($ 1,704 net of reinsurance) at December 31, 2022 and 2021, respectively.

On December 29, 2022, AAC entered into a Settlement Agreement and Release with Nomura Credit & Capital, Inc.

whereby the parties settled all RMBS litigation brought by AAC against Nomura and AAC received $ 140 on January 3, 2023 bringing to a close all of AAC's legacy litigation against RMBS sponsor.

Reinsurance Recoverables, Including Credit Impairments:

The Company uses ceded reinsurance to transfer certain insurance risk, along with premiums written and earned, to other insurance carriers that agree to share in such risks.

Ambac is exposed to the credit risk of the reinsurer, or the risk that one of its reinsurers becomes insolvent or otherwise unable or unwilling to pay policyholder claims.

Amounts recoverable from reinsurers are estimated in a manner consistent with the associated loss and loss adjustment expense reserves.

The Company reports its reinsurance recoverables net of an allowance for amounts that are estimated to be uncollectible.

Net Loss and Loss Adjustment Expense Reserves Reinsurance Recoverables on Unpaid Losses Loss and Loss Adjustment Reserves

Commercial auto $ 22 $ 85 $ 107

Unallocated loss adjustment expense reserves 5 2 6

Total 41 156 197

(1) Includes $ 44 related to legacy liabilities obtained from the acquisitions of Providence Washington Insurance Company and the 21st Century Companies.

All legacy liabilities remain obligations of affiliates of the sellers through reinsurance and contractual indemnities.

The claim development tables that follow present, by accident year, incurred and cumulative paid claims and allocated claim adjustment expense on a historical basis.

This claim development information is presented on an undiscounted, net of reinsurance basis since 2021, Everspan's entry into the Specialty P&C business.

The claim development tables also provide the historical average annual percentage payout of incurred claims by age, net of reinsurance, as supplementary information (identified as unaudited in the tables below).

The historical average annual percentage payout for incurred claims is subject to variability due to the impact of both large claim activity and subrogation recoveries, among other items.

Commercial Auto

Incurred Claims and Allocated LAE, Net of Reinsurance

Accident Year Year ended December 31, IBNR Reserves at December 31, 2023 Cumulative Number of Reported Claims

2021 2022 2023

2021 $ — $ — $ 1 $ — 75

2022 8 8 3 1,112

2023 19 10 2,531

Cumulative Paid Claims and Allocated Claim Adjustment Expenses,

Net of Reinsurance

Accident Year Year ended December 31, Liability for Loss and Loss Adjustment Expenses, Net of Reinsurance

2021 2022 2023

2021 $ — $ — $ —

2022 1 2 2021 - Before

2023 4 2023 2021

Total net liability 22

Average Annual Percentage Payout of Incurred Claims by Age,

Net of Reinsurance

9.3 % 2.9 % 10.7 %

Incurred Claims and Allocated LAE, Net of Reinsurance

Accident Year Year Ended December 31, IBNR Reserves at December 31, 2023 Cumulative Number of Reported Claims

2021 2022 2023

2021 $ — $ — $ — $ — 0

2022 — — — 646

2023 16 8 11,595

Cumulative Paid Claims and Allocated LAE,

Net of Reinsurance

Accident Year Year Ended December 31, Liability for Loss and Loss Adjustment Expenses, Net of Reinsurance

2021 2022 2023

2021 $ — $ — $ —

2022 — — 2021 - Before

2023 2 2023 2021

Total net liability 14

Average Annual Percentage Payout of Incurred Claims by Age,

Net of Reinsurance

3.1 % 0.9 % — %

Methodology for Determining Cumulative Number of Reported Claims

A claim file is created when the Company or the third party claims administrator is notified of an actual demand for payment, notified of an event that may lead to a demand for payment or when it is determined that a demand for payment could possibly lead to a future demand for payment on another coverage on the same policy or on another policy.

Claim files are generally created at the claimant by coverage type, depending on the particular facts and circumstances of the underlying event.

For purposes of the claims development tables above, claims reported for direct business are counted even if they eventually close with no loss payment.

Note that claims with zero claim dollars may still generate some level of claim adjustment expenses.

Claim counts for assumed business are included only to the extent such counts are available.

The methods used to summarize claim counts have not changed significantly over the time periods reported in the tables above.

The Company cautions against using the summarized claim count information provided in this disclosure in attempting to project ultimate loss payouts by product line.

The Company generally finds claim count data to be useful only on a more granular basis than the aggregated basis disclosed in the claim development tables above, as the risks, average values and other

Ambac Financial Group, Inc 98

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

dynamics of the claim process can vary materially by the cause of loss and coverage within product line.

Reinsurance Recoverables, Including Credit Impairments:

Ambac’s reinsurance assets, including deferred ceded premiums and reinsurance recoverables on losses amounted to $ 398 at December 31, 2023.

5 unchanged sentences

For those reinsurance counterparties that do not currently post collateral, Ambac's reinsurers are well capitalized, highly rated, authorized capacity providers.

Additionally, while legacy liabilities from the PWIC acquisition and the three admitted carriers acquired by Everspan on January 3, 2022(the "21st Century Companies") were fully ceded to certain reinsurers, Everspan also benefits from an unlimited, uncapped indemnity from Enstar Holdings (US) and 21st Century Premier Insurance Company, respectively, to mitigate any residual risk to these reinsurers.

The allowance for credit losses is based upon Ambac's ongoing review of amounts outstanding and the key indicators management uses to assess the credit quality of reinsurance recoverables are collateral posted by the reinsurers and independent rating agency credit ratings.

The evaluation begins with a comparison of the fair value of collateral posted by the reinsurer to the recoverable, net of ceded premiums payable.

Any shortfall of collateral posted is evaluated against the credit rating of the reinsurer to determine whether an allowance is considered necessary.

For 2022, our top three reinsurers represented 84.2 % of our total ceded reinsurance recoverables, and reinsurance recoverables were primarily from reinsurers with applicable ratings of A or better.

Additionally, while legacy liabilities from the Providence Washington Insurance Company ("PWIC") acquisition and the three admitted carriers acquired by Everspan on January 3, 2022 (the "21st Century Companies") were fully ceded to certain reinsurers, Everspan also benefits from an unlimited, uncapped indemnity from Enstar Holdings (US) and 21st Century Premier Insurance Company, respectively, to mitigate any residual risk to these reinsurers.

For 2023, our top three reinsurers represented 74 % our total reinsurance recoverables on paid and unpaid losses.

These reinsurance recoverables were primarily from reinsurers with applicable ratings of A or better.

The following table sets forth our three most significant reinsurers by amount of reinsurance recoverable as of December 31, 2023.

Reinsurers Type of Insurance

General Reinsurance Company Specialty P&C A++ $ 81 $ 69

QBE Insurance Corporation Specialty P&C A 38 38

1 unchanged sentence

Guarantee AA 25 —

General Reinsurance Company Specialty P&C A++ 25 11

Total recoverables

3 unchanged sentences

(3) Reinsurance recoverables reduced by ceded premiums payables due to reinsurers, letters of credit, and collateral posted for the benefit of Ambac.

The allowance for credit losses is based upon Ambac's ongoing review of amounts outstanding.

Key indicators management uses to assess the credit quality of reinsurance recoverables are financial performance of the reinsurers, collateral posted by the reinsurers and independent rating agency credit ratings.

The evaluation begins with a comparison of the fair value of collateral posted by the reinsurer to the recoverable, net of ceded premiums payable.

Any shortfall of collateral posted is evaluated against our assessment of the reinsurer's financial strength, including its credit rating to determine whether an allowance is considered necessary.

Ambac has uncollateralized credit exposure of $ 60 and $ 32 and has recorded an allowance for credit losses of less than a million at December 31, 2022 and December 31, 2021, respectively.

The uncollateralized credit exposure includes legacy liabilities obtained from the acquisitions of PWIC and the 21st Century Companies of $ 45 and $ 30 at December 31, 2022 and December 31, 2021, respectively.

Legacy liabilities are also supported by an unlimited, uncapped indemnity from Enstar Holdings (US) and 21st Century Premier Insurance Company, respectively.

Ambac has uncollateralized credit exposure to reinsurers of $ 128 and $ 60 and has recorded an allowance for credit losses of less than a million at December 31, 2023 and December 31, 2022, respectively.

The uncollateralized credit exposure to reinsurers includes legacy liabilities obtained from the acquisitions of PWIC and the 21st Century Companies of $ 44 and $ 45 at December 31, 2023 and December 31, 2022, respectively.

All legacy liabilities remain with affiliates of the sellers through reinsurance and contractual indemnities.

INSURANCE REGULATORY RESTRICTIONS

2 unchanged sentences

Everspan Indemnity and its wholly owned subsidiary, Everspan Insurance Company ("Everspan Insurance"), are domiciled in Arizona and are subject to the insurance laws and regulations of Arizona (the “Arizona Insurance Laws”) and are regulated by the Arizona Department of Insurance and Financial Institutions as domestic insurers.

The other subsidiaries of Everspan Insurance are domiciled in various States and are therefore subject to the insurance laws and regulations of their respective States of domicile (together with the Wisconsin Insurance Laws and the Arizona Insurance Laws, the “State Insurance Laws”) and regulated by the insurance departments of those States as domestic insurers.

In addition, AAC, Everspan Insurance and its subsidiaries are subject to the insurance laws and regulations of the other jurisdictions in which they are licensed and operate as foreign insurers.

The other subsidiaries of Everspan Insurance (Providence Washington Insurance Company, Greenwood Insurance Company, Consolidated National Insurance Company and Consolidated Specialty Insurance Company;

together with Everspan Insurance, the "Everspan Admitted Carriers") are domiciled in various States and are therefore subject to the insurance laws and regulations of their respective States of domicile (together with the Wisconsin Insurance Laws and the Arizona Insurance Laws, the “State Insurance Laws”) and regulated by the insurance departments of those States as domestic insurers.

In addition, AAC and the Everspan Admitted Carriers are subject to the insurance laws and regulations of the other jurisdictions in which they are licensed and operate as foreign insurers.

Insurance laws and regulations applicable to insurers vary by jurisdiction, but the insurance laws and regulations applicable to our insurance carriers generally require them to maintain minimum standards of business conduct and solvency;

to meet certain financial tests;

and to file policy forms, premium rate schedules and certain reports with regulatory authorities, including information concerning capital structure, ownership, financial condition (such as risk-based capital), corporate governance and enterprise risk.

AAC, because it is a financial guarantee insurer, is not subject to risk-based capital requirements.

As a run-off financial guarantor, AAC has been operating under the Stipulation and Order required by OCI.

OCI has developed and implemented OCI's Runoff Capital Framework to assist OCI with decision making related to capital and liquidity management at AAC.

OCI cannot require AFG or any other Ambac entity to contribute capital to or otherwise support AAC.

Background and Business Description for additional information.

Ambac Financial Group, Inc 99

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(Dollar Amounts in Millions, Except Share Amounts)

certain financial tests;

AAC, because it is a financial guarantee insurer, is not subject to risk-based capital requirements.

As a run-off financial guarantor, AAC has been operating under the Stipulation and Order required by OCI.

OCI is developing OCI's Runoff Capital Framework to assist with decisioning related to capital and liquidity management at AAC.

Regulated insurance companies are also required to file quarterly and annual statutory financial statements in each jurisdiction in which they are licensed.

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The domiciliary regulators have primary regulatory authority, including with respect to the initiation and administration of rehabilitation or liquidation proceedings.

Additionally, the accounts and operations of AAC and Everspan are subject to individual periodic comprehensive financial examinations by their domestic regulators, and may be examined collectively by the lead regulator of the affiliated insurance company group.

Additionally, the accounts and operations of AAC, Everspan Indemnity and the Everspan Admitted Carriers are subject to individual periodic comprehensive financial examinations by their domestic regulators, and may be examined collectively by the lead regulator of the affiliated insurance company group.

In December 2020, Everspan Insurance completed its re-domestication from Wisconsin to Arizona and obtained broad authority to write property and casualty insurance (while contemporaneously surrendering its authority to write financial guaranty insurance) in Arizona.

Everspan Insurance thereafter sought similar amendments to its certificates of authority in all other states.

Everspan Insurance and its subsidiaries (Providence Washington Insurance Company, Greenwood Insurance Company, Consolidated National Insurance Company and 21st Century Auto Insurance Company of New Jersey) are subject to risk-based capital requirements.

Everspan Indemnity and the Everspan Admitted Carriers (collectively, "Everspan") are subject to risk-based capital requirements.

Everspan Indemnity was formed in 2020 as a domestic surplus lines insurer in Arizona and, accordingly, is eligible to write property and casualty insurance as an excess and surplus lines insurance in all states by virtue of the U.S.

Nonadmitted and Reinsurance Reform Act of 2010.

Everspan Indemnity owns 100% of Everspan Insurance.

Everspan Indemnity issued its first policies in May 2021.

All of Ambac's insurance subsidiaries are in compliance with the minimum capital and surplus levels required under the State Insurance Laws required to transact all business written to date.

Our Insurance Distribution businesses, like some other managing general agents, brokerages and program

administrators, may be subject to licensing requirements and regulation by insurance regulators in various states in which they conduct business.

Our Insurance Distribution businesses, like some other managing general agents, brokerages and program administrators, may be subject to licensing requirements and regulation by insurance regulators in various states in which they conduct business.

In addition to the legal restrictions applicable to AAC as described herein, pursuant to the terms of the Settlement Agreement and the Stipulation and Order, AAC must seek prior approval by OCI of certain corporate actions.

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The Stipulation and Order will remain in force for so long as OCI determines it to be necessary.

Certain of the restrictions in the Settlement Agreement may be waived with the approval of the OCI and/or the requisite percentage of holders of AAC's surplus notes.

OCI's Runoff Capital Framework, when implemented, will assist OCI with making decisions related to capital and liquidity management at AAC.

Nevertheless, in the event that the OCI Runoff Capital Framework were to indicate that AAC is in a capital deficit position, OCI cannot require AFG or any other Ambac entity to contribute capital to or otherwise support AAC.

Certain of the

restrictions in the Settlement Agreement may be waived with the approval of the OCI and/or the requisite percentage of holders of AAC's surplus notes.

Background and Business Description for additional information.

Although not domiciled in New York, AAC is nevertheless subject to the New York insurance law governing financial guarantee insurers.

