What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-06 compared with 2023-11-07 · 324 added, 463 removed, 549 unchanged (59% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

($ and £ in millions)

The objectives of our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are to provide users of our consolidated financial statements with the following:

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Business and Note 1.

Background and Business Description for

| Ambac Financial Group, Inc.

32 2023 Third Quarter FORM 10-Q |

a description of our business and our key strategies to achieve our primary goal to maximize shareholder value.

Background and Business Description for a description of our business and our key strategies to achieve our primary goal to maximize shareholder value.

Organization of Information

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Non-GAAP Financial Measures 50

EXECUTIVE SUMMARY ($ in millions)

EXECUTIVE SUMMARY

AFG Net Assets

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AFG does not have any commitment or other obligation to provide capital or liquidity to AAC, whose financial guarantee business has been in run-off since 2008.

As of September 30, 2023, AFG's stand alone net assets, excluding its equity investments in subsidiaries, were $209.

As of March 31, 2024 and December 31, 2023, AFG's stand alone net assets, excluding its equity investments in subsidiaries are shown in the following table:

March 31, 2024 December 31, 2023

Cash and short-term investments $ 153 $ 156

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Other net assets 23 23

Total $ 209 $ 211

(1) Includes strategic minority investments in insurance services businesses of $26.

AFG's subsidiaries/businesses are divided into three segments with results for the three and nine months ended September 30, 2023 and 2022 as follows:

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022

The decrease in AFG net assets, excluding its equity investments in subsidiaries, during 2024 was driven by operating expenses, partially offset by interest income and distributions received from subsidiaries.

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

AFG's subsidiaries/businesses are divided into three segments with results for the three months ended March 31, 2024 and 2023 as follows:

Three Months Ended March 31, 2024 Three Months Ended March 31, 2023

($ in millions) Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance

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Pretax income (loss) 25 2 4 (5) 26 (32) (1) 4 — (29)

EBITDA 52 2 5 (5) 55 (9) (1) 5 — (5)

Ambac Stockholders’ Equity (1)

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Total stockholders’ equity 979 124 106 209 1,418 875 113 94 224 1,307

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance

Distribution Corporate & Other Consoli-dated Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance

Distribution Corporate & Other Consoli-dated

Premiums placed $ 180 $ 180 $ 97 $ 97

Gross premiums written $ 12 $ 183 $ 195 $ (12) $ 95 $ 83

Net premiums written $ (43) $ 43 $ — $ 2 $ 19 $ 21

Total revenues $ 112 $ 35 $ 39 $ 7 $ 194 $ 250 $ 11 $ 22 $ 2 $ 286

Total expenses $ 83 $ 36 $ 33 $ 14 $ 166 $ (112) $ 16 $ 19 $ 11 $ (66)

Pretax income (loss) $ 29 $ (1) $ 7 $ (8) $ 28 $ 362 $ (5) $ 3 $ (8) $ 352

Redeemable noncontrolling interest 17 17 20 20

(1) Represents Ambac's stockholders equity for each segment, including intercompany eliminations.

| Ambac Financial Group, Inc.

33 2023 Third Quarter FORM 10-Q |

Legacy Financial Guarantee:

Overall Strategy:

As further discussed in Note 1.

Background and Business Description 1 to the Unaudited Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q, Ambac has key strategic priorities for the Legacy financial Guarantee segment, including AAC.

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

OCI’s Runoff Capital Framework, which is substantially complete, 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.

Furthermore, AAC’s ability to use capital for potential future deleveraging transactions or distributions will continue to require AAC to improve its capital position and 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 and, possibly, changes to the inputs and assumptions utilized by OCI.

With OCI’s Runoff Capital Framework substantially completed, Ambac has finalized its internal evaluation of a range of strategic options for AAC, and as a result, has appointed an investment bank along with other advisors to actively discuss such strategic options with interested parties.

There can be no assurance that we will ultimately complete any strategic initiative.

The execution of Ambac’s strategy to increase the value of its investment in AAC is also 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 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.

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

The Settlement Agreement limits certain activities of AAC and its subsidiaries, such as issuing indebtedness;

engaging in mergers and similar transactions;

disposing of assets;

making restricted payments;

creating or permitting liens;

engaging in transactions with affiliates;

modifying or creating tax sharing agreements;

and taking certain actions with respect to surplus notes (among other restrictions and limitations).

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 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.

It is expected that the existing Stipulation and Order will be modified in connection with the final adoption of OCI's Runoff Capital Framework.

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.

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

Asset and Liability Management

A key strategy for Ambac is to increase the value of its investment in AAC by actively managing its assets and liabilities.

Asset management primarily entails maximizing the risk-adjusted return on non-VIE invested assets and managing liquidity to help ensure resources are available to meet operational and strategic cash needs.

These strategic cash needs include activities associated with Ambac's liability management and loss mitigation programs.

Asset Management

Investment portfolios are subject to internal investment guidelines, as well as limits on the types and quality of investments imposed by insurance laws and regulations.

The investment portfolios of AAC and Ambac UK hold fixed maturity securities and various pooled investment funds.

Refer to Note 4.

Investments to the Unaudited Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q for further details of fixed maturity investments by asset category and pooled investment funds by investment type.

At September 30, 2023, AAC and Ambac UK owned $318 of distressed Ambac-insured bonds, including significant concentrations of insured RMBS bonds.

Subject to internal and regulatory guidelines, market conditions and other constraints, Ambac may continue to opportunistically purchase or sell Ambac-insured securities, surplus notes and/or other Ambac issued securities, and may consider opportunities to exchange securities issued or insured by it from time to time for other securities issued by it.

Liability and Insured Exposure Management

Ambac's Risk Management Group focuses on the implementation and execution of risk reduction, defeasance and loss recovery strategies.