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The States in which AAC and Everspan are domiciled have adopted the National Association of Insurance Commissioners (“NAIC”) accounting practices and procedures manual (“NAIC SAP”) as a component of prescribed practices as codified in each State’s applicable law or regulation.

Statutory policyholder surplus differs from stockholder's equity determined under GAAP principally due to statutory accounting rules that treat financial guarantee premiums and loss reserves, investments, net acquisition costs, consolidation of subsidiaries or variable interest entities and surplus notes differently.

The following are details of statutory surplus for AAC and Everspan Indemnity:

• AAC’s statutory policyholder surplus was $ 897 at December 31, 2023, as compared to $ 598 as of December 31, 2022.

• Everspan Indemnity has statutory policyholder surplus of $ 108 as of December 31, 2023 as compared to $ 107 as of December 31, 2022.

Everspan does not have permitted or additional prescribed practices at December 31, 2023 or December 31, 2022.

The OCI has prescribed additional practices and has permitted accounting practices for AAC.

As a result of the prescribed and permitted practices discussed below, AAC’s statutory surplus at December 31, 2023 and 2022 was lower by $ 24 and higher by

Ambac Financial Group, Inc 100

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

Statutory policyholder surplus differs from stockholder's equity determined under GAAP principally due to statutory accounting rules that treat financial guarantee premiums and loss reserves, investments, consolidation of subsidiaries or variable interest entities and surplus notes differently.

The following are details of statutory surplus for AAC and Everspan Indemnity:

• AAC’s statutory policyholder surplus was $ 598 at December 31, 2022, as compared to $ 757 as of December 31, 2021.

• Everspan Indemnity has statutory policyholder surplus of $ 107 as of December 31, 2022 as compared to $ 106 as of December 31, 2021.

The OCI has prescribed additional practices and has permitted accounting practices for AAC.

As a result of the prescribed and permitted practices discussed below, AAC’s statutory surplus at December 31, 2022 and 2021 was higher by $ 90 and lower by $ 5 , respectively, than if AAC had reported such amounts in accordance with NAIC SAP.

Everspan Indemnity and its subsidiaries do not have permitted or additional prescribed practices at December 31, 2022.

The Arizona Department of Insurance and Financial Institutions has permitted accounting practices for Everspan Indemnity and Everspan Insurance at December 31, 2021 As a result of the permitted practice discussed below, Everspan Indemnity's statutory surplus at December 31, 2021 was higher by $ 18 than if Everspan had reported such amounts with NAIC SAP.

Everspan had no additional prescribed practices as at December 31, 2021.

$ 90 , respectively, than if AAC had reported such amounts in accordance with NAIC SAP.

Additional Prescribed Accounting Practices

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AAC’s average rates of return on its admitted assets at December 31, 2023 and 2022 were 5.86 % and 3.22 %, respectively.

OCI has directed AAC to utilize a prescribed discount rate of 5.10 % for the purpose of discounting both

its loss reserves and its probable losses on subsidiary guarantees.

OCI has directed AAC to utilize a prescribed discount rate of 5.10 % for the purpose of discounting both its loss reserves and its probable losses on subsidiary guarantees.

• Paragraph 4 of Statement of Statutory Accounting Principles No.

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43R ”Loan-backed and Structured Securities” states that when an other-than-temporary impairment ("OTTI") has occurred, the amount of the OTTI recognized as a realized loss shall equal the difference between the investment’s amortized cost basis and the present value of cash flows expected to be collected, discounted at the loan-backed or structured security’s effective interest rate.

From June 11, 2014 to February 12, 2018, OCI had directed AAC to not evaluate for OTTI investments in AAC insured securities with designated policies that were allocated to a segregated account of AAC in rehabilitation overseen by OCI, and required all such investments be reported at amortized cost regardless of its NAIC risk designation.

investments be reported at amortized cost regardless of its NAIC risk designation.

Permitted Accounting Practices

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AAC received permission from OCI to record contributions to and releases from the contingency reserve, in accordance with NAIC SAP.

The Arizona Department of Insurance and Financial Institutions has allowed the following permitted practice for Everspan:

• Paragraph 8 of Statement of Statutory Accounting Principles No.

97 “Investment in Subsidiary, Controlled and Affiliated Entities” (“SSAP 97”) states Investments in US insurance Subsidiary, Controlled and Affiliated entities shall be recorded based on the underlying audited statutory equity of the respective entity's financial statements adjusted for any unamortized goodwill.

Everspan has received permission from the Arizona Department of Insurance and Financial Institutions to admit its investment

| Ambac Financial Group, Inc.

108 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

at December 31, 2021 of its wholly owned subsidiary, Providence Washington Insurance Company.

Providence Washington Insurance Company received a waiver from its regulator to file a statutory audit report issued for the year ended December 31, 2021.

United Kingdom

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Dividend Restrictions, Including Contractual Restrictions

United States

State Insurance Regulators prescribe rules that determine if AAC and Everspan may declare dividends.

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Board action authorizing a distribution by an insurance company must generally be reported to the applicable domiciliary regulator prior to payment.

In addition, State Insurance Laws generally require regulatory approval for the payment of extraordinary dividends, which are distributions in amounts that would exceed certain thresholds, such as a percentage of surplus or net income for the prior year or number of years.

In addition, State Insurance Laws generally require regulatory approval for the

Ambac Financial Group, Inc 101

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

payment of extraordinary dividends, which are distributions in amounts that would exceed certain thresholds, such as a percentage of surplus or net income for the prior year or number of years.

Everspan does not have sufficient earned surplus at this time to pay ordinary dividends under the State Insurance Laws.

Furthermore, certain subsidiaries of Everspan Insurance are restricted from paying dividends to Everspan Insurance until 2025 or later pursuant to the regulatory orders approving the acquisition of those subsidiaries, unless specifically approved by the applicable domiciliary regulator.

Due to losses experienced by AAC, it has been unable to pay ordinary dividends to AFG since 2008 and will be unable to pay common dividends in 2023 without the prior consent of the OCI, which is extremely unlikely.

AAC’s ability to pay dividends is further restricted by the Settlement Agreement (as described below), by the terms of its AMPS (as described below) and by the Stipulation and Order, and may be affected by OCI's Runoff Capital Framework, although OCI's Runoff Capital Framework has not yet been implemented and we cannot predict the results or implications thereof.

Due to losses experienced by AAC, AAC has been unable to pay ordinary dividends to AFG since 2008 and will be unable to pay common dividends in 2024 without the prior consent of the OCI, which is extremely unlikely.

AAC’s ability to pay dividends is further restricted by the Settlement Agreement (as described below), by the terms of its AMPS (as described below) and by the Stipulation and Order, and decisions by OCI concerning dividends or other releases of capital in respect of AAC's debt and equity will be affected by OCI's Runoff Capital Framework.

Background and Business Description for further information.

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Concurrent with making any such Restricted Payment, a pro rata amount of AAC's surplus notes would also need to be redeemed at par.

• Under the terms of AAC’s AMPS, dividends may not be paid on the common stock of AAC unless all accrued and unpaid dividends on the AMPS for the then current dividend period have been paid, provided, that dividends on the common stock may be made at all times for the purpose of, and only in such amounts as are necessary for, enabling Ambac (i) to service its indebtedness for borrowed money as such payments become due or (ii) to pay its operating expenses.

of, and only in such amounts as are necessary for, enabling Ambac (i) to service its indebtedness for borrowed money as such payments become due or (ii) to pay its operating expenses.

If dividends are paid on the common stock as provided in the prior sentence, dividends on the AMPS become cumulative until the date that all accumulated and unpaid dividends have been paid on the AMPS.

• The Stipulation and Order requires OCI approval for the payment of any dividend or distribution on the common stock of AAC.

• OCI's Runoff Capital Framework may be implemented in the near term.

While OCI's Runoff Capital Framework is not complete and we cannot predict the results and implications thereof, it is possible that OCI's Runoff Capital Framework and decisions based thereon may affect AAC's ability to reduce financial leverage or to pay dividends to AFG.

• OCI's Runoff Capital Framework and decisions based thereon may affect AAC's ability to pay dividends to AFG.

United Kingdom

UK law prohibits Ambac UK from declaring a dividend to its shareholders unless it has “profits available for distribution.” The determination of whether a company has profits available for distribution is based on its accumulated realized profits less its accumulated realized losses.

Further, the FSA amended Ambac UK’s license in 2010 such that the PRA must specifically approve (“non-objection”) any transfer of value and/or assets from Ambac UK to AAC or any other Ambac group company, other than in respect of certain disclosed contracts between the two parties (such as in respect of a management services agreement between AAC and Ambac UK).

While the UK insurance regulatory laws impose no statutory restrictions on a general insurer’s ability to declare a dividend, the PRA’s and FCA’s rules governing capital extraction by insurance firms in run off require Ambac UK to consider its future capital requirements over a 3 to 5 year period in both base case and downside stress scenarios before declaring a dividend.

Further, the FSA

Ambac UK annually prepares these forecasts and stress tests as part of its regulatory submissions to the PRA each April.

If the stress tests and forecasts show adequate liquidity and regulatory capital buffers then, subject to PRA approval, it may be possible for Ambac UK to pay dividends to AAC within the coming twelve month period.

Ambac Financial Group, Inc 102

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(Dollar Amounts in Millions, Except Share Amounts)

amended Ambac UK’s license in 2010 such that the PRA must specifically approve (“non-objection”) any transfer of value and/or assets from Ambac UK to AAC or any other Ambac group company, other than in respect of certain disclosed contracts

between the two parties (such as in respect of a management services agreement between AAC and Ambac UK).

Ambac UK is not expected to pay any dividends to AAC in the near future.

DERIVATIVE INSTRUMENTS

The following tables summarize the gross fair values of individual derivative instruments and the impact of legal rights of offset as reported in the Consolidated Balance Sheets as of December 31, 2022 and 2021.

The following tables summarize the location and gross fair values of individual derivative instruments and the impact of legal rights of offset as reported in the Consolidated Balance Sheets, as of December 31, 2023 and 2022.

December 31, 2023:

December 31, 2022:

Liabilities Gross

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Offset in the

Balance Sheet Net Amount

December 31, 2022:

Derivative Assets:

Sheet Net Amount Gross

Liabilities Gross

Offset in the

Balance Sheet Net Amounts

Balance Sheet Gross Amount

of Collateral

Offset in the

Sheet Net Amount

Other assets:

Interest rate swaps $ 25 $ — $ 25 $ — $ 25 $ 27 $ — $ 27 $ — $ 27

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Total non-VIE derivative assets $ 26 $ — $ 26 $ — $ 26 $ 28 $ — $ 27 $ — $ 27

Derivative Liabilities:

Other liabilities:

Interest rate swaps $ 35 $ — $ 35 $ 35 $ — $ 38 $ — $ 38 $ 38 $ —

Total non-VIE derivative liabilities $ 35 $ — $ 35 $ 35 $ — $ 38 $ — $ 38 $ 38 $ —

Variable Interest Entities Derivative Assets:

Variable interest entities assets:

Derivative and other assets:

Interest rate swaps $ 190 $ — $ 190 $ 190 $ — $ 190 $ — $ 190 $ — $ 190

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Total VIE derivative assets $ 226 $ — $ 226 $ 226 $ — $ 239 $ — $ 239 $ — $ 239

Variable Interest Entities Derivative Liabilities:

Interest rate swaps $ 1,048 $ — $ 1,048 $ — $ 1,048

Total VIE derivative liabilities $ 1,048 $ — $ 1,048 $ — $ 1,048

December 31, 2021:

Derivative Assets:

Interest rate swaps $ 76 $ — $ 76 $ — $ 76

Total non-VIE derivative assets $ 76 $ — $ 76 $ — $ 76

Variable interest entities liabilities:

Derivative liabilities:

Credit derivatives $ — $ — $ — $ — $ —

Interest rate swaps $ 1,197 $ — $ 1,197 $ — $ 1,197 $ 1,048 $ — $ 1,048 $ — $ 1,048

Total non-VIE derivative liabilities $ 95 $ — $ 95 $ 93 $ 2

Variable Interest Entities Derivative Assets:

Currency swaps $ 38 $ — $ 38 $ — $ 38

Total VIE derivative assets $ 38 $ — $ 38 $ — $ 38

Variable Interest Entities Derivative Liabilities:

Interest rate swaps $ 1,940 $ — $ 1,940 $ — $ 1,940

Total VIE derivative liabilities $ 1,197 $ — $ 1,197 $ — $ 1,197 $ 1,048 $ — $ 1,048 $ — $ 1,048

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The amounts representing the right to reclaim cash collateral and posted margin, recorded in “Other assets” were $ 23 and $ 6 as of December 31, 2023 and 2022, respectively.

There were no amounts held representing an obligation to return cash collateral as of December 31, 2022 and 2021.

| Ambac Financial Group, Inc.

110 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Amounts representing an obligation to return cash collateral were $ 235 and $ 0 as of December 31, 2023 and 2022, respectively and are reported in "Variable interest entity liabilities:

Other liabilities".

The following tables summarize the location and amount of gains and losses of derivative contracts in the Consolidated Statements of Total Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021:

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Non-VIE derivatives:

Credit derivatives Net gains (losses) on derivative contracts $ — $ — $ —

Interest rate swaps Net gains (losses) on derivative contracts ( 1 ) 65 13

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Interest Rate Derivatives

Ambac, through its subsidiary Ambac Financial Services (“AFS”), uses interest rate swaps, US Treasury futures contracts and other derivatives, to provide a partial economic hedge against the effects of rising interest rates elsewhere in the Legacy Financial Guarantee Insurance segment, including on Ambac’s financial guarantee exposures.

Additionally, AFS provided interest rate swaps to states, municipalities and their authorities, asset-backed issuers and other entities in connection with their financings.

AFS provided interest rate derivatives to financial guarantee customers and used derivatives to provide a partial hedge against interest rate risk in AAC's insurance and investment portfolios.

Since June 30, 2023, AFS's only remaining derivative positions include a limited number of legacy customer swaps and their associated hedges.

As of December 31, 2023 and 2022, the notional amounts of AFS's derivatives are as follows:

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Interest rate swaps—pay-fixed/receive-variable $ 141 $ 989

US Treasury futures contracts—short — 470

Interest rate swaps—receive-fixed/pay-variable 167 337

Other Derivatives:

The principal notional outstanding for credit derivative contracts was $ 0 and $ 201 as of December 31, 2022 and December 31, 2021, respectively.

As of December 31, 2022 Ambac holds warrants to purchase preferred stock of a development stage company.

Ambac Financial Group, Inc 103

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

At December 31, 2023 and 2022, Ambac holds warrants to purchase preferred stock of a development stage company.

Derivatives of Consolidated Variable Interest Entities

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Contingent Features in Derivatives Related to Ambac Credit Risk

Ambac’s over-the-counter interest rate swaps are centrally cleared when eligible.

Certain interest rate swaps remain with professional swap-dealer counterparties and direct customer counterparties.

These non-cleared swaps are generally executed under standardized derivative documents including collateral support and master netting agreements.

Certain interest rate swaps remain with professional swap-dealer counterparties executed under standardized derivative documents including collateral support and master netting agreements.

Under these agreements, Ambac is required to post collateral in the event net unrealized losses exceed predetermined threshold levels.

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If counterparties elect to exercise their right to terminate, the actual termination payment amounts will be determined in accordance with derivative contract terms, which may result in amounts that differ from market values as reported in Ambac’s financial statements.

| Ambac Financial Group, Inc.

111 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

GOODWILL AND INTANGIBLE ASSETS

Basis of Presentation and Significant Accounting Policies for discussion of goodwill.

The following table presents the Company's goodwill.

The following table presents a rollforward of goodwill at December 31, 2023 and 2022.

December 31, 2023 2022

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Ambac, with its subsidiaries, has engaged in transactions with variable interest entities ("VIEs") in various capacities.

• AAC and Ambac UK provide financial guarantees for various debt obligations issued by special purpose entities, including VIEs ("FG VIEs");

• AAC and Ambac UK provide financial guarantees for various debt obligations issued by special purpose entities, including VIEs ("LFG VIEs");

• Ambac sponsors special purpose entities that issued notes to investors for various purposes;

• AAC and Ambac UK invest in collateralized debt obligations, mortgage-backed and other asset-backed securities issued by VIEs and their ownership interest is generally insignificant to the VIE and/or Ambac does not have rights that direct the activities that are most significant to such VIE.

AAC and Ambac UK provide financial guarantees in respect of assets held or debt obligations of VIEs.

AAC and Ambac UK’s primary variable interest exists through this financial guarantee insurance.

The transaction structures provide certain financial protection to Ambac.

Generally, upon deterioration in the performance of a transaction or upon an event of default as specified in the transaction legal documents, AAC or Ambac UK will obtain certain control rights that enable them to remediate losses.

These rights may enable them to direct the activities of the entity that most significantly impact the entity’s economic performance.

Under the Stipulation and Order, AAC is required to obtain OCI approval with respect to the exercise of certain significant control rights in connection with policies that had previously been allocated to the Segregated Account, which was established in 2010 to segregate certain segments of AAC’s liabilities for purposes of the rehabilitation proceeding overseen by the Wisconsin Insurance Commissioner in order to facilitate an orderly run-off and/or settlement of the liabilities allocated to the Segregated Account (which ceased to exist in 2018).

Accordingly, AAC does not have the right to direct the most significant activities of those FG VIEs.

• We determined that AAC or Ambac UK generally have the obligation to absorb a FG VIE's expected losses given that they have issued financial guarantees supporting certain liabilities (and in some cases certain assets).

As further described below, Ambac consolidates certain FG VIEs in cases where we also have the power to direct the activities that most significantly impact the VIE’s economic performance due to one or more of the following:

(i) the transaction experiencing deterioration and breaching performance triggers, giving AAC or Ambac UK the ability to exercise certain control rights, (ii) AAC or Ambac UK being involved in the design of the VIE and receiving control rights from its inception, such as may occur from loss remediation activities, or (iii) the transaction not experiencing deterioration, however due to the passive nature of the VIE, AAC or Ambac UK's contingent control rights upon a future breach of performance triggers is considered to be the power over the most significant activity.

• AAC and Ambac UK invest in collateralized debt obligations, mortgage-backed and other asset-backed securities issued by VIEs and their ownership interest is generally insignificant to the VIE and/or they do not have rights that direct the activities that are most significant to such VIE.

Ambac Financial Group, Inc 104

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(Dollar Amounts in Millions, Except Share Amounts)

AAC and Ambac UK provide financial guarantees in respect of assets held or debt obligations of VIEs.

AAC and Ambac UK’s primary variable interest exists through this financial guarantee insurance.

The transaction structures provide certain financial protection to AAC or Ambac UK.

These rights may enable them to direct the activities of the entity that most significantly impact the entity’s economic performance.

Accordingly, AAC does not have the right to direct the most significant activities of those LFG VIEs.

• We determined that AAC or Ambac UK generally have the obligation to absorb a LFG VIE's expected losses given that they have issued financial guarantees supporting certain liabilities (and in some cases certain assets).

As further described below, Ambac consolidates certain LFG VIEs in cases where we also have the power to direct the activities that most significantly impact the VIE’s economic performance due to one or more of the following:

• A VIE is generally deconsolidated in the period that AAC or Ambac UK no longer has such control rights, which could occur in connection with the execution of remediation activities on the transaction or amortization of insured exposure, either of which may reduce the degree of control over a VIE.

• Assets and liabilities of FG VIEs that are consolidated are reported within Variable interest entity assets or Variable interest entity liabilities on the Consolidated Balance Sheets.

• Assets and liabilities of LFG VIEs that are consolidated are reported within Variable interest entity assets or Variable interest entity liabilities on the Consolidated Balance Sheets.

• The election to use the fair value option is made on an instrument by instrument basis.

Generally, Ambac has elected the fair value option for consolidated FG VIE financial assets and financial liabilities, except in cases where AAC or Ambac UK was involved in the design of the VIE and was granted control rights at its inception.

◦ When the fair value option is elected, changes in the fair value of the FG VIE's financial assets and liabilities are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss), except for the portion of the total change in fair value of financial liabilities caused by changes in the instrument-specific credit risk which is presented separately in Other comprehensive income (loss).

◦ In cases where the fair value option has not been elected, the FG VIE's invested assets are fixed maturity securities and are classified as either available-for-sale or trading as defined by the Investments - Debt Securities Topic of the ASC.

Generally, Ambac has elected the fair value option for consolidated LFG VIE financial assets and financial liabilities, except in cases where AAC or Ambac UK was involved in the design of the VIE and was granted control rights at its inception or when the financial liabilities are primarily supported by non-financial assets.

◦ When the fair value option is elected, changes in the fair value of the LFG VIE's financial assets and liabilities are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive

Income (Loss), except for the portion of the total change in fair value of financial liabilities caused by changes in the instrument-specific credit risk which is presented separately in Other comprehensive income (loss).

◦ In cases where the fair value option has not been elected, the LFG VIE's invested assets are fixed maturity securities and are classified as either available-for-sale or trading as defined by the Investments - Debt Securities Topic of the ASC.

Available-for-sale assets are reported in the financial statements at fair value with unrealized gains and losses reflected in Accumulated Other Comprehensive Income (Loss) in Stockholders' Equity.

Trading assets are reported at fair value with unrealized gains and losses reflected within net income.

The financial liabilities of these FG VIEs consist of long term debt obligations and are carried at par less unamortized discount.

Income from the FG VIE's securities (including investment income, realized gains and losses and credit impairments as applicable) and interest expense on long term debt are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss).

• Upon initial consolidation of a FG VIE, Ambac recognizes a gain or loss in earnings for the difference between:

(i) the fair value of the consideration paid, the fair value of any non-controlling interests and the reported amount of any previously held interests and (ii) the net amount, as measured on a fair value basis, of the assets and liabilities consolidated.

Upon deconsolidation of a FG VIE, Ambac recognizes a gain or loss for the difference between:

fair value of any consideration received, the fair value of any retained non-controlling investment in the VIE and the carrying amount of any non-controlling interest in the VIE and (ii) the carrying amount of the VIE’s assets and liabilities.

When the fair value option has not been elected for LFG VIE long term debt obligations, the debt is carried at par less unamortized discount.

Income from the LFG VIE's securities (including investment income, realized gains and losses and credit impairments as applicable) and interest expense on long term debt are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss).

• Upon initial consolidation of a LFG VIE, Ambac recognizes a gain or loss in earnings for the difference between:

(i) the fair value of the consideration paid, the fair value of any non-controlling interests and the reported amount of any previously held interests and (ii) the net amount of the assets and liabilities consolidated, measured on a fair value basis except for contract assets and liabilities which are measured at the date of consolidation consistent with the accounting under the revenue recognition standard.

Upon deconsolidation of a LFG VIE, Ambac recognizes a gain or loss for the difference between:

(i) the fair value of any consideration received, the fair value of any retained non-controlling investment in the VIE and the carrying amount of any non-controlling interest in the VIE and (ii) the carrying amount of the VIE’s assets and liabilities.

Gains or losses from consolidation and deconsolidation that are reported in earnings are reported within Income (loss) on variable interest entities on the Consolidated Statements of Total Comprehensive Income (Loss).

• The impact of consolidating such FG VIEs on Ambac’s balance sheet is the elimination of transactions between the consolidated FG VIEs and AAC or Ambac UK and the inclusion of the FG VIE’s third party assets and liabilities.

• The impact of consolidating such LFG VIEs on Ambac’s balance sheet is the elimination of transactions between the consolidated LFG VIEs and AAC or Ambac UK and the inclusion of the LFG VIE’s third party assets and liabilities.

For a financial guarantee insurance policy issued to a consolidated VIE, Ambac does not reflect the financial guarantee insurance policy in accordance with the related insurance accounting rules under the Financial Services — Insurance Topic of the ASC.

Consequently, upon consolidation, Ambac eliminates the insurance assets and liabilities associated with the policy from the Consolidated Balance Sheets.

Such insurance assets and liabilities may include premium receivables, reinsurance recoverable, deferred ceded premium, subrogation recoverable, unearned premiums, loss and loss adjustment expense reserves, ceded premiums payable and insurance intangible assets.

For investment securities owned by AAC or Ambac UK that are debt instruments issued by the VIE, the associated debt and investment balances are eliminated upon consolidation.

FG VIEs which are consolidated may include recourse and non-recourse liabilities.

FG VIEs' liabilities that are insured by AAC or Ambac UK are with recourse, because the AAC or Ambac UK guarantees the payment of principal and interest in the event the issuer defaults.

FG VIEs' liabilities that are not insured by the AAC or Ambac UK are without recourse, because AAC or Ambac UK has not issued a financial guarantee and is under no obligation for the payment of principal and interest of these instruments.

AAC or Ambac UK’s economic exposure to consolidated FG VIEs is limited to the financial guarantees issued for recourse liabilities and any additional variable interests held by them.

Additionally, AAC or Ambac UK’s general creditors, other than those specific policy holders which own the VIE debt obligations, do not have rights with regard to the assets of the VIEs.

Ambac evaluates the net income effects and earnings per share effects to determine attributions between AAC or Ambac UK and non-controlling interests as a result of consolidating a VIE.

Ambac has determined that the net income and earnings per share effect of consolidated FG VIEs are attributable to AAC or Ambac UK’s interests through financial guarantee premium and loss payments with the VIE.

Such insurance assets and liabilities may include premium receivables, reinsurance recoverable, deferred ceded premium, subrogation recoverable, unearned premiums, loss and loss expense reserves, ceded premiums payable and insurance intangible assets.

For investment securities owned by AAC or Ambac UK that

Ambac Financial Group, Inc 105

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

are debt instruments issued by the VIE, the associated debt and investment balances are eliminated upon consolidation.

LFG VIEs which are consolidated may include recourse and non-recourse liabilities.

LFG VIEs' liabilities that are insured by AAC or Ambac UK are with recourse, because the AAC or Ambac UK guarantees the payment of principal and interest in the event the issuer defaults.

LFG VIEs' liabilities that are not insured by the AAC or Ambac UK are without recourse, because AAC or Ambac UK has not issued a financial guarantee and is under no obligation for the payment of principal and interest of these instruments.

AAC or Ambac UK’s economic exposure to consolidated LFG VIEs is limited to the financial

guarantees issued for recourse liabilities and any additional variable interests held by them.

Additionally, AAC or Ambac UK’s general creditors, other than those specific policy holders which own the VIE debt obligations, do not have rights with regard to the assets of the VIEs.

Ambac evaluates the net income effects and earnings per share effects to determine attributions between AAC or Ambac UK and non-controlling interests as a result of consolidating a VIE.

Ambac has determined that the net income and earnings per share effect of consolidated LFG VIEs are attributable to AAC or Ambac UK’s interests through financial guarantee premium and loss payments with the VIE.

The following table summarizes the carrying values of assets and liabilities, along with other supplemental information related to VIEs that are consolidated as a result of financial guarantees of Ambac UK and AAC:

5 unchanged sentences

Municipal obligations, available-for-sale (1)

Total FG VIE fixed maturity securities, at fair value 1,828 139 1,967 3,320 136 3,455

— 95 95 — 96 96

Total LFG VIE fixed maturity securities, at fair value 2,072 95 2,167 1,828 139 1,967

Restricted cash 245 1 246 1 16 17

2 unchanged sentences

Derivative assets 226 — 226 239 — 239

Other assets — 2 2 — 2 2

Total FG VIE assets $ 3,896 $ 157 $ 4,054 $ 6,077 $ 139 $ 6,216

Other assets, including contract assets 90 2 92 — 2 2

Total LFG VIE assets $ 4,296 $ 98 $ 4,394 $ 3,896 $ 157 $ 4,054

Long-term debt:

4 unchanged sentences

Derivative liabilities 1,197 — 1,197 1,048 — 1,048

Cash collateral payable 235 — 235 — — —

Other liabilities 4 1 5 — 5 5

Total FG VIE liabilities $ 3,836 $ 324 $ 4,160 $ 5,996 $ 160 $ 6,156

Number of FG VIEs consolidated 5 4 9 5 1 6

(1) Available-for-sale FG VIE fixed maturity securities consist of municipal obligations with an amortized cost basis of $ 99 and $ 106 at December 31, 2022 and December 31, 2021, respectively.

At December 31, 2022, there were $ 1 aggregate gross gains and $( 4 ) aggregated gross losses.

At December 31, 2021, there were aggregate gross unrealized gains of $ 29 .

Total LFG VIE liabilities $ 4,244 $ 160 $ 4,404 $ 3,836 $ 324 $ 4,160

Number of LFG VIEs consolidated 4 2 6 5 4 9

(1) Available-for-sale LFG VIE fixed maturity securities consist of municipal obligations with an amortized cost basis of $ 88 and $ 99 at December 31, 2023 and December 31, 2022, respectively.