Analysts evaluate the estimated timing and severity of projected policy claims as well as the potential impact of loss mitigation or remediation strategies in order to target and

| Ambac Financial Group, Inc.

34 2023 Third Quarter FORM 10-Q |

prioritize policies, or portions thereof, for commutation, reinsurance, refinancing, restructuring or other risk reduction strategies.

For targeted policies, analysts will engage with issuers, bondholders and other economic stakeholders to negotiate, structure and execute such strategies.

Ambac completed risk reduction transactions equating to $130 and $350 of net par exposure for the three and nine months ended September 30, 2023, respectively.

Ambac also reinsured, through an existing quota share reinsurance agreement, $2,069 of insured par, consisting primarily of military housing risk of $1,958, during the nine months ended September 30, 2023.

The following table provides a comparison of total, adversely classified ("ACC") and watch list credit net par outstanding in the insured portfolio at September 30, 2023 and December 31, 2022.

Net par exposure within the U.S.

public finance market includes 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.

September 30,

2023 December 31,

2022 Decrease

Total $ 19,541 $ 22,613 $ (3,072) (11) %

ACC 4,247 4,735 (488) (10) %

Watch list 1,564 3,044 (1,480) (49) %

The decrease in total, ACC and watch list credit net par outstanding resulted from active de-risking (primarily from the reinsurance cession noted above), scheduled maturities, amortizations, refundings and calls, partially offset by a weakening of the USD versus the GBP.

On January 12, 2024, Everspan Insurance Company entered into a Stock Purchase Agreement with Hagerty Insurance Holdings, Inc., to sell its ownership interests in Consolidated National Insurance Company.

The closing of the Transaction is subject to customary closing conditions, including obtaining regulatory approval from the Colorado Division of Insurance (such request for approval having been filed on February 12, 2024).

Subject to the satisfactory completion of closing conditions, the closing is expected to occur in the second quarter of 2024.

Banking Sector Crisis of 2023

The collapse of several banks in early 2023 precipitated a sudden loss of confidence in the banking system, prompting bank runs and the U.S.

The collapse of several banks in early 2023 and extending into 2024 precipitated a sudden loss of confidence in the banking system, prompting bank runs and the U.S.

government to provide direct support to failed banks and, through an expansive emergency lending program, the system more broadly.

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The ability or willingness of healthy banks to merge with stressed banks in the future is also subject to significant uncertainty.

Ambac's cash balances held at banks was $41 as of September 30, 2023 and $42 as of December 31, 2022.

Substantially all of these cash balances were uninsured as of September 30, 2023 and December 31, 2022 because they either (i) exceeded the two hundred and fifty thousand FDIC insurance limit or (ii) were held in foreign banks.

Ambac's cash balances held at banks was $44 as of March 31, 2024 and $27 as of December 31, 2023.

Substantially all of these cash balances were uninsured as of March 31, 2024 and December 31, 2023 because they either (i) exceeded the two hundred and fifty thousand FDIC insurance limit or (ii) were held in foreign banks.

These cash balances were held primarily with Ambac's main operating banks which are large money center and/or global banks.

Ambac actively manages its cash balances to

reduce bank risk and to enhance yield by transferring most of its funds to government and prime money market funds.

Included in the cash balances above is $17 of cash of companies Ambac has acquired within its insurance distribution businesses that are held in regional banks.

Ambac actively manages its cash balances to reduce bank risk and to enhance yield by transferring most of its funds to government and prime money market funds.

Included in the cash balances above are $13 and $16 as of March 31, 2024

and December 31, 2023, respectively, of cash from companies Ambac has acquired within its insurance distribution businesses that are held in regional banks.

The management of these balances and the associated bank exposure is under consideration as part of Ambac's ongoing integration of these acquired businesses.

Ambac also has exposure to banks through its fixed maturity investment portfolio totaling $151 and $119 as of September 30, 2023 and December 31, 2022, respectively.

In addition, cash balances held by variable interest entities ("VIEs") that are consolidated in Ambac's financial statements as a result of Ambac's financial guarantees totaled $252 and $246 as of March 31, 2024 and December 31, 2023, respectively.

These amounts relate primarily to cash collateral posted against derivative assets and reserve balances maintained under the VIEs' governing documents and are not directly managed by Ambac.

Ambac also has exposure to banks through its fixed maturity investment portfolio totaling $151 and $169 as of March 31, 2024 and December 31, 2023, respectively.

All of these investments are managed by third-party asset management firms which follow single and sector risk limits established by Ambac.

The average rating of our fixed income investment in banks was A- as of September 30, 2023.

The average rating of our fixed income investment in banks was A- as of March 31, 2024.

Financial Statement Impact of Foreign Currency:

The impact of foreign currency as reported in Ambac's Unaudited Consolidated Statement of Total Comprehensive Income for the nine months ended September 30, 2023, included the following:

The impact of foreign currency as reported in Ambac's Unaudited Consolidated Statement of Total Comprehensive Income for the

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

three months ended March 31, 2024 and 2023, included the following:

Three Months Ended March 31, 2024 2023

Net income (1)

Gain (loss) on foreign currency translation (net of tax), included in other comprehensive income 8

Foreign currency impact on unrealized gains (losses) on non-functional currency available-for-sale securities (net of tax), included in other comprehensive income (2)

Gain (losses) on foreign currency translation (net of tax) (8) 16

Unrealized gains (losses) on non-functional currency available-for-sale securities (net of tax) 1 (4)

Impact on total comprehensive income (loss) $ (7) $ 10

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Refer to Part II, Item 7A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, for further information on the impact of future currency rate changes on Ambac's financial instruments.

SEC Final Rules on Climate Related Information

On March 6, 2024, the U.S.

Securities and Exchange Commission (“SEC”) adopted The Enhancement and Standardization of Climate-Related Disclosures for Investors ("Final Rule") , which will require registrants to disclose extensive climate-related information in their Form 10-K annual reports and registration statements.

The Final Rule was scheduled to become effective May 28, 2024;

however, the SEC has voluntarily stayed the rule’s effective date pending judicial review of legal challenges.

The compliance dates for large accelerated filers such as Ambac for annual reports or registration statements that include financial statements for the year ending December 31 are phased in from 2025 through 2033.

Depending on when the legal challenges are resolved, the compliance dates may be retained or delayed.

Ambac is reviewing the Final Rule and is currently assessing our related compliance obligations and other effects on our operations.

CRITICAL ACCOUNTING ESTIMATES

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generally accepted accounting principles (“GAAP”), which require the use of material estimates and assumptions.

For a discussion of Ambac’s critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Ambac’s Annual Report on Form 10-K for the year ended December 31, 2022.

For a discussion of Ambac’s critical accounting policies and estimates, see “Critical Accounting Policies and

Estimates” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Ambac’s Annual Report on Form 10-K for the year ended December 31, 2023.

FINANCIAL GUARANTEES IN FORCE

($ in millions)

Financial guarantee products were sold in three principal markets:

structured and international finance.

The following table provides a breakdown of guaranteed net par outstanding by market at September 30, 2023 and December 31,

| Ambac Financial Group, Inc.

35 2023 Third Quarter FORM 10-Q |

public finance, U.S.

structured finance and international finance.

Net par exposures within the U.S.

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Guaranteed net par outstanding includes the exposures of policies insuring variable interest entities (“VIEs”) consolidated in accordance with the Consolidation Topic of the ASC.

Guaranteed net par outstanding excludes the exposures of policies that insure bonds which have been refunded or pre-refunded.

September 30,

Guaranteed net par outstanding excludes the exposures of policies that insure bonds which have been refunded, pre-refunded or synthetically commuted.

The following table provides a comparison of total, adversely classified credits ("ACC") and watch list credit net par outstanding in the insured portfolio at March 31, 2024 and December 31, 2023.

($ in billions)

2024 December 31,

2023 Variance

Total $ 19,031 $ 19,541 $ (510) (2) %

ACC $ 2,776 $ 3,504 $ (728) (21) %

Watch List $ 2,679 $ 2,181 $ 498 23 %

The decrease in total and ACC net par outstanding resulted from active de-risking, scheduled maturities, amortizations, refundings and calls and a strengthening of the USD versus the GBP of $105 on the total net par outstanding.

Additionally, we upgraded (from ACC to Watch List) one credit that has net par outstanding of $563 at March 31, 2024.

The following table provides a breakdown of guaranteed net par outstanding by market at March 31, 2024 and December 31, 2023.

2024 December 31,

Public Finance (1)

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Total net par outstanding $ 19,031 $ 19,541

(1) Includes $3,387 and $5,400 of Military Housing net par outstanding at September 30, 2023 and December 31, 2022, respectively.

The table below shows Ambac’s ten largest insured exposures, by repayment source, as a percentage of total financial guarantee net par outstanding at September 30, 2023:

(1) Includes $3,355 and $3,371 of Military Housing net par outstanding at March 31, 2024 and December 31, 2023, respectively.

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

The table below shows Ambac’s ten largest insured exposures, by repayment source, as a percentage of total financial guarantee net par outstanding at March 31, 2024:

Bond Kind Country-Bond Type Ambac

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IF AUK PFI - Accommodation UK-Infrastructure A- 2040 719 3.8 %

IF AUK Other Asset Securitizations UK-Asset Securitizations BBB 2033 693 3.5 %

IF AUK Investor Owned Utility Other - unsecured UK-Utility A- 2035 686 3.6 %

IF AUK Other Asset Securitizations UK-Asset Securitizations BBB+ 2033 671 3.5 %

IF AUK Investor Owned Utility Electric - unsecured UK-Utility BBB+ 2036 621 3.3 %

IF AUK Sub-Sovereign Italy-Sub-Sovereign BIG 2035 568 2.9 %

IF AUK Sub-Sovereign Italy-Sub-Sovereign BBB- 2035 563 3.0 %

IF AUK PFI - Accommodation UK-Infrastructure A- 2038 463 2.4 %

PF AAC US State Lease/Appropriation US-Lease and Tax-backed Revenue BBB 2036 357 1.9 %

IF AUK PFI - Roads UK-Infrastructure BIG 2039 301 1.5 %

IF AUK PFI - Hospitals UK-Infrastructure BBB- 2040 303 1.6 %

Total $ 6,006 31.6 %

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Net par related to the top ten exposures decreased $85 from December 31, 2023.

Exposures are impacted by changes in foreign exchange rates ($42 increase during the nine months ended September 30, 2023), certain indexation rates, reinsurance transactions and scheduled and unscheduled paydowns.

As a result of high current inflation, such indexation exposures have increased at a faster pace than they have historically.

The concentration of net par amongst the top ten (as a percentage of net par outstanding) was 30% at September 30, 2023, and 27% at December 31, 2022.

Exposures are impacted by changes in foreign exchange rates ($63 decrease during the three months ended March 31, 2024), certain indexation rates linked to inflation measures in the United Kingdom (RPI) and scheduled and unscheduled paydowns.

As a result of recent increases in inflation, such indexation-linked exposures have increased at a faster pace than they have historically.

The concentration of net par amongst the top ten (as a percentage of net par outstanding) was 32% at March 31, 2024, and 31% at December 31, 2023.

Excluding the top ten exposures, the remaining insured portfolio of financial guarantees has an average net par outstanding of $28 per single risk, with insured exposures ranging up to $300 and a median net par outstanding of $5.

Given that Ambac has not written any new financial guaranty insurance policies since 2008, the legacy financial guarantee insured portfolio is expected to become increasingly concentrated to large and/or below investment grade exposures.