At December 31, 2023, there were $ 7 aggregate gross unrealized gains and $ 0 aggregate gross unrealized losses.

At December 31, 2022, there were $ 1 aggregate gross unrealized gain and $( 4 ) aggregate gross unrealized losses.

All such securities had contractual maturities due after ten years as of December 31, 2023.

12 unchanged sentences

Income (loss) on variable interest entities $ 3 $ 21 $ 7

As further discussed in Note 8.

Insurance Contracts , in connection with the Puerto Rico restructuring, three new trusts were established for the year ended December 31, 2022.

Ambac was required to consolidate these trusts which resulted in a combined gain of $ 37 .

Including these new trusts, Ambac consolidated three and zero FG VIEs for the years ended December 31, 2022 and 2021, respectively.

Ambac did not deconsolidate any FG VIEs for the years ended December 31, 2022 and 2021.

Ambac Financial Group, Inc 106

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

Ambac consolidated an additional one , three and zero LFG VIEs during the years ended December 31, 2023, 2022 and 2021, respectively.

Ambac deconsolidated four , zero and zero LFG VIEs during the years ended December 31, 2023, 2022 and 2021, respectively.

No gains or losses resulted from the deconsolidations.

The following table displays the carrying amount of the assets, liabilities and maximum exposure to loss of Ambac’s variable interests in non-consolidated VIEs resulting from financial guarantee and derivative contracts by major underlying asset classes, as of December 31, 2023 and 2022:

Carrying Value of Assets and Liabilities

December 31, 2023:

December 31, 2022:

Carrying Value of Assets and Liabilities Carrying Value of Assets and Liabilities

Liabilities (3)

1 unchanged sentence

(Liabilities) (4)

December 31, 2022:

Global structured finance:

Mortgage-backed—residential $ 2,559 $ 266 $ 400 $ —

Other consumer asset-backed 652 6 225 —

Other 430 2 2 1

Total global structured finance 3,642 274 628 1

Global public finance 17,997 216 212 —

Total $ 21,639 $ 490 $ 840 $ 1

December 31, 2021:

Liabilities (3)

Net Derivative

(Liabilities) (4)

Global structured finance:

9 unchanged sentences

(3) Insurance liabilities represent the amount included in “Loss and loss adjustment expense reserves” and “Unearned premiums” for financial guarantee insurance contracts on Ambac’s Consolidated Balance Sheets.

(4) Net derivative assets (liabilities) represent the fair value recognized on credit derivative contracts and interest rate swaps on Ambac’s Consolidated Balance Sheets.

(4) Net derivative assets (liabilities) represent the fair value recognized on interest rate swaps on Ambac’s Consolidated Balance Sheets.

Ambac Sponsored Non-consolidated VIEs

On July 6, 2021, Sitka Holdings, LLC ("Sitka"), Ambac's then newly formed non-consolidated VIE, issued the Sitka Senior Secured Notes.

Ambac's debt obligation to Sitka had a carrying value of $ 1,154 at December 31, 2021, reported within Long-

term debt on the Consolidated Balance Sheets.

On July 6, 2021, Sitka Holdings, LLC ("Sitka"), a wholly-owned subsidiary of AFG and Ambac's then newly formed non-consolidated VIE, issued the Sitka Senior Secured Notes.

Ambac's debt obligation to Sitka was reported within Long-term

debt on the Consolidated Balance Sheets.

The Sitka Senior Secured Notes were fully redeemed effective as of October 29, 2022.

Background and Business Description in this Annual Report on Form 10-K for further information.

LONG-TERM DEBT

1 unchanged sentence

December 31, 2023 2022

Par Value Unamortized Discount Carrying Value

Par Value Unamortized Discount

Carrying Value

Par Value Unamortized Discount Carrying Value Par Value Unamortized Discount Carrying Value

Ambac Assurance:

1 unchanged sentence

$ 519 $ ( 28 ) $ 491 $ 519 $ ( 42 ) $ 477

Sitka AAC Note — — $ — 1,175 ( 21 ) 1,154

Tier 2 Notes — — — 146 — 146

1 unchanged sentence

Long-term debt $ 560 $ ( 52 ) $ 508 $ 706 $ ( 67 ) $ 639

| Ambac Financial Group, Inc.

115 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Aggregated annual maturities of non-VIE long-term debt obligations (based on scheduled maturity dates as further discussed below) are as follows:

2 unchanged sentences

(1) Surplus Notes had a scheduled maturity date of June 7, 2020.

OCI declined the request of Ambac Assurance to pay the principal amount of the surplus notes, plus all accrued and unpaid interest thereon, on June 7, 2020, June 7, 2021 and June 7, 2022.

OCI declined the request of Ambac Assurance to pay the principal amount of the surplus notes, plus all accrued and unpaid interest thereon, on June 7, 2020, June 7, 2021, June 7, 2022, and June 7 2023.

As a result, the payment date for principal of the surplus notes was extended until OCI grants approval to make the payment.

1 unchanged sentence

Included in the table above is the potential principal payment at the next scheduled payment date of June 7, 2024.

(2) Includes $ 146 of Tier 2 Notes, as more fully described in Note 1.

Background and Business Description, which were fully redeemed on January 15, 2023.

Ambac Financial Group, Inc 107

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Surplus Notes

Ambac Assurance's surplus notes, with a par amount of $ 519 and $ 785 at December 31, 2022 and 2021, respectively, had a scheduled maturity of June 7, 2020, which has been extended until OCI grants approval to make the payment.

During the year ended December 31, 2022, surplus notes with aggregate par amount of $ 266 were acquired and extinguished.

Ambac Assurance's surplus notes, with a par amount of $ 519 and $ 519 at December 31, 2023 and 2022, respectively, had a scheduled maturity of June 7, 2020, which has been extended until OCI grants approval to pay the principal of the surplus notes.

The discount on surplus notes outstanding as of December 31, 2023, is being accreted into income at a weighted average effective interest rate of 6.6 %.

Ambac can provide no assurance as to when surplus note principal and interest payments will be made.

Surplus note principal and interest payments require the approval of OCI.

In May 2023, OCI declined the request of AAC to pay the principal amount of the surplus notes, plus all accrued and unpaid interest thereon, on the then next scheduled payment date of June 7, 2023.

As a result, the scheduled payment date for interest, and the scheduled maturity date for payment of principal of the surplus notes was extended until OCI grants approval to make the payment.

Interest will accrue, compounded on each anniversary of the original scheduled payment date or scheduled maturity date, on any unpaid principal or interest through the actual date of payment, at 5.1 % per annum.

Holders of surplus notes have no rights to enforce the payment of the principal of, or interest on, surplus notes in the absence of OCI approval to pay such amount.

The interest on the outstanding surplus notes were accrued for and AAC is accruing interest on the interest amounts following each scheduled payment date.

Total accrued and unpaid interest for surplus notes outstanding to third parties was $ 475 at December 31, 2023.

As required by the terms of surplus notes, AAC will continue to seek OCI’s approval to make payments of principal and interest on its surplus notes.

OCI’s approval may be granted or denied in OCI’s sole discretion.

Since the issuance of the surplus notes in 2010, OCI has declined to approve regular payments of interest on surplus notes, although the OCI has permitted two exceptional payments.

Ambac can provide no assurance as to when or if surplus note principal and interest payments will be made.

If OCI does not approve payments on or the acquisition of surplus notes over time, the ongoing accretion of interest on the notes may impair AAC's ability to extinguish the notes in full.

Surplus notes are subordinated in right of payment to policyholder and other claims.

Sitka AAC Note

The Sitka AAC Note, issued in connection with the Secured Note Refinancing on July 6, 2021, was wholly redeemed effective October 29, 2022, as a result of the BOA Settlement Payment as more fully described in Note 1.

Background and Business Description.

Interest on the Sitka AAC Note was payable quarterly (on the last day of each quarter beginning with September 30, 2021) at an annual rate of 3-month U.S.

Dollar LIBOR + 4.50 %, subject to a 0.75 % LIBOR floor.

The discount on Sitka AAC Note was being accreted into income at an effective interest rate of 5.7 %

The Tier 2 Notes, issued on February 12, 2018, were partially redeemed on October 29, 2022, as a result of the BOA Settlement Payment as more fully described in Note 1.

Background and Business Description.

The Tier 2 Notes had a par value of $ 146 and $ 333 (including paid-in-kind interest of $ 49 and $ 93 ) at December 31, 2022 and 2021, respectively, and had a legal maturity of February 12, 2055.

The Tier 2 Notes, issued on February 12, 2018, had a par value of $ 0 and $ 146 (including paid-in-kind interest of $ 0 and $ 49 ) at December 31, 2023 and 2022, respectively, and had a legal maturity of February 12, 2055.

Interest on the Tier 2 Notes was at an annual rate of 8.50 %.

1 unchanged sentence

The Tier 2 Notes were recorded at a discount to par as any consideration paid that was directly related to the issuance of the Tier 2 Notes was capitalized and was part of the effective yield calculation.

Ambac accreted the discount on the Tier 2 Notes into earnings at an effective interest rate of 9.9 % based on the projected redemption at the date of issuance.

The discount had been fully accreted as of December 31, 2020.

The Tier 2 Notes were secured by recoveries from the RMBS Litigations in excess of $ 1,600 and subject to mandatory redemption upon:

(i) receipt of recoveries from the RMBS Litigations in excess of $ 1,600 ("Tier 2 Net Proceeds") and (ii) payment of principal or interest on AAC surplus notes.

Promptly, and in any event within five business days after the receipt (whether directly or indirectly) of Tier 2 Net Proceeds, AAC was required to deposit an amount equal to the Tier 2 Net Proceeds to a collateral account.

As described in Note 1.

Background and Business Description, the Tier 2 Notes were fully redeemed effective January 15, 2023 as a result of the Nomura Settlement Payment.

Ambac accreted the discount on the Tier 2 Notes into earnings at an effective interest rate of 9.9 %.

Ambac UK Debt

The Ambac UK debt, issued in connection with the commutation of its exposure with respect to Ballantyne Re plc on June 18, 2019, has a par value of $ 41 and $ 41 at December 31, 2022 and 2021, and a legal maturity of May 2, 2036.

The Ambac UK debt, issued in connection with the commutation of an exposure on June 18, 2019, has a par value

of $ 41 and $ 41 at December 31, 2023 and 2022, and a legal maturity of May 2, 2036.

Interest on the Ambac UK debt is at an annual rate of 0.00 %.

1 unchanged sentence

The discount on the debt is currently being accreted into income at an effective interest rate of 7.4 %.

Debt Redemptions and Extinguishments

Net realized gains (losses) on extinguishment of debt reported in the Consolidated Statements of Total Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021were $ 0 , $ 81 and $ 33 , respectively.

In 2021, Sitka, issued $ 1,175 par amount of LIBOR plus 4.5 % senior secured notes due 2026 (the “Sitka Senior Secured Notes”).

Effective October 29, 2022, the Sitka AAC Note and Sitka Senior Secured Notes were wholly redeemed for $ 1,218 (a price equal to 103 % of the principal amount plus accrued and unpaid interest) from the proceeds from the BOA Settlement Payment.

Ambac recorded a loss of $ 53 , the difference between the carrying value of the Sitka AAC Note and the redemption amount paid, excluding accrued interest.

The Tier 2 Notes were partially redeemed on October 29, 2022, by approximately $ 213 from the BOA Settlement Payment and fully redeemed on January 15, 2023, primarily from the Nomura Settlement Payment.

No gain or loss was recorded on the redemptions of the Tier 2 Notes.

Refer to Note 1.

Background and Business Description for further description of the BOA Settlement Payment and Nomura Settlement Payment.

During the year ended December 31, 2022, surplus notes with aggregate par amount of $ 266 were acquired from third party holders at prices below the carrying value of the surplus notes including accrued interest, resulting in a gain of $ 134 .

During the year ended December 31, 2021, purchase agreements were executed under which AAC issued $ 280 aggregate principal amount (and the associated amount of accrued and unpaid interest thereon) to acquire all its remaining outstanding junior surplus notes.

The Company recorded a gain of $ 33 arising from these purchases of junior surplus notes below their carrying values.

Variable Interest Entities, Long-term Debt

4 unchanged sentences

Ambac would only be required to make payments on these debt obligations in the event that the issuer defaults on any principal or interest due and to the extent such obligations are guaranteed by Ambac.

The total unpaid principal amount of outstanding long-term debt associated with VIEs consolidated as a result of the financial guarantee provided by Ambac was $ 3,388 and $ 3,739 as of December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, the ranges of final maturity dates of the outstanding long-term debt

The total unpaid principal amount of outstanding long-term debt associated with VIEs

Ambac Financial Group, Inc 108

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(Dollar Amounts in Millions, Except Share Amounts)

associated with these VIEs were December 2025 to August 2054 and December 2025 to August 2054, respectively.

As of December 31, 2022 and 2021, the interest rates on these VIEs’ long-term debt ranged from 0.00 % to 7.93 % in both years.

consolidated as a result of the financial guarantee provided by Ambac was $ 3,655 and $ 3,388 as of December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, the ranges of final maturity dates of the outstanding long-term debt associated with these VIEs were December 2030 to August 2054 and December 2025 to August 2054, respectively.

As of December 31, 2023 and 2022, the interest rates on these VIEs’ long-term debt ranged from 0.00 % to 22.20 % and 0.00 % to 7.93 %, respectively.

Aggregated annual maturities of VIE long-term debt following December 31, 2023 are:

1 unchanged sentence

REVENUES FROM CONTRACTS WITH CUSTOMERS

The following table presents the revenues recognized in accordance with the Revenue from Contracts with Customers Topic of the ASC disaggregated by policy type for the year ended December 31, 2022 and 2021:

As further described in the Revenue Recognition section of Note 2.

Basis of Presentation and Significant Accounting Policies , the Insurance Distribution businesses and a consolidated VIE have contracts that are subject to the Revenue from Contracts with Customers Topic of the ASC.

The following table presents Insurance Distribution commission revenue recognized disaggregated by policy type for the years ended December 31, 2023, 2022 and 2021 :

Year ended December 31, 2023 2022 2021

1 unchanged sentence

Affinity products 22 19 18

Commercial Auto, Marine and Other 3 —

Commercial auto 12 2 —

Professional liability 3 — —

Total 51 $ 31 $ 26

During the year ended December 31, 2022, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates was approximately $ 6 .