Exposure Currency

The table below shows the distribution by currency of AAC’s insured exposure as of September 30, 2023:

The table below shows the distribution by currency of AAC’s insured exposure as of March 31, 2024:

Currency Net Par Amount

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Ambac Financial Group, Inc.

36 2023 Third Quarter FORM 10-Q |

First Quarter 2024 Form 10-Q

Ratings Distribution

The following charts provide a rating distribution of net par outstanding based upon internal Ambac credit ratings (1) and a distribution by bond type of Ambac's below investment grade ("BIG") net par exposures at September 30, 2023 and December 31, 2022.

BIG is defined as those exposures with an Ambac internal credit rating below BBB-:

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Net Par Outstanding

Bond Type September 30,

Bond Type March 31,

2024 December 31,

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International Finance:

Sovereign/sub-sovereign 680 701

Transportation 300 307

Sovereign/sub-sovereign 114 693

Total International Finance 415 1,001

Total $ 2,749 $ 3,470

The net decline in below investment grade exposures is primarily due de-risking activities, including Puerto Rico of $162 and the above mentioned reinsurance transaction of $50.

Below investment grade exposures could increase as a relative proportion of the guarantee portfolio given that stressed borrowers generally have less ability to prepay or refinance their debt.

The net decline in below investment grade exposures is primarily due de-risking activities and an upgrade of a sub-sovereign exposure.

Below investment grade exposures could increase as a relative proportion of the guarantee portfolio given that Ambac hasn't written any new financial guarantee business since 2008 and stressed borrowers generally have less ability to prepay or refinance their debt.

Accordingly, due to these and other factors, it is not unreasonable to expect the proportion of below investment grade exposure in the guarantee portfolio to increase in the future.

Ambac Financial Group, Inc.

37 2023 Third Quarter FORM 10-Q |

Results of Operations ($ in millions)

First Quarter 2024 Form 10-Q

Results of Operations

Consolidated Results

A summary of our financial results is shown below:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31, 2024 2023

Gross premiums written $ 98 $ 61

Net premiums written 28 18

Net premiums earned $ 33 $ 14

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Program fees 3 1

Net investment income (loss) 30 11 100 (6)

Net investment income 42 34

Net investment gains (losses), including impairments 1 (4)

Net gains (losses) on derivative contracts 2 (4)

Net realized gains on extinguishment of debt — — — 57

Income (loss) on variable interest entities 3 (1)

Other income 3 3

Losses and loss adjustment expenses (76) (353) (51) (341)

Losses and loss adjustment expenses (benefit) (1) 18

Amortization of deferred acquisition costs, net 4 1

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Provision for income taxes 5 4

Net income 66 340 21 348

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

Net income attributable to common stockholders $ 66 $ 340 $ 19 $ 347

Significant items impacting Ambac's results for the nine months ended September 30, 2023 and 2022 include the following:

• AAC successfully implemented the restructuring of a significant portion of its Puerto Rico exposures, following the occurrence of the effective dates for the Plan of Adjustment related to AAC-insured Puerto Rico General Obligation bonds (“GO”) and Public Buildings Authority (“PBA”) bonds, and Qualifying Modifications for AAC-insured Puerto Rico Infrastructure Authority (“PRIFA”) and Convention Center District Authority (“CCDA”) bonds, all effective March 15, 2022.

As a result of these successful restructurings, Ambac recorded a gain in the amount of $198 as part of its first quarter 2022 consolidated financial results.

This gain included (i) a net benefit in losses and (ii) a gain on the consolidation of newly established variable interest entities;

partially offset by losses from sales and changes to the fair value of securities received in the restructuring and accelerated amortization of the insurance intangible asset.

In the second quarter 2022, the newly created VIEs combined

with changes to the fair value of securities received by AAC resulted in losses totaling $17.

• During the three and nine months ended September 30, 2022 management recorded an increase to AAC’s estimated R&W subrogation recoveries in the amount of $319 and $80, respectively.

The change in recorded RMBS R&W recoveries is primarily attributable to the impact of the Settlement Agreement with Bank of America Corporation and certain affiliates thereof.

The following paragraphs describe the consolidated results of operations of Ambac and its subsidiaries for the three and nine months ended September 30, 2023 and 2022, respectively.

Net income (loss) 21 (33)

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

Net income (loss) attributable to common stockholders $ 20 $ (33)

The following paragraphs describe the consolidated results of operations of Ambac and its subsidiaries for the three months ended March 31, 2024 and 2023, respectively.

Gross Premiums Written.

Gross premiums written increased $63 and $112 for the three and nine months ended September 30, 2023, compared to the same period in the prior year, as shown by segment below.

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Gross premiums written increased $37 for the three months ended March 31, 2024, compared to the same period in the prior year, as shown by segment below.

Three Months Ended March 31, 2024 2023

Legacy Financial Guaranty Insurance $ 2 $ 9

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Specialty Property & Casualty Insurance growth in gross premiums written was driven by new programs, including assumed premium written with Everspan as a reinsurer, and growth in existing programs.

Net Premiums Written.

Net premiums written increased $10 for the three months ended March 31, 2024 compared to the same period in the prior year, as shown by segment below:

Three Months Ended March 31, 2024 2023

Legacy Financial Guaranty Insurance $ 2 $ 9

Specialty Property & Casualty Insurance 26 9

Total $ 28 $ 18

Legacy Financial Guarantee Insurance net premiums written relate to changes in expected and contractual premium cash flows for existing financial guarantees in force.

Specialty P&C growth was driven by new programs, including assumed premium written by Everspan as a reinsurer, and growth in existing programs.

Net Premiums Earned.

Net premiums earned increased $8 and $8 for the three and nine months ended September 30, 2023, compared to the same period in the prior year as shown by segment below.

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Net premiums earned increased $19 for the three months ended March 31, 2024, compared to the same period in the prior year as shown by segment below.

Three Months Ended March 31, 2024 2023

Legacy Financial Guaranty Insurance $ 7 $ 7

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Total $ 33 $ 14

The reduction in Legacy Financial Guarantee Insurance segment was primarily due to de-risking activities, including the 2023 reinsurance transaction and the Puerto Rico restructurings, and run-off of the insured portfolio.

Growth of Specialty Property & Casualty Insurance net premiums earned was due to both new programs, which includes assumed reinsurance of a workers compensation program, and growth in existing programs.

The increase in Specialty Property & Casualty Insurance was driven by new programs, including premiums earned via assumed reinsurance, and growth in existing programs.

Net Investment Income.

| Ambac Financial Group, Inc.

38 2023 Third Quarter FORM 10-Q |

gains (losses) on pooled investment funds which include changes in fair value of the funds' net assets.

Net investment income primarily consists of interest and net discount accretion on fixed maturity securities classified as available-for-sale, interest and changes in fair value of fixed maturity securities classified as trading and net gains (losses) on pooled investment funds which include changes in fair value of the funds' net assets.

Fixed maturity securities include investments in Ambac-insured securities that are made opportunistically based on their risk/reward and asset-liability management characteristics.

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and Other investments is summarized in the table below:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31, 2024 2023

Securities available-for-sale and short-term other than Ambac-insured $ 20 $ 16

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Net investment income (loss) $ 42 $ 34

Net investment income (loss) increased $20 and $105 and for the three and nine months ended September 30, 2023 compared to the prior year periods.

• Net investment income from available-for-sale and short-term securities, other than Ambac-insured increased for the three and nine months ended September 30, 2023, compared to the same periods in the prior year due primarily to higher portfolio yields.

• Other investments income (loss) increased $13 and $83 for the three and nine months ended September 30, 2023, compared to the same periods in the prior year.

Pooled fund investments results increased $11 and $56 for the three and nine months ended September 30, 2023, compared to the prior year periods.

The increase for the three months ended September 30, 2023, was driven primarily by improved performance on hedge funds, high-yield and leveraged loans, floating rate income, equities and real estate.

For the nine month period of 2023, the majority of the increase resulted from equities, hedge funds, and high yield and leverage loans.

Investments in pooled funds may be volatile, but are generally expected to produce higher returns over the long-term than available-for-sale investments.

Changes in fair value of securities received in the Puerto Rico restructurings and classified as trading, resulted in increased investment income of $2 and $27 for the three and nine months ended

September 30, 2023, compared to the same periods in the prior year.

• Net investment income from Ambac-insured securities for the three and nine months ended September 30, 2023, decreased less than $1 and $1, respectively, compared to prior year periods, as additional purchases of AAC-insured RMBS and student loan securities offset the impact of the 2022 settlements of insured Puerto Rico bonds and the redemption of Sitka Senior Secured Notes held in the portfolio in 2022.

Net investment income (loss) increased $8 for the three months ended March 31, 2024 compared to the prior year period.

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

• Net investment income from available-for-sale and short-term securities, other than Ambac-insured increased for the three months ended March 31, 2024, compared to the same periods in the prior year due primarily to higher portfolio yields.

• Other investments income (loss) increased $2 for the three months ended March 31, 2024, compared to the same period in the prior year driven by the higher increase in fair value of securities received in the Puerto Rico restructurings and classified as trading.

Income from pooled fund investments for the three months ended March 31, 2024, was flat compared to the prior year period.

Stronger average performance in the first quarter of 2024 offset the effect of portfolio allocation out of pooled funds since March 31, 2023.

• Net investment income from Ambac-insured securities for the three months ended March 31, 2024, increase $2 compared to prior year period due to additional purchases of AAC-insured student loan securities during 2023.

A significant majority of these student loan securities were transferred to a non-consolidated trust in March 2024 in connection with the commutation of the associated AAC financial guarantees.

Net Investment Gains (Losses), including Impairments.

The following table provides a breakdown of net investment gains (losses) for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31, 2024 2023

Net gains (losses) on securities sold or called $ — $ (1)

3 unchanged sentences

Net investment gains (losses), including impairments $ 1 $ (4)

Net gains (losses) on securities sold or called for the three and nine months ended September 30, 2022, included $4 from the distribution of residual assets of a legacy financial guarantee student loan restructuring vehicle.

Net gains for the nine months ended September 30, 2022 also included a recovery of $9 from a class-action settlement relating to certain RMBS securities previously held in the investment portfolio.

Other net realized gains (losses) on securities sold or called during both periods were primarily from sales in connection with routine portfolio management.

Credit impairments are recorded as an allowance for credit losses with changes in the allowance recorded through earnings.

3 unchanged sentences

Net Gains (Losses) on Derivative Contracts.

Net gains (losses) on derivative contracts are driven primarily by results from the Company's interest rate derivatives portfolio.

Net gains (losses) on derivative contracts are driven primarily by results from the Company's legacy interest rate derivatives portfolio.

Through the first quarter of 2023, the interest rate derivatives portfolio was positioned to benefit from rising rates as a partial economic hedge against interest rate exposure in the financial guarantee insurance and investment portfolios.

This economic hedge was substantially reduced since September 30, 2022 and was fully removed during the three months ended June 30, 2023.

Net gains (losses) on interest rate derivatives reflect mark-to-market gains (losses) in the portfolio caused by increases (declines) in forward interest

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39 2023 Third Quarter FORM 10-Q |

rates during the periods, the carrying cost of the portfolio, and the impact of counterparty credit adjustments as discussed below.

The removal of the economic hedge will not change the exposure of future results to counterparty credit adjustments.

This economic hedge was substantially reduced since September 30, 2022 and was fully removed during the second quarter of 2023.