Contract Assets and Liabilities

The balances of contract assets and contract liabilities with customers were as follows:

During the years ended December 31, 2023, 2022 and 2021, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates was approximately $ 5 , $ 6 and $ 8 , respectively.

As the VIE was consolidated on December 31, 2023, revenues have not yet been recognized.

Receivables, Contract Assets and Liabilities

The balances of receivables, contract assets and contract liabilities with customers were as follows:

December 31, 2023 2022

Premiums and commissions receivable $ 7 $ 2

Receivables $ 10 $ 7

Contract assets 95 5

Contract liabilities 1 1

Insurance Distribution

Contract assets represent estimated future consideration related to base commissions and profit-sharing commissions that were recognized as revenue upon the placement of the policy, but are not yet billable or collectable.

The Company does not have the right to bill or collect payment on i) base commissions until the related premiums from policyholders have been collected nor ii) profit-sharing commissions until after the contract year is completed.

The change in contract assets during the year ended December 31, 2022, was primarily due to the acquisition of All Trans and Capacity Marine, reclassification to receivables (unconditional right) and collections.

Contract liabilities represent advance consideration received from customers related to Employer stop loss base commissions that will be recognized over time as claims servicing is performed, which typically occurs between 17 and 20 months from contract inception.

During the year ended December 31, 2022, the Company recognized revenue that was included in the contract liability balance as of the beginning of the period of $ 1 .

During the years ended December 31, 2023, 2022 and 2021, the Company recognized revenue that was included in the contract liability balance as of the beginning of the period of $ 1 , $ 1 and $ 1 , respectively.

Consolidated VIE

Contract assets of $ 87 represent future consideration related to service concession payments for already completed services that were recognized as revenue but are not yet due.

There are no contract liabilities.

The change in contract assets during the year ended December 31, 2023, was primarily due to the newly consolidated VIE.

Ambac Financial Group, Inc 109

6 unchanged sentences

The following tables detail the changes in the balances of each component of accumulated other comprehensive income for the affected periods:

Unrealized Gains

Available- for

Sale Securities (1)

Amortization of

Postretirement

Gain (Loss) on

Foreign Currency

Translation (1)

Changes of Fair

Liabilities (1) (2)

Year Ended December 31, 2023:

Year ended December 31, 2022:

Unrealized Gains (Losses) on Available- for Sale Securities (1)

of Postretirement Benefit (1)

Changes of Fair Value Option

Total Unrealized Gains (Losses) on Available- for Sale Securities (1)

of Postretirement Benefit (1)

Changes of Fair Value Option

Beginning Balance $ ( 71 ) $ 3 $ ( 184 ) $ ( 1 ) $ ( 253 ) $ 154 $ 4 $ ( 100 ) $ ( 1 ) $ 58

$ 154 $ 4 $ ( 100 ) $ ( 1 ) $ 58

Other comprehensive income (loss) before reclassifications 31 3 40 — 74 ( 211 ) — ( 85 ) — ( 296 )

1 unchanged sentence

Net current period other comprehensive income (loss) 51 2 40 — 93 ( 225 ) ( 1 ) ( 85 ) — ( 310 )

Balance at December 31, 2022 $ ( 71 ) $ 3 $ ( 184 ) $ ( 1 ) $ ( 253 )

Year ended December 31, 2021:

Beginning Balance

$ 166 $ 5 $ ( 92 ) $ — $ 79

Other comprehensive income before reclassifications ( 5 ) — ( 8 ) — ( 13 )

Amounts reclassified from accumulated other comprehensive income ( 7 ) ( 1 ) — ( 1 ) ( 9 )

Net current period other comprehensive income (loss) ( 12 ) ( 1 ) ( 8 ) ( 1 ) ( 21 )

Balance at December 31, 2021 $ 154 $ 4 $ ( 100 ) $ ( 1 ) $ 58

Ending balance $ ( 20 ) $ 5 $ ( 144 ) $ ( 1 ) $ ( 160 ) $ ( 71 ) $ 3 $ ( 184 ) $ ( 1 ) $ ( 253 )

(1) All amounts are net of tax and noncontrolling interest.

8 unchanged sentences

Year Ended December 31,

Unrealized Gains (Losses) on

Available-for-Sale Securities (1)

Unrealized Gains (Losses) on Available-for-Sale Securities (1)

$ 22 $ ( 17 ) Net realized investment gains (losses)

14 unchanged sentences

Changes in these amounts include reclassification adjustments to exclude from "Other comprehensive income (loss)" those items that are included as part of "Net income" for a period that has been part of "Other comprehensive income (loss)" in earlier periods.

NET INCOME PER SHARE

As of December 31, 2023, 45,195,370 shares of AFG's common stock (par value $ 0.01 ) were issued and outstanding.

Common shares outstanding increased by 221,613 , during the year ended December 31, 2023, primarily due to settlements of employee restricted and performance stock units, partially offset by share repurchases.

For the three years ended December 31, 2023, 2022 and 2021, 1,503 , 0 and 132 warrants were exercised, respectively, resulting in an issuance of 29 , 0 and 4 shares of common stock, respectively.

As of April 30, 2023, all of AFG's outstanding warrants expired without being exercised.

Share Repurchases

On March 29, 2022, AFG's Board of Directors approved a share repurchase program authorizing up to $ 20 in share repurchases, with an expiration date of March 31, 2024, which may be terminated at any time.

On May 5, 2022, the Board of Directors authorized an additional $ 15 in share repurchase.

As of December 31, 2023, AFG repurchased 1,930,384 shares (including 325,068 shares in 2023) for $ 19 with an average purchase price of $ 9.70 per share, bringing the total unused authorized amount to $ 16 .

Ambac Financial Group, Inc 110

4 unchanged sentences

(Dollar Amounts in Millions, Except Share Amounts)

NET INCOME PER SHARE

As of December 31, 2022, 44,973,757 shares of AFG's common stock (par value $ 0.01 ) and warrants entitling holders to acquire up to 4,877,617 shares of new common stock at an exercise price of $ 16.67 per share were issued and outstanding.

Common shares outstanding decreased by 1,330,382 , during the year ended December 31, 2022, primarily due to share repurchases partially offset by settlements of employee restricted and performance stock units.

For the three years ended December 31, 2022, 2021 and 2020, — , 132 and 34 warrants were exercised, respectively, resulting in an issuance of — , 4 and 8 shares of common stock, respectively.

Share Repurchases

As of December 31, 2022, AFG repurchased 1,605,316 shares for $ 14.2 with an average purchase price of $ 8.86 per share.

On May 5, 2022, the Board of Directors authorized an additional $ 15 in share repurchase bringing the total unused authorized amount to $ 20.8 .

Warrant Repurchases

On June 30, 2015, the Board of Directors of AFG authorized the establishment of a warrant repurchase program that permits the repurchase of up to $ 10 of warrants.

On November 3, 2016, the Board of Directors of AFG authorized a $ 10 increase to the warrant repurchase program.

The remaining aggregate authorization at December 31, 2022 was $ 12 .

For the years ended December 31, 2022 and 2021, AFG did not repurchase any warrants.

Earnings Per Share Calculation

16 unchanged sentences

Basic weighted average shares outstanding 45,636,649 45,719,906 46,535,001

Effect of potential dilutive shares (1) :

Effect of potential dilutive

Warrants — — —

Stock options — — —

Restricted stock units 164,752 144,194 —

Performance stock units (2)

739,305 550,730 —

Diluted weighted average shares outstanding 46,540,706 46,414,830 46,535,001

1 unchanged sentence

Warrants — 4,877,617 4,877,653

Stock options — — 16,121

Restricted stock units 135,058 177,119 475,333

Performance stock

— 700,915 1,002,501

(1) For the years ended years ended December 31, 2021 and 2020, Ambac had a net loss and accordingly excluded all potentially dilutive securities from the determination of diluted loss per share as their impact was anti-dilutive.

Performance stock units (2)

(1) For the year ended December 31, 2021, Ambac had a net loss and accordingly excluded all potentially dilutive securities from the determination of diluted loss per share as their impact was anti-dilutive.

(2) Performance stock units are reflected based on the performance metrics through the balance sheet date.

9 unchanged sentences

United Kingdom 2020

| Ambac Financial Group, Inc.

119 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Consolidated Pretax Income (Loss)

9 unchanged sentences

state and local $ 1 $ — $ 2

Foreign 8 7 10

Total current taxes 8 6 12

Deferred taxes

( 4 ) 6 ( 10 )

Domestic ( 2 ) — —

Foreign 1 ( 4 ) 6

Total deferred taxes $ ( 1 ) $ ( 4 ) $ 6

$ ( 4 ) $ 6 $ ( 10 )

Provision for income taxes $ 7 $ 2 $ 18

Ambac Financial Group, Inc 111

2023 Form 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

The total effect of income taxes on net income and stockholders’ equity for the years ended December 31, 2023, 2022 and 2021 is as follows:

19 unchanged sentences

State Income Taxes — ( 1 ) % ( 1 ) — % 14 794 %

Substantiation adjustment — — % — — % ( 29 ) 7 %

Return to Provision 15 118 % — — % — — %

Variable Interest Entities ( 24 ) ( 197 ) % 25 5 % — — %

4 unchanged sentences

The Company had no material unrecognized tax benefits at December 31, 2023 and 2022.

| Ambac Financial Group, Inc.

120 2022 FORM 10-K

AMBAC FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Deferred Income Taxes

4 unchanged sentences

Unearned premiums and credit fees 23 24

Investments — 14

Variable interest entities — 4

3 unchanged sentences

Interest expense carryforward 58 66

Investments 6 —

Loss reserves 42 38

State capital loss carryforward 8 7

Debentures 22 15

State capital loss carryforward 8 8

Compensation 5 6

Investments — 6

Subtotal deferred tax assets 853 867

7 unchanged sentences

and is classified in other liabilities on the Consolidated Balance Sheet.

NOL Usage & Investment Interest Carryforward

Pursuant to a 2013 Closing Agreement between Ambac and the United States Internal Revenue Service ("IRS"), AAC could have to pay as much as $ 8 to the IRS in the year utilized should AAC utilize $ 2,142 of NOLs and Interest Expense Limitation available to it as of December 31, 2022.

NOL & Investment Interest Carryforward

As of December 31, 2023, the Company has (i) $ 3,400 of NOLs, which if not utilized will begin expiring in 2030, and will fully expire in 2042, and (ii) $ 274 of interest expense tax deduction carryover, which has an indefinite carryforward period but is limited in any particular year based on certain provisions.

Beginning in 2022, the Company is presenting these items separately in the deferred income tax table above with conforming display in 2021.

EMPLOYMENT BENEFIT PLANS

Postretirement Health Care and Postemployment Benefits

Ambac provides postretirement and postemployment/severance benefits, including health and life benefits for certain employees who meet predefined age and service requirements.

None of the plans are currently funded.

Postretirement and postemployment benefits expense, including severance benefits paid, were $ 2 , $ 1 and $ 1 for the years ended December 31, 2022, 2021 and 2020, respectively.

Effective August 1, 2005, new employees were not eligible for postretirement benefits.

The current postretirement benefit requires retirees to purchase their own medical insurance policy with a portion of their premium being reimbursed by Ambac.

The unfunded accumulated postretirement benefit obligation was $ 11 as of December 31, 2022.

The assumed health care cost trend rates range from 5.5 % in 2023, decreasing ratably to 4.5 % in 2032.

The following table sets forth projected benefit payments from Ambac’s postretirement plan over the next ten years for current retirees:

The discount rate used in determining the projected benefit obligations for the postretirement plan is selected by reference to a pension liability index with similar duration to that of the benefit plan.

The rates used for the projected plan benefit obligations at the measurement date for December 31, 2022 and 2021, were 5.00 % and 2.75 %, respectively.

Savings Incentive Plans

As a result of the acquisitions of All Trans and Capacity Marine effective November 1, 2022, Ambac has multiple savings incentive plans.

Substantially all US employees are covered by one of these plans.

The Plan sponsored by AFG includes employer matching contributions equal to 100 % of the employees’ contributions, up to 3 % of such participants’ compensation, as defined in the plan, plus 50 % of contributions up to an additional 2 % of compensation, subject to limits set by the Internal Revenue Code.

Xchange employees moved to this plan from a previous plan sponsored by Xchange during 2022.

The Xchange sponsored plan included employer matching contributions equal to 4 % of such participants' compensation, as defined in the plan.

Employees of All Trans and Capacity Marine are included in a multiple employer plan that has discretionary contributions for which none were made during Ambac's ownership of these entities.

The total cost of the

Incentive Compensation - Stock Units and Cash

Employees, directors and consultants of Ambac are eligible to participate in Ambac’s 2020 Incentive Plan, which is the successor plan to the 2013 Incentive Plan, subject to the discretion of the Compensation Committee of Ambac’s Board of Directors.

There are 1,475,000 and 4,000,000 shares of Ambac's common stock authorized for awards under the 2020 Plan and 2013 Plan, respectively.

Awards may also be made under the 2020 Plan with respect to the shares that remained available for grant under the 2013 Plan.

In addition, shares subject to

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(Dollar Amounts in Millions, Except Share Amounts)

savings incentive plans were $ 1 , $ 1 and $ 1 for the years December 31, 2022, 2021 and 2020, respectively.

Incentive Compensation - Stock Units and Cash

Employees, directors and consultants of Ambac are eligible to participate in Ambac’s 2020 Incentive Plan, which is the successor plan to the 2013 Incentive Plan, subject to the discretion of the compensation committee of Ambac’s Board of Directors.

There are 1,475,000 and 4,000,000 shares of Ambac's common stock authorized for awards under the 2020 Plan and 2013 Plan, respectively.

Awards may also be made under the 2020 Plan with respect to the shares that remained available for grant under the 2013 Plan.

In addition, shares subject to outstanding awards granted under the 2013 Plan that subsequently terminate by expiration or forfeiture, cancellation, or otherwise without the issuance of such shares become available for awards under the 2020 Plan.

Of the total shares authorized for issuance pursuant to the 2020 Plan and 2013 Plan, the following are the number of shares available for future grant at December 31, 2022:

• 74,907 shares when shares available for future grant are reduced by the maximum number of shares that could be issued pursuant to outstanding performance awards;

• 1,145,243 shares when shares available for future grant are reduced by the probable number of shares that could be issued pursuant to outstanding performance awards which are subject to change depending on actual performance.

outstanding awards granted under the 2013 Plan that subsequently terminate by expiration or forfeiture, cancellation, or otherwise without the issuance of such shares become available for awards under the 2020 Plan.