Net gains (losses) on interest rate derivatives reflect mark-to-market gains (losses) in the portfolio caused by increases (declines) in forward interest rates during the periods, the carrying cost of the portfolio, and the impact of counterparty credit adjustments as discussed below.

The removal of the economic hedge does not change the

exposure of future results to counterparty credit adjustments.

Results from other derivatives were not significant to the periods presented.

Net gains (losses) on interest rate derivatives for the three and nine months ended September 30, 2023, were $4 and $1 compared to $37 and $123 for the three and nine months ended September 30, 2022.

Results for the three and nine months ended September 30, 2023, reflect the net impact of interest rate shifts and counterparty credit adjustments described below.

The net gains in 2022 were driven primarily by the significant rate increases in the periods.

Net gains (losses) on interest rate derivatives for the three months ended March 31, 2024, were $2 compared to ($4) for the three months ended March 31, 2023.

Results for the three months ended March 31, 2024 and 2023 were driven by counterparty credit adjustments as described below.

Additionally, the three months ended March 31, 2023, included losses of $2 related to declines in interest rates during the period.

Counterparty credit adjustments are generally applicable for uncollateralized derivative assets that may not be offset by derivative liabilities under a master netting agreement.

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Generally, narrowing (widening) of credit spreads will increase (decrease) derivative gains relative to a period of stable credit spreads.

Inclusion of counterparty credit adjustments in the valuation of interest rate derivatives resulted in gains (losses) within Net gains (losses) on derivative contracts of $4 and $4 for the three and nine months ended September 30, 2023, respectively, and $2 and $6 for the three and nine months ended September 30, 2022, respectively.

The counterparty credit adjustments for all periods were driven primarily by changes to the underlying asset values.

Net Realized Gains on Extinguishment of Debt.

Net realized gains on extinguishment of debt was $— and $57 for three and nine months ended September 30, 2022, resulting from repurchases of surplus notes below their carrying values.

Inclusion of counterparty credit adjustments in the valuation of interest rate derivatives resulted in gains (losses) within Net gains (losses) on derivative contracts of $2 and $(1) for the three months ended March 31, 2024 and 2023, respectively.

The counterparty credit adjustments for both periods were driven primarily by changes to the underlying asset values.

Commission Income and Commission Expense.

Commission income for the three and nine months ended September 30, 2023, was $15 and $39 compared to $7 and $22, for the three and nine months ended September 30, 2022.

Commission income for the three months ended March 31, 2024, was $18 compared to $14, for the three months ended March 31, 2023.

Commissions include both base and profit sharing commissions of the Insurance Distribution segment.

The increase was driven by (i) commissions earned on All Trans and Capacity Marine, which were purchased in November 2022 (ii) commissions earned on Riverton which was purchased in August 2023 and (iii) greater premiums placed by Xchange Benefits.

The increase was driven by commissions earned by Riverton Insurance Agency, which was purchased in August 2023, and organic growth.

Gross commission income has an accompanying expense, commission expense, which will largely track changes in gross commission.

For the three and nine months ended September 30, 2023, commission expense of $8 and $22 compared to $4 and $13 in three and nine months ended September 30, 2022, driven primarily by the same factors as commission income.

For the three months ended March 31, 2024, commission expense of $10 compared to $8 in three months ended March 31, 2023, driven primarily by the same factors as commission income.

Income (Loss) on Variable Interest Entities.

Included within Income (loss) on variable interest entities are income statement amounts relating to FG VIEs, consolidated under the Consolidation Topic of the ASC as a result of Ambac's variable interest arising from financial guarantees written by Ambac's

subsidiaries, including gains or losses attributable to consolidating or deconsolidating FG VIEs during the periods reported.

Generally, the Company’s consolidated FG VIEs are entities for which Ambac has provided financial guarantees on all of or a portion of its assets or liabilities.

In consolidation, assets and liabilities of the FG VIEs are initially reported at fair value and the related insurance assets and liabilities are eliminated.

However, the amount of FG VIE net assets (liabilities) that remain in consolidation generally result from the net positive (negative) projected cash flows from (to) the FG VIEs which are attributable to Ambac’s insurance subsidiaries in the form of financial guarantee insurance premiums, fees and losses.

In the case of FG VIEs with net negative projected cash flows, the net liability is generally to be funded by Ambac’s insurance subsidiaries through insurance claim payments.

Differences between the net carrying value of the insurance accounts under the Financial Services—Insurance Topic of the ASC and the carrying value of the consolidated FG VIE’s net assets or liabilities are recorded through income at the time of consolidation.

Additionally, terminations or other changes to Ambac's financial guarantee insurance policies that impact projected cash flows between a consolidated FG VIE and Ambac could result in gains or losses, even if such policy changes do not result in deconsolidation of the FG VIE.

Income (loss) on variable interest entities was $1 and $0 for the three and nine months ended September 30, 2023, compared to $(1) and $14 for the three and nine months ended September 30, 2022.

Results for the three months ended September 30, 2023, reflect gains from higher valuation of certain FG VIE net assets, partially offset by net interest and other expenses of the Puerto Rico restructuring VIEs.

The loss for the nine months ended September 30, 2023, include accelerated discount accretion within interest expense resulting from partial redemption of certain Puerto Rico VIE trust units, partially offset by gains on higher valuation of net assets on other FG VIEs.

Results for the three months ended September 30, 2022, relate to the decline in fair value of net assets on VIEs driven by higher market discount rates.

Results for the nine months ended September 30, 2022, related primarily to two VIE trusts created in connection with the Puerto Rico restructurings in March 2022, including the initial $28 gain upon consolidation of these VIEs, offset by subsequent interest expense and declines in fair value of these VIEs' assets.

Included within Income (loss) on variable interest entities are income statement amounts relating to LFG-VIEs, consolidated under the Consolidation Topic of the ASC as a result of Ambac's variable interest arising from financial guarantees written by Ambac's subsidiaries, including gains or losses attributable to consolidating or deconsolidating LFG-VIEs during the periods reported.