On June 24, 2021, the Compensation Committee of Ambac's Board of Directors adopted the Ambac Financial Group, Inc.

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Deferred awards under the Stock Deferral Plan (and any related dividend equivalents) will continue to be paid in shares of common stock of AFG, which will be issued under the 2020 Plan, provided that any dividend equivalents credited on a participant’s deferred awards in respect of cash dividends paid by AFG will be paid to the participant in cash.

At the discretion of the Compensation Committee of the Board of Directors, RSU and PSU awards may be settled in cash based on the closing price of AFG's common stock on the last business day prior to the settlement date.

The Stock Deferral Plan is not funded, and deferred awards under the Stock Deferral Plan are not segregated from the Company’s general assets.

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Restricted Stock Units (“RSUs”)

RSUs can be awarded to certain employees for a portion of their STIP compensation, LTIP compensation, sign-on and special awards for exceptional performance.

RSUs can be awarded to certain employees for a portion of their STIP compensation, LTIP compensation, sign-on and special awards for exceptional performance or promotion.

RSUs can also be awarded to consultants for meeting certain contractual performance goals.

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These RSUs will not settle until the respective director’s termination from the Board of Directors or, if earlier, upon a change in control.

All RSUs provide for accelerated vesting upon a change in control, death or disability or involuntary removal other than for cause (not including removal pursuant to a shareholder vote at a regularly scheduled annual meeting of shareholders).

All RSUs provide for accelerated vesting upon a change in control, death or disability or involuntary removal other than for cause (not

including removal pursuant to a shareholder vote at a regularly scheduled annual meeting of shareholders).

Upon termination (other than for cause), the unvested RSUs shall partially vest as of the date of such termination in an amount equal to the number of then outstanding unvested RSUs multiplied by a fraction, the numerator of which shall be the number of calendar days which have lapsed since the grant date and the denominator of which shall be the number of calendar days from the grant date until the next regularly scheduled quarterly grant date pursuant to Ambac’s director compensation program.

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(1) When restricted stock unit awards issued by Ambac become taxable compensation to employees, shares may be withheld to cover the employee’s withholding taxes.

For the year ended December 31, 2022, Ambac withheld 97,871 shares from

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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employees that settled restricted stock units to meet the required tax withholdings.

For the year ended December 31, 2023, Ambac withheld 49,870 shares from employees that settled restricted stock units to meet the required tax withholdings.

Ambac’s closing share price on the grant date was used to estimate the fair value of the service condition based RSU on the grant date.

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PSUs are awarded to certain employees for a portion of their LTIP compensation and vest after 3 years from grant date.

The actual number of shares payable at settlement is subject to performance metrics relative to AFG, Xchange, Everspan and AAC.

The actual number of shares payable at settlement is subject to performance metrics relative to AFG, Cirrata, Xchange, Everspan and AAC.

Actual payout can range from 0 % to 240 % of the number of units granted.

Under currently outstanding award agreements, performance will be evaluated as follows:

• In regards to Xchange, for the 2021 and 2022 PSU awards, cumulative earnings before interest, taxes, depreciation and amortization over the vesting period.

• In regards to Everspan, for the 2022 PSU awards, cumulative earnings before interest, taxes, depreciation and amortization over the vesting period.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

• In regards to Xchange, for the 2021 and 2022 PSU awards, and Cirrata for the 2023 PSU awards, (i) cumulative earnings before interest, taxes, depreciation and amortization over the vesting period and (ii) for Cirrata 2023 PSU awards, the aggregate of all premiums placed by Cirrata with any insurance carrier over the vesting period.

• In regards to Everspan:

(i) for the 2022 and 2023 PSU awards, cumulative earnings before interest, taxes, depreciation and amortization over the vesting period and (ii) for the 2023 PSU award, cumulative direct or assumed premiums written (including any from Cirrata) and fronting fees over the vesting period.

• In regards to AAC:

(i) changes in AAC's assets relative to its insurance and financial obligations, which is intended to reward participants for increases in the relative value of AAC (2020 PSU awards only) and (ii) reductions in watch list and adversely classified credits, which is intended to reward participants for de-risking the financial guarantee insured portfolio.

• Relative Total Shareholder Return;

the modifier will cause the payout at the end of the performance period to be increased or decreased 10 % for awards issued through 2021 and 20 % for 2022 awards, if AFG's stock performance compared to a peer group is at or above the 75 th percentile or at or below the 25 th percentile, respectively .

Pursuant to the LTIP award agreements if (i) a termination occurs by reason of disability, an involuntary termination by the Company other than for “cause,” or "retirement," the recipient would be entitled to receive the PSU award which would only be payable at the end of the relevant performance period and based on the satisfaction of the performance conditions related to such award at the time of termination and (ii) a termination occurred prior to the last day of the performance period by reason of death, the beneficiaries of the recipient would be entitled to receive the number of PSUs that the recipient would have been entitled to receive at a 100 % overall payout multiple regardless of the outcome of any of the performance conditions.

reductions in watch list and adversely classified credits, which is intended to reward participants for de-risking the financial guarantee insured portfolio.

• Relative Total Shareholder Return will cause the payout at the end of the performance period to be increased or decreased 10 % for awards issued through 2021 and 20 % for awards after 2021, if AFG's stock performance compared to a peer group is at or above the 75 th percentile or at or below the 25 th percentile, respectively .

Pursuant to the LTIP award agreements if (i) a termination occurred prior to the last day of the performance period by reason of disability, an involuntary termination by the Company other than for “cause,” or "retirement," the recipient would be entitled to receive the PSU award at the end of the relevant performance period based on the satisfaction of the performance conditions related to such award at the time of termination, and (ii) a termination occurred prior to the last day of the performance period by reason of death, the beneficiaries of the recipient would be entitled to receive the number of PSUs that the recipient would have been entitled to receive at a 100 % overall payout multiple regardless of the outcome of any of the performance conditions.

The current performance awards shall be settled within 75 days after the end of the performance period, including those with partial or accelerated vesting, subject to any deferrals made pursuant to the Stock Deferral Plan.

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Performance adjustment (3)

147,542 19.50

Outstanding at end of period 1,019,071 $ 15.52

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When performance stock unit awards issued by Ambac become taxable compensation to employees, shares may be withheld to cover the employee’s withholding taxes.

For the year ended December 31, 2022, Ambac purchased 157,377 of shares from employees that settled performance based restricted stock units to meet the required tax withholdings.

For the year ended December 31,

2023, Ambac withheld 231,645 of shares from employees that settled performance based restricted stock units to meet the required tax withholdings.

(3) Represents the number of additional shares issued for awards granted in 2020 as a result of actual performance during the performance period.

As of December 31, 2022, there was $ 8 of total unrecognized compensation costs related to the PSU portion of unvested performance awards, which are expected to be recognized over a weighted average period of 1.6 years.

The weighted average grant date fair value per share of PSUs granted during 2023, 2022 and 2021 was $ 17.72 , $ 13.44 and $ 18.67 , respectively.

As As of December 31, 2023, there was $ 10 of total unrecognized compensation costs related to the PSU portion of unvested performance awards, which are expected to be recognized over a weighted average period of 1.7 years.

The fair value for PSUs vested and delivered during the year ended December 31, 2023, 2022 and 2021 was $ 8 , $ 5 and $ 10 , respectively.

Postretirement Health Care and Postemployment Benefits

Ambac provides discretionary postretirement and postemployment/severance benefits, including health and life benefits for certain employees who meet predefined age and service requirements.

None of the plans are currently funded.

Postretirement and postemployment benefits expense, including severance benefits, were $ 1 , $ 2 and $ 1 for the years ended December 31, 2023, 2022 and 2021, respectively.

Effective August 1, 2005, new employees were not eligible for postretirement benefits.

The current postretirement benefit requires retirees to purchase their own medical insurance policy with a portion of their premium being reimbursed by Ambac.

The unfunded accumulated postretirement benefit obligation was $ 8 as of December 31, 2023.

The assumed health care cost trend rates range from 5.5 % in 2023, decreasing ratably to 4.5 % in 2033.

The following table sets forth projected benefit payments from Ambac’s postretirement plan over the next ten years for current retirees:

The rates used for the projected plan benefit obligations at the measurement date for December 31, 2023 and 2022, were 4.75 % and 5.00 %, respectively.

Savings Incentive Plans

As a result of the acquisitions of All Trans and Capacity Marine effective November 1, 2022, Ambac has multiple savings incentive plans.

Substantially all US employees are covered by one of these plans.

The Plan sponsored by AFG includes employer matching contributions equal to 100 % of the

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employees’ contributions, up to 3 % of such participants’ compensation, as defined in the plan, plus 50 % of contributions up to an additional 2 % of compensation, subject to limits set by the Internal Revenue Code.

Xchange and Riverton employees moved to this plan from a previous plan (Xchange during 2022 and Riverton during 2023).

Employees of All Trans and Capacity Marine are included in a multiple employer plan that has discretionary contributions for which none were made during Ambac's ownership of these entities.

The total cost of the savings incentive plans were $ 1 , $ 1 and $ 1 for the years December 31, 2023, 2022 and 2021, respectively.

Ambac is the lessee and lessor under certain lease agreements further described below.

Lessee information

Ambac is the lessee in operating leases for corporate offices, a data center, auto and equipment.

Ambac is the lessee in operating leases for corporate offices, auto and equipment.

Leases in effect at December 31, 2023, have remaining lease terms ranging from under 1 year to 9 years.

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The components of lease costs, net of sub-lessor income, is as follows:

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar Amounts in Millions, Except Share Amounts)

Year Ended December 31, 2023 2022

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Future undiscounted lease payments, gross of sublease receipts, to be made are as follows:

As of December 31, 2022 Operating Leases

As of December 31, 2023 Operating

Total lease payments 28

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Future undiscounted lease payments to be received are as follows:

As of December 31, 2022 Operating Leases

As of December 31, 2023 Operating

Total lease receipts $ 8

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Plaintiffs allege that defendants secretly conspired to overcharge plaintiffs for the financing of the projects and directed the excess profits to themselves.

Plaintiffs allege defendants generated these excess profits by supposedly charging inflated interest rates, manipulating “shadow ratings,” charging unnecessary fees, and hiding evidence of their alleged wrongdoing.

Plaintiffs seek, among other things, compensatory damages, disgorgement of profits and fees, punitive damages, trebled damages and attorneys’ fees.

AAC and the other defendants filed motions to dismiss the amended complaint on November 13, 2017.

On July 17, 2018, the court granted AAC’s and the other defendants’ motion to dismiss the first amended complaint without prejudice.

On December 17, 2018, Plaintiffs filed a second amended complaint.

On February 15, 2019, AAC and the other defendants filed a motion to dismiss the second amended complaint.

On September 26, 2019, the court issued a decision denying defendants’ motion to dismiss and sua sponte reconsidering its previous denial of defendants’ motion to transfer venue to the Southern District of New York (“SDNY”).

Plaintiffs allege defendants generated these

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excess profits by supposedly charging inflated interest rates, manipulating “shadow ratings,” charging unnecessary fees, and hiding evidence of their alleged wrongdoing.

Plaintiffs seek, among other things, compensatory damages, disgorgement of profits and fees, punitive damages, trebled damages and attorneys’ fees.

AAC and the other defendants filed motions to dismiss the amended complaint on November 13, 2017.

On July 17, 2018, the court granted AAC’s and the other defendants’ motion to dismiss the first amended complaint without prejudice.

On December 17, 2018, Plaintiffs filed a second amended complaint.

On February 15, 2019, AAC and the other defendants filed a motion to dismiss the second amended complaint.

On October 10, 2019, after the case was transferred to the SDNY, the defendants filed motions to vacate or reconsider the decision by the Northern District of California on the defendants’ motion to dismiss.

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On April 6, 2022, certain co-defendants filed a motion to sever the plaintiffs’ claims and to dismiss all claims except for claims asserted by the Monterey Bay plaintiffs.

On January 26, 2024, the Court granted the parties leave to file motions for summary judgment, with opening briefs due March 8, 2024, oppositions due April 19, 2024, and replies due May 10, 2024.

In re National Collegiate Student Loan Trusts Litigation (Delaware Court of Chancery, Consolidated C.A.

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Several parties, including Plaintiffs and AAC, filed motions for judgment on the pleadings in support of their requested judicial determinations.

On August 27, 2020, the Vice Chancellor issued an opinion addressing all of the pending motions for judgment on the pleadings, which granted certain of the parties’ requested judicial determinations and denied others.

On August 27, 2020, the Vice Chancellor issued an opinion addressing all of the pending motions for judgment on the pleadings, which

granted certain of the parties’ requested judicial determinations and denied others.

He deferred judgment on still other declarations pending further factual development.

The Vice Chancellor has entered a series of stays to facilitate good-faith settlement discussions, the most recent of which was entered on January 27, 2023, and stays the matter through February 28, 2023.

The Vice Chancellor entered a series of stays to facilitate good-faith settlement discussions, the most recent of which was entered on May 2, 2023, and stayed the matter through May 5, 2023.

On February 23, 2024, the parties filed a status report stating that they continue to negotiate a resolution to the various pending claims.

Financial Oversight and Management Board for Puerto Rico, et al.

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On May 2, 2019, the Financial Oversight and Management Board for Puerto Rico (the “Oversight Board”), together with the Official Committee of Unsecured Creditors for the Commonwealth (the “Committee”), filed an adversary proceeding against certain parties that filed proofs of claim on account of general obligation bonds issued by the Commonwealth of Puerto Rico, including AAC.

The complaint seeks declarations that the general obligation bonds are

unsecured obligations and, in the alternative, seeks to avoid any security interests that holders of such bonds may have.

The complaint seeks declarations that the general obligation bonds are unsecured obligations and, in the alternative, seeks to avoid any security interests that holders of such bonds may have.

On June 12, 2019, a group of general obligation bondholders moved to dismiss the complaint.

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On March 10, 2020, the District Court ordered that this case remain stayed while the Oversight Board attempted to confirm the Commonwealth Plan.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed (as described below), resolved this litigation.

The January 18, 2022 confirmation of the Commonwealth Plan (described below) resolved this litigation.

On May 9, 2022, the District Court dismissed this case.