Generally, the Company’s consolidated LFG-VIEs are entities for which Ambac has provided financial guarantees on all of or a portion of its assets or liabilities.

Income (loss) on variable interest entities was $3 for the three months ended March 31, 2024, compared to $(1) for the three months ended March 31, 2023.

Results for the three months ended March 31, 2024 increased from the prior year period due to inclusion of contract revenues from a LFG-VIE initially consolidated in the fourth quarter 2023, partially offset by lower

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

fair value gains on the net assets of other LFG-VIEs in the three months ended March 31, 2024 compared to the prior year period.

Refer to Note 9.

Variable Interest Entities to the Unaudited Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q for further information on the accounting for FG VIEs.

Losses and Loss Expenses.

Loss and loss expense benefit decreased $277 and $290 for the three and nine months ended September 30, 2023, compared to the same period in the prior year.

Variable Interest Entities to the Unaudited Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q for further information on the accounting for LFG- VIEs.

Losses and Loss Adjustment Expenses (Benefit).

Loss and loss expenses incurred decreased $19 for the three months ended March 31, 2024, compared to the same period in the prior year.

The below provides the breakout of loss and loss expenses by segment:

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40 2023 Third Quarter FORM 10-Q |

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31, 2024 2023

Legacy financial guarantee $ (21) $ 13

Specialty property and casualty insurance 19 5

(76) (353) (51) (341)

The large variance within legacy financial guarantee was driven by activities in the RMBS portfolio in both years, including the impact of the Settlement Agreement with Bank of America Corporation in the three months ended September 30, 2022.

Refer to discussion of each segment's results below for further details.

Intangible Amortization.

Insurance intangible amortization for the three and nine months ended September 30, 2023, was $6 and $18, an increase of $1 and a decrease of $14 as compared to the the three and nine months ended September 30, 2022.

The decrease for the nine months ended September 30, 2023, was driven primarily by the timing of de-risking (including Puerto Rico in the nine months ended September 30, 2022) and the reduced size of the financial guarantee insured portfolio.

Insurance intangible amortization will decline after policies mature or they are de-risked.

Other intangible amortization for the three and nine months ended September 30, 2023, was $1 and $3, and $1 and $2 for the three and nine months ended September 30, 2022, respectively.

Total $ (1) $ 18

The variance within legacy financial guarantee was driven by activities in the RMBS portfolio in both years.

The primary driver was largely the positive impact of discount rates in 2024 compared to the negative impact of discount rates in 2023.

The higher loss and loss adjustment expenses in Specialty P&C is primarily due to an increase business production from new programs, including production from assumed reinsurance, and growth in existing programs.

General and Administrative Expenses (G&A).

The following table provides a summary of G&A expenses for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31, 2024 2023

Compensation $ 17 $ 16

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Total G&A expenses $ 36 $ 36

The increase in Compensation G&A expenses during the three and nine months ended September 30, 2023 was due to higher compensation costs from a net increase in staffing from the development and growth, both organic and via acquisitions, of the Specialty Property & Casualty Insurance and Insurance Distribution segments.

For the nine months ended September 30, 2023, these factors were further affected by lower incentive compensation expense including the impact of performance factor adjustments.

The increase in Non-Compensation G&A expenses during the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, was due to higher Legacy Financial Guarantee Insurance segment's legal defense costs of $17 and $26, respectively.

The increase in Compensation G&A expenses during the three months ended March 31, 2024, was due to higher compensation costs from a net increase in staffing from the development and growth, both organic and via acquisitions, of the Specialty Property & Casualty Insurance and Insurance Distribution segments;

offset by lower current year period expenses for severance costs and incentive compensation expense, including the impact of performance factor adjustments on stock-based compensation.

The decrease in Non-Compensation G&A expenses during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was due to lower Legacy Financial Guarantee Insurance segment's legal defense costs, offset by expenses associated with the ongoing strategic review of the Legacy Financial Guarantee Insurance segment and growth of the Specialty Property & Casualty Insurance and Insurance Distribution segments.

Intangible Amortization.

Insurance intangible amortization for the three months ended March 31, 2024, was $11 an increase of $5 as compared to the the three months ended March 31, 2023.

The increase for the three months ended March 31, 2024, was

driven primarily by de-risking activities.

Other intangible amortization for the three months ended March 31, 2024, was $1, and $1 for the three months ended March 31, 2023, respectively.

Interest Expense.

All interest expense relates to the Legacy Financial Guarantee Insurance segment and includes accrued interest on the Sitka AAC Note (fully redeemed during the fourth quarter of 2022), Tier 2 Notes (fully redeemed during the first quarter of 2023), surplus notes and other debt obligations.

All interest expense relates to the Legacy Financial Guarantee Insurance segment and includes accrued interest on the Tier 2 Notes (fully redeemed during the first quarter of 2023), surplus notes and other debt obligations.

Additionally, interest expense includes discount accretion when the debt instrument carrying value is at a discount to par.

The following table provides details by type of obligation for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31, 2024 2023

Surplus notes $ 16 $ 16

Sitka AAC note — 21 — 55

Tier 2 Notes — —

Other — — 1 1

Other (principally Ambac UK) — —

Total interest expense $ 16 $ 16

The decrease in interest expense for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, reflects the impact of the 2022 redemption of secured notes as further described in Note 1.

Background and Business Description, in the Notes to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Interest expense for 2023 also declined as a result of repurchases of surplus notes during 2022.

These benefits were partially offset by the effects of interest compounding on surplus notes.

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, were extended until OCI grants approval to make the payment.

Interest expense for the three months ended March 31, 2024, decreased less than $1 compared to the three months ended March 31, 2023, due to the final redemption of Tier 2 secured notes in the first quarter of 2023.