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on July 24, 2019, the District Court referred this matter to mediation and ordered it stayed during the pendency of such mediation.

On December 19, 2019, the District Court ordered that this matter remain stayed pending further order of the District Court pursuant to the Oversight Board’s initiation of a separate adversary proceeding concerning PRHTA bonds (No.

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AND SUBSIDIARIES

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(Dollar Amounts in Millions, Except Share Amounts)

concerning PRHTA bonds (No.

20-ap-00005, discussed below).

The October 12, 2022 confirmation of the PRHTA POA (as defined below), which is currently being appealed (as described below), resolved this litigation.

The October 12, 2022 confirmation of the PRHTA POA (as defined and described below) resolved this litigation.

AAC expects this case will be dismissed pursuant to PRHTA POA.

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On March 10, 2020, the District Court stayed the motions to dismiss and authorized the Oversight Board to move for summary judgment, which motion defendants opposed.

On May 5, 2021, Assured

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Guaranty Corp.

On May 5, 2021, Assured Guaranty Corp.

and Assured Guaranty Municipal Corp.

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On August 3, 2021, the District Court ordered that this case be stayed.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed (as described below), resolved this litigation.

The January 18, 2022 confirmation of the Commonwealth Plan (described below) resolved this litigation.

On September 30, 2022, the District Court entered an order closing this adversary proceeding.

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On August 3, 2021, the District Court ordered that this case be stayed.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed (as described below), resolved this litigation.

The January 18, 2022 confirmation of

the Commonwealth Plan (described below) resolved this litigation.

On September 30, 2022, the Court entered an order closing this adversary proceeding.

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On March 10, 2020, the District Court stayed the motions to dismiss and authorized the Oversight Board to move for summary judgment, which motion defendants opposed.

May 5, 2021, Assured and National announced an agreement with the Oversight Board with respect to the PRHTA/PRCCDA Settlement.

On May 5, 2021, Assured and National announced an agreement with the Oversight Board with respect to the PRHTA/PRCCDA Settlement.

On July 14, 2021, AAC and FGIC reached an agreement in principle with the Oversight Board with respect to the PRIFA Settlement.

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On August 3, 2021, the District Court ordered that this case be stayed.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed (as described below), resolved this litigation.

The January 18, 2022 confirmation of the Commonwealth Plan (described below) resolved this litigation.

On September 30, 2022, the District Court entered an order closing this adversary proceeding.

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On April 14, 2022, the Oversight Board filed a notice that this case has not been resolved by the Commonwealth Plan and should remain pending.

The October 12, 2022 confirmation of the PRHTA POA, which is currently being appealed (as described below), resolved this litigation.

The October 12, 2022 confirmation of the PRHTA POA (described below) resolved this litigation.

On September 30, 2022, the Court entered an order closing this adversary proceeding.

Litigation Against Ambac - General

AAC’s estimates of projected losses for RMBS transactions consider, among other things, the RMBS transactions’ payment waterfall structure, including the application of interest and principal payments and recoveries, and depend in part on our interpretations of contracts and other bases of our legal rights.

From time to time, bond trustees and other transaction participants have employed different contractual interpretations and have commenced, or threatened to commence, litigation to resolve these differences.

It is not possible to predict whether additional disputes will arise, nor the outcomes of any potential litigation.

It is possible that there could be unfavorable outcomes in this or other disputes or proceedings and that our interpretations may prove to be incorrect, which could lead to changes to our estimate of loss reserves.

AAC has periodically received various regulatory inquiries and requests for information with respect to investigations and

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inquiries that such regulators are conducting.

AAC has complied with all such inquiries and requests for information.

Litigation Against Ambac - General

It is not possible to predict whether additional disputes will arise, nor the outcomes of any potential litigation.

The Company periodically receives various regulatory inquiries and requests for information with respect to investigations and inquiries that such regulators are conducting.

The Company has complied with all such inquiries and requests for information.

The Company is involved from time to time in various routine legal proceedings, including proceedings related to litigation with present or former employees.

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It is possible that there could be unfavorable outcomes in these or other proceedings.

Legal accruals for litigation against the Company in which a loss is probable and reasonably estimable are not material to the operating results or financial position of the Company, nor is it possible to predict a range of loss in excess of the accrued amounts.

For all other litigation matters the Company is defending, management is unable to make a meaningful estimate of the amount or range of loss that could result from unfavorable outcomes.

Under some circumstances, adverse results in any such proceedings could be material to our business, operations, financial position, profitability or cash flows.

Legal accruals for litigation against the Company with losses that are probable and reasonably estimable are not material to the operating results or financial position of the Company.

For the litigation matters the Company is defending that do not meet the “probable and reasonably estimable” accrual threshold and where no loss estimates have been provided above, management is unable to make a meaningful estimate of the amount or range of loss that could result from unfavorable outcomes.

Under some circumstances, adverse results in any such proceedings could be material to our

business, operations, financial position, profitability or cash flows.

The Company believes that it has substantial defenses to the claims above and, to the extent that these actions proceed, the Company intends to defend itself vigorously;

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The amounts recovered and/or losses avoided which may result from these proceedings is uncertain, although recoveries and/or losses avoided in any one or more of these proceedings during any quarter or fiscal year could be material to Ambac’s results of operations in that quarter or fiscal year.

On January 18, 2022, the United States District Court for the District of Puerto Rico (the “District Court”) entered an order confirming a plan of adjustment for the Commonwealth of

Puerto Rico (the “Commonwealth Plan”).

On January 18, 2022, the United States District Court for the District of Puerto Rico (the “District Court”) entered an order confirming a plan of adjustment for the Commonwealth of Puerto Rico (the “Commonwealth Plan”).

On January 20, 2022, the District Court entered orders approving a Qualifying Modification (the “PRIFA QM”) for the Puerto Rico Infrastructure Finance Authority (“PRIFA”) and a Qualifying Modification (the “PRCCDA QM”) for the Puerto Rico Convention Center District Authority (“PRCCDA”).

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By incorporating these settlements, the Commonwealth Plan, PRIFA QM, PRCCDA QM, and PRHTA POA resolved the majority of AAC’s outstanding Puerto Rico-related litigation.

The confirmation orders for both the Commonwealth Plan and the PRHTA POA have been appealed;

if either confirmation order is reversed on appeal, the litigations that have been resolved by that confirmation order may be affected.

The status of those appeals is discussed immediately below, followed by a discussion of AAC’s additional remaining outstanding Puerto Rico-related litigation.

Certain parties appealed the confirmation orders for both the Commonwealth Plan and the PRHTA POA;

all of these appeals have been resolved and the orders confirming both plans were affirmed.

Those appeals are discussed immediately below, followed by a discussion of AAC’s additional remaining outstanding Puerto Rico-related litigation.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No.

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On January 18, 2022, the District Court entered an order confirming the Commonwealth Plan and entered its findings of fact and conclusions of law related thereto.

Several parties filed notices of appeal of the District Court’s confirmation order to the First Circuit Court of Appeals, including a number of teachers’ unions (“the Teachers’ Unions”), the Oversight Board, certain individual creditors, a number of credit unions (“the Credit Unions”), and Suiza Dairy Corporation (“Suiza”).

Teachers’ Unions :

On April 26, 2022, the First Circuit rejected the Teachers’ Unions’ challenges to the Commonwealth Plan and affirmed the confirmation order;

on May 10, 2022, the Teachers’ Unions petitioned for rehearing en banc .

On May 13, 2022, the First Circuit denied the Teachers’ Unions’ petition for rehearing en banc .

On August 9, 2022, the Teachers’ Unions filed a petition for a writ of certiorari seeking Supreme Court review of the First Circuit’s decision affirming the confirmation order;

the Supreme Court denied the Teachers’ Unions’ petition on November 21, 2022.

Oversight Board :

On July 18, 2022, the First Circuit rejected the Oversight Board’s challenges to, and affirmed, the confirmation order.

The Oversight Board filed a petition for a writ of certiorari seeking Supreme Court review of the First Circuit’s decision in its appeal of the confirmation order on October 17, 2022;

the Supreme Court denied the petition on February 21, 2023.

Individual creditors :

On October 27, 2022, the First Circuit entered an order dismissing the individual creditors’ confirmation appeal.

Credit Unions :

On November 23, 2022, the First Circuit entered an order dismissing the Credit Unions’ appeal.

The Suiza appeal remains pending before the First Circuit.

Several parties appealed the District Court’s confirmation order to the First Circuit Court of Appeals, but the First Circuit affirmed the District Court in all appeals and all appeals have been dismissed.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No.

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In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No.

1:17- bk-03567) (appeal of the PRHTA POA).

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On October 24, 2022, a group of present and former employees of PRHTA (“the Vazquez-Velazquez Group”) filed a notice of appeal with respect to, and a motion to stay, the PRHTA POA confirmation order.

On October 28, 2022, a number of parties—including AAC—filed an opposition to the stay motion, requesting, in the alternative, that the appealing parties seeking a stay be required to post supersedeas bonds pending appeal.

On November 15, 2022, the District Court entered an order denying the Vazquez-Velazquez Group’s motion for a stay pending appeal.

On November 21, 2022, the Vazquez-Velazquez Group filed a motion in the First Circuit for a stay pending appeal.

On November 29, 2022, a number of parties—including the Oversight Board and AAC—filed oppositions to the Vazquez-Velazquez Group’s stay motion.

The Vazquez-Velazquez Group filed a brief on the same day requesting to withdraw their stay motion.

The First Circuit granted the request to withdraw the stay motion on November 30, 2022.

The Vazquez-Velazquez Group filed its opening brief in the First Circuit on February 15, 2023.

One party appealed the District Court’s confirmation order to the First Circuit Court of Appeals, but the First Circuit affirmed the District Court and the appeal has been dismissed.

Assured Guaranty Corp., Assured Guaranty Municipal Corp., and Ambac Assurance Corporation v.

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AAC also filed related motions seeking the appointment of a provisional receiver for PRHTA and expedited discovery.

On May 21, 2017, the Oversight Board filed a petition to adjust PRHTA’s debts under Title III of PROMESA, resulting in an automatic stay of

litigation against PRHTA.

On May 21, 2017, the Oversight Board filed a petition to adjust PRHTA’s debts under Title III of PROMESA, resulting in an automatic stay of litigation against PRHTA.

On May 24, 2017, the court issued an order staying this case until further order of the court.

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Ambac Assurance Corporation v.

Puerto Rico, et al.

(United States District Court, District of Puerto Rico, No.

17-1567, filed May 2, 2017).

On May 2, 2017, AAC filed a complaint seeking a declaration that the Commonwealth’s Fiscal and Economic Growth Plan (the “FEGP”) and a statute called the “Fiscal Plan Compliance Law” are unconstitutional and unlawful because they violate the Contracts, Takings, and Due Process Clauses of the U.S.

Constitution, are preempted by PROMESA, and are unlawful transfers of property from COFINA to the Commonwealth in violation of PROMESA.

On May 3, 2017, a petition under Title III of PROMESA was filed on behalf of the Commonwealth of Puerto Rico, and on May 5, 2017, a petition under Title III of PROMESA was filed on behalf of COFINA, resulting in an automatic stay of litigation against COFINA.

On May 17, 2017, the court issued an order staying this case until further order of the court.

On August 2, 2021, the Oversight Board, AAC, FGIC, and the PRCCDA bond trustee jointly moved to stay this case as a result of the PRIFA Settlement and AAC's joinder to the PRHTA/PRCCDA Settlement and the GO/PBA Settlement.

On August 3, 2021, the District Court ordered that this case be stayed.

The settlements reached between AAC and the Oversight Board resolved this litigation, and the January 20, 2022 PRIFA QM provided for dismissal of this case.

On January 24, 2023, the court dismissed this case.

Ambac Assurance Corporation v.

Puerto Rico, et al.

(United States District Court, District of Puerto Rico, No.

17-1568, filed May 2, 2017).

On May 2, 2017, AAC filed a complaint alleging that various moratorium laws and executive orders enacted by the Commonwealth to claw back funds from PRIFA, PRHTA, and PRCCDA bonds violate the Contracts, Takings, and Due Process Clauses of the U.S.

Constitution, are preempted by PROMESA, and unlawfully transfer PRHTA, PRCCDA, and PRIFA property to the Commonwealth.

On May 3, 2017, a petition under Title III of PROMESA was filed on behalf of the Commonwealth of Puerto Rico and on May 21, 2017, a petition under Title III of PROMESA was filed on behalf of PRHTA, resulting in an automatic stay of litigation against the Commonwealth and PRHTA (respectively).

On May 17, 2017, the court issued an order staying this case until further order of the court.

On August 3, 2021, the District Court ordered that this case be further stayed.

The settlements reached between AAC and the Oversight Board resolved this litigation, and the January 20, 2022 PRIFA QM provided for dismissal of this case.

On February 1, 2023, the court dismissed this case.

Ambac Assurance Corporation v.

Bank of New York Mellon (United States District Court, Southern District of New York, No.

1:17-cv-03804, filed May 2, 2017).

On May 2, 2017, AAC filed a complaint in New York State Supreme Court, New York

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County, against the trustee for the COFINA bonds, Bank of New York Mellon (“BNY”), alleging breach of fiduciary, contractual, and other duties for failing to adequately and appropriately protect the holders of certain AAC-insured senior COFINA bonds.

On May 2, 2017, AAC filed a complaint in New York State Supreme Court, New York County, against the trustee for the COFINA bonds, Bank of New York Mellon (“BNY”), alleging breach of fiduciary, contractual, and other duties for failing to adequately and appropriately

protect the holders of certain AAC-insured senior COFINA bonds.

On May 19, 2017, BNY filed a notice of removal of this action from New York state court to the United States District Court for the Southern District of New York.

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On March 10, 2020, the District Court ordered that this case be stayed while the Oversight Board attempted to confirm the Commonwealth Plan.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed, resolved this litigation.

AAC expects this case will be dismissed pursuant to the Commonwealth Plan.

The January 18, 2022 confirmation of the Commonwealth Plan resolved this litigation.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No.

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On January 14, 2019, the Oversight Board and the Committee filed an omnibus claim objection in the Commonwealth’s Title III case challenging claims arising from certain general obligation bonds issued by the Commonwealth in 2012 and 2014 totaling approximately $6 billion, none of which are held or insured by AAC.

On April 11, 2019, AAC filed a notice of participation in

support of the objection, advancing the argument, among other things, that the PBA leases are true leases, but the associated debt nonetheless should be included in the Commonwealth’s debt ceiling calculation such that the 2012 and 2014 general obligation bond issuances are null and void and claims arising therefrom should be disallowed.

On April 11, 2019, AAC filed a notice of participation in support of the objection, advancing the argument, among other things, that the PBA leases are true leases, but the associated debt nonetheless should be included in the Commonwealth’s

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debt ceiling calculation such that the 2012 and 2014 general obligation bond issuances are null and void and claims arising therefrom should be disallowed.

On February 5 and 19, 2020, certain parties filed motions to dismiss the claim objection.

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On February 22, 2021, the First Circuit dismissed the appeal.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed, resolved this litigation.

The January 18, 2022 confirmation of the Commonwealth Plan resolved this litigation.

On September 30, 2022, the Court entered an order terminating this matter.

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On August 3, 2021, the District Court ordered that this motion be stayed.

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18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed, resolved this litigation.

The January 18, 2022 confirmation of the Commonwealth Plan resolved this litigation.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No.

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On August 3, 2021, the District Court ordered that this motion be stayed.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed, resolved this litigation.

The January 18, 2022 confirmation of the Commonwealth Plan resolved this litigation.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No.

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or, in the alternative, (ii) lifting the automatic stay to enable movants to pursue an enforcement action against PRCCDA;

or, in the further

alternative, (iii) ordering adequate protection of movants’ interests in the PRCCDA pledged to PRCCDA bonds.

On July 2, 2020, the District Court denied the motion to lift the stay on certain grounds, but found that the movants had stated a colorable claim that a certain account was the “Transfer Account” on which movants hold a lien.

or, in the further alternative, (iii) ordering adequate protection of movants’ interests in the PRCCDA pledged to PRCCDA bonds.

On July 2, 2020, the District Court denied the motion to lift the stay on

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certain grounds, but found that the movants had stated a colorable claim that a certain account was the “Transfer Account” on which movants hold a lien.

Briefing regarding additional grounds on which AAC and other movants seek stay relief concluded on August 5, 2020;

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On August 3, 2021, the District Court ordered that this motion be stayed.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed, resolved this litigation.

The January 18, 2022 confirmation of the Commonwealth Plan resolved this litigation.

On September 30, 2022, the Court entered an order terminating the PRCCDA Stay Motion.

Ambac Assurance Corporation v.

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Goldman Sachs & Co.

Morgan Securities LLC, Morgan Stanley & Co.

LLC, Oriental Financial Services LLC;

Popular Securities LLC;

Raymond James & Associates, Inc., RBC Capital Markets LLC;

Ramirez & Co.

Inc., Santander Securities LLC;

UBS Financial Services Inc.;

and UBS Securities LLC (Commonwealth of Puerto Rico, Court of First Instance, San Juan Superior Court, Case No.

SJ-2020-CV-01505, filed February 19, 2020).

On February 19, 2020, AAC filed a complaint in the Commonwealth of Puerto Rico, Court of First Instance, San Juan Superior Court, against certain underwriters of Ambac-insured bonds issued by PRIFA and PRCCDA, with causes of action under the Puerto Rico civil law doctrines of actos propios and Unilateral Declaration of Will.

AAC alleges defendants engaged in inequitable conduct in underwriting Ambac-insured bonds issued by PRIFA and PRCCDA, including failing to investigate and adequately disclose material information in the official statements for the bonds that defendants provided to AAC regarding systemic deficiencies in the Commonwealth’s financial reporting.

AAC seeks damages in compensation for claims paid by AAC on its financial guaranty insurance policies insuring such bonds, pre-judgment and post-judgment interest, and attorneys’ fees.

On March 20, 2020, defendants removed this case to the Title III Court;

AAC moved to remand the case back to the Court of First Instance on

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April 20, 2020, and on July 29, 2020, the District Court granted AAC’s motion to remand.

AAC filed an amended complaint in the Commonwealth court on October 28, 2020, adding claims on bonds issued by the Commonwealth, PBA and PRHTA and adding defendants that had underwritten these bonds.

Defendants filed motions to dismiss on December 8 and 14, 2020.

On July 30, 2021, the Commonwealth court granted defendants’ motions to dismiss.

AAC appealed the dismissal to the Commonwealth Court of Appeals on September 16, 2021;

on April 27, 2022, the Commonwealth Court of Appeals affirmed the dismissal.

On May 31, 2022, Ambac filed a petition for a writ of certiorari, seeking review of the decision in the Puerto Rico Supreme Court.

The petition was denied on July 13, 2022.

AAC filed a motion for reconsideration on July 28, 2022.

The Puerto Rico Supreme Court denied the motion for reconsideration on November 10, 2022.

Ambac Assurance Corporation v.

Autopistas Metropolitanas de Puerto Rico, LLC (United States District Court, District of Puerto Rico, No.

3:20-cv-01094, filed February 19, 2020).

On February 19, 2020, AAC filed a complaint in the U.S.

District Court for the District of Puerto Rico, against Autopistas Metropolitanas de Puerto Rico, LLC (“Metropistas”), which holds a concession from PRHTA for two Puerto Rico highways, PR-5 and PR-22, in connection with a 10-year extension of the concession that was entered into in April 2016.

The complaint includes claims for fraudulent conveyance and unjust enrichment, alleging that the consideration paid by Metropistas for the extension was less than reasonably equivalent value and most of the benefit of such payment was received by the Commonwealth instead of PRHTA.

AAC also seeks a declaratory judgment that it has a valid and continuing lien on certain toll revenues that are being collected by Metropistas.

On March 31, 2020, the Oversight Board filed a motion before the Title III Court seeking an order directing Ambac to withdraw its complaint.

On June 16, 2020, the Title III Court ordered AAC to withdraw its complaint.

AAC moved to withdraw its complaint on June 23, 2020, and noticed an appeal from the Title III Court’s order to withdraw on June 30, 2020.

Oral argument before the First Circuit was held on March 8, 2021.

On August 2, 2021, the Oversight Board, AAC, and Metropistas jointly moved to stay this appeal as a result of the PRIFA Settlement and AAC’s joinder to the PRHTA/PRCCDA Settlement and the GO/PBA Settlement.

On August 4, 2021, the First Circuit ordered that this appeal be stayed.

On February 10, 2023, the parties filed a stipulation of dismissal in the First Circuit appeal;

on February 13, 2023, the First Circuit dismissed the appeal.

Ambac Assurance Corporation v.

Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No.

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On August 17, 2020, the Oversight Board filed a motion to dismiss the complaint;

on August 18, 2020, the Official Committee of Retired Employees of the Commonwealth of Puerto Rico (the “Retiree Committee”) and

the Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”) filed joinders to the motion to dismiss.

on August 18, 2020, the Official Committee of Retired Employees of the Commonwealth of Puerto Rico (the “Retiree Committee”) and the Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”) filed joinders to the motion to dismiss.

The United States filed a memorandum of law in support of the constitutionality of PROMESA on October 2, 2020.

1 unchanged sentence

On August 3, 2021, the District Court ordered that this case be stayed.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed, resolved this litigation.

The January 18, 2022 confirmation of the Commonwealth Plan resolved this litigation.

On March 23, 2022, the District Court dismissed this case.

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1:17-bk-03283), Urgent Motion for Bridge Order, and Motion for Appointment as Trustees Under 11 U.S.C.

§ 926, of Ambac Assurance Corporation, Assured Guaranty Corp., Assured Guaranty Municipal Corp., Financial Guaranty Insurance Company, and National Public Finance Guarantee Corporation (Dkt.

§ 926, of Ambac

Assurance Corporation, Assured Guaranty Corp., Assured Guaranty Municipal Corp., Financial Guaranty Insurance Company, and National Public Finance Guarantee Corporation (Dkt.

13708, filed July 17, 2020) (“PRHTA Trustee Motion”).

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On July 30, 2021, the First Circuit dismissed the appeal.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed, resolved this litigation.

The January 18, 2022 confirmation of the Commonwealth Plan resolved this litigation.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No.

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On June 22, 2021, the District Court denied the Pension Claim Objection without prejudice.

On August 2, 2021, the Oversight Board and AAC jointly moved to stay this matter as a result of the PRIFA Settlement and AAC’s joinder to the PRHTA/PRCCDA Settlement and the GO/PBA Settlement.

On August 3, 2021, the District Court ordered that this matter be stayed.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed, resolved this litigation.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No.

1:17- bk-03283), Monolines’ Reply to Underwriter Defendants’ Objection to Plan and Proposed Confirmation Order (Dkt.

18871), filed October 27, 2021).

On October 19, 2021, certain banks, underwriters, and professionals involved in the underwriting of bonds issued or guaranteed by the Commonwealth and its instrumentalities (the “Underwriter Defendants”) filed an objection to proposed Commonwealth

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2021, the Oversight Board and AAC jointly moved to stay this matter as a result of the PRIFA Settlement and AAC’s joinder to the PRHTA/PRCCDA Settlement and the GO/PBA Settlement.

On August 3, 2021, the District Court ordered that this matter be stayed.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed, resolved this litigation.

In re Financial Oversight and Management Board for Puerto Rico (United States District Court, District of Puerto Rico, No.

1:17- bk-03283), Monolines’ Reply to Underwriter Defendants’ Objection to Plan and Proposed Confirmation Order (Dkt.

18871), filed October 27, 2021).

Plan and a related proposed confirmation order.

On October 27, 2021, AAC and FGIC filed a reply in response to the Underwriter Defendants’ objection.

The January 18, 2022 confirmation of the Commonwealth Plan, which is currently being appealed, overruled this objection and resolved this litigation.

The January 18, 2022 confirmation of the Commonwealth Plan overruled this objection and resolved this litigation.

Student Loans Exposure

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On December 13, 2021, the court denied the Trusts' and intervenors' motions to dismiss the amended complaint.

On December 23, 2021, the Trusts and several intervenors, including AAC, filed a motion seeking (i) an order certifying for interlocutory appeal the court’s December 13, 2021 order denying the motion to dismiss the amended complaint, and (ii) a

stay of the action pending resolution of any appeal.

The motion is fully briefed and remains pending.

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On April 29, 2022, the Third Circuit granted the Trusts' and intervenors' petition.

On September 23, 2022, the Trusts and other intervenors, including AAC, filed their opening brief to the Third Circuit, seeking reversal of the District Court’s order denying their motion to dismiss the amended complaint.

The Consumer Financial Protection Bureau filed its responsive brief on November 7, 2022.

On September 23, 2022, the Trusts and other intervenors, including AAC, filed their opening brief to the Third Circuit, seeking reversal of the

District Court’s order denying their motion to dismiss the amended complaint.

The CFPB filed its responsive brief on November 7, 2022.

The Trusts and other intervenors, including AAC, filed their reply brief on December 28, 2022.

The Third Circuit is scheduled to hear oral argument in the matter on March 24, 2023.

RMBS Litigation

In connection with AAC’s efforts to seek redress for breaches of representations and warranties and fraud related to the information provided by both the underwriters and the sponsors of various transactions and for failure to comply with the obligation by the sponsors to repurchase ineligible loans, AAC has filed various lawsuits:

• Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v.

Nomura Credit & Capital, Inc.

and Nomura Holding America Inc.

(Supreme Court of the State of New York, County of New York, Case No.

651359/2013, filed on April 15, 2013).

AAC has asserted claims for material breach of contract and has requested the repurchase of loans that breach representations and warranties under the contracts.

AAC also asserted alter ego claims against Nomura Holding America, Inc.

Defendants filed a motion to dismiss on July 12, 2013.

On September 22, 2014, plaintiffs filed an amended complaint which added (in addition to the claims previously asserted) a claim for fraudulent inducement.

On October 31, 2014 defendants filed a motion to strike the amended complaint and on November 10, 2014 also filed a motion to dismiss the fraudulent-inducement claim.

On June 3, 2015, the court denied defendants’ July 2013 motion to dismiss AAC’s claim for breaches of representations and warranties, but granted the defendants’ motion to dismiss AAC’s claims for breach of the repurchase protocol and for alter ego liability against Nomura Holding.

On December 29, 2016, the court denied Nomura’s motion to strike AAC’s amended complaint and its motion to dismiss the fraudulent-inducement claim.

Nomura appealed the June 2015 decision to the extent it denied its motion to dismiss, filing its opening appellate brief on March 23, 2017.

On December 7, 2017, the First Department affirmed the trial court’s June 3, 2015 decision.

On August 25, 2021, AAC filed a note of issue demanding

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a jury for its fraud claim and a bench trial for its breach-of-contract claim.

On August 31, 2021, Nomura filed a jury demand for AAC’s breach-of-contract claim.

On December 21, 2021, the parties filed motions for summary judgment.

Pursuant to a settlement, this case was voluntarily dismissed with prejudice pursuant to a stipulation signed by the parties on January 3, 2023.

The action is concluded.

• Ambac Assurance Corporation v.

Bank National Association (United States District Court, Southern District of New York, Docket No.

17-cv-02614, filed April 11, 2017).

AAC has asserted claims for breach of contract, breach of fiduciary duty, declaratory judgment, and violation of the Streit Act in connection with defendant’s failure to enforce rights and remedies and defendant’s treatment of trust recoveries, as trustee of five residential mortgage-backed securitizations for which AAC issued insurance policies.

On September 15, 2017, U.S.

Bank filed a motion to dismiss.

On June 29, 2018, the court granted in part and denied in part U.S.

Bank’s motion to dismiss.

The court dismissed the breach-of-fiduciary duty claim in part as duplicative of the breach-of-contract claim;

dismissed the breach-of-contract claim as untimely only to the extent that it was premised on U.S.

Bank's obligation to certify that mortgage documents were properly delivered to the Trusts;

dismissed the Streit Act claims;

and otherwise denied the motion to dismiss.

Fact discovery and Phase 1 expert discovery have concluded, and the parties filed partial summary judgment motions on Phase 1 issues on November 9, 2021.

On September 30, 2022, the Court granted in full AAC’s motion for partial summary judgment, and the Court denied in part and granted in part U.S.

Bank’s motion for partial summary judgment.

On October 18, 2022, the Court set a schedule for additional summary judgment briefing, which was concluded on February 10, 2023, to be followed by briefing on AAC’s proposed use of statistical sampling before proceeding with Phase 2 discovery.

The Third Circuit heard oral argument in the matter on May 17, 2023.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure — None.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data