As required by the terms of surplus notes and/or otherwise, AAC will continue to seek OCI’s approval to make payments of principal and interest on its surplus notes.

AAC intends to make these requests at least four times a year with respect to payment of a partial amount, as well as the full amount, of the principal and interest then due, unless otherwise directed by OCI.

OCI’s approval of AAC’s requests for surplus note payments 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.

AAC's recent request to pay principal of, and interest on, surplus notes on the next scheduled payment date of June 7, 2024, remains pending as of May 6, 2024.

If OCI declines such request the scheduled payment date for interest, and the scheduled maturity date for payment of principal of the surplus notes, will be extended until OCI grants approval to make such 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 will 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 $462 at September 30, 2023.

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.

Interest on the outstanding surplus notes was 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 was $487 at March 31, 2024.

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.

Provision for Income Taxes.

The provision for income taxes primarily relates to international operations and was $1 and $7 for the three and nine months ended September 30, 2023, compared to $2 and $4 for the three and nine months ended September 30, 2022, a decrease of $1 for the quarter and an increase of $3 for the year-to-date period.

Ambac Financial Group, Inc.

41 2023 Third Quarter FORM 10-Q |

First Quarter 2024 Form 10-Q

Provision for Income Taxes.

The provision for income taxes primarily relates to international operations and was $5 for the three months ended March 31, 2024, compared to $4 for the three months ended March 31, 2023, an increase of $1 for the quarter.

Results of Operations by Segment

Legacy Financial Guarantee Insurance

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31, 2024 2023

Net premiums earned $ 7 $ 7

1 unchanged sentence

Net investment gains (losses), including impairments 1 (4)

Net gains on derivative contracts 4 37 2 123

Net realized gains on extinguishment of debt — — — 57

Net gains (losses) on derivative contracts 2 (3)

Other income 5 2

Total 41 67 112 250

Loss and loss expenses (benefit) (21) 13

General and administrative expenses 21 28

Total (50) (336) 16 (283)

Earnings before interest, taxes, depreciation and amortization (1)

91 403 96 533

Interest expense 16 16

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This will generally result in declining premiums earned, investment income, G&A expenses and intangible amortization.

and (ii) volatility from Other investments income (loss) resulting from changes in market conditions and other performance factors.

The variability in the segment financial results are primarily driven by (i) change in loss and loss expenses resulting from, amongst other items, credit developments, interest rates and de-risking transactions (may also impact intangible amortization) and (ii) volatility from Other investments income (loss) resulting from changes in market conditions and other performance factors.

Key variances not discussed above in the Consolidated Results section are as follows:

Net premiums earned.

Net premiums earned decreased $1 and $11 for the three and nine months ended September 30, 2023, compared to the same period in the prior year.

Net premiums earned increased $1 for the three months ended March 31, 2024, compared to the same period in the prior year.

Net premiums earned were impacted by the organic and active runoff of the financial guarantee insured portfolio, resulting in a reduction to current and future normal net premiums earned and the following:

• Changes to the allowance for credit losses on the premium receivable asset.

The positive impact on net premiums earned related to credit losses amounted to $0 and $1 fo r the three and nine months ended September 30, 2023 , as compared to $1 and $3 f or the three and nine months ended September 30, 2022.

• Accelerated financial guarantee premiums earned as a result of calls and other accelerations on insured obligations, largely due to active de-risking of the insured portfolio, were deminimis for the three and nine months ended September 30, 2023, as compared to ($2) and $5 for the three and nine months ended September 30, 2022.

The positive impact on net premiums earned related to credit losses amounted to $1 fo r the three months ended March 31, 2024 , as compared to $0 f or the three months ended March 31, 2023.

Investment and Derivative Results.

Net investment income increased $18 and $99 for the three and nine months ended September 30, 2023, respectively, compared to the prior year periods, driven by higher yields in fixed income and improved performance from pooled fund investments.

Net investment gains (losses), including impairments declined $13 and $38 for the three and nine months ended September 30, 2023, respectively, compared to the prior year periods, primarily as a result of foreign exchange gains and certain recoveries in 2022.

Derivative gains declined $33 in the third quarter 2023 and $121 year-to-date, compared the prior year periods which experienced significant gains from rising interest rates.

Ambac has exited the derivative positions that led to the gains in 2022.

Net investment income increased $7 for the three months ended March 31, 2024, compared to the prior year period, driven by higher yields in fixed income and fair value gains on fixed maturity securities classified as trading.

Net investment gains (losses), including impairments increased $5 for the three months ended March 31, 2024, compared to the prior year period, primarily as a result of foreign exchange gains on US dollar denominated securities held by Ambac UK and impairment charges in first quarter 2023.

Derivative results improved by $5 compared to first quarter 2023 mostly driven by the impact of counterparty credit adjustments on certain derivative assets that are hedged against interest rate risk.

Additionally, the three months ended March 31, 2023 included losses on positions held as partial hedges against interest rate risk elsewhere in the Legacy Financial Guarantee segment.

Ambac has exited the derivative positions that led to the first quarter 2023 losses.

See Consolidated Results above for further information about investment and derivative results.

Losses and Loss Expenses.

The following provides details for losses and loss expenses (benefit) incurred for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Losses and Loss Adjustment Expenses (Benefit).

The following provides details for losses and loss adjustment expenses (benefit) incurred for the periods presented:

Three Months Ended March 31, 2024 2023

Structured Finance $ (16) $ 20

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Totals $ (21) $ 13

Loss and loss expenses (benefit) for the three and nine months ended September 30, 2023, was largely driven by RMBS recoveries, the positive impact of discount rates on the RMBS portfolio and assumption changes in the international portfolio (nine months only).

Changes in RMBS recoveries impacting loss and loss expenses can be volatile and therefore each period's results are not indicative of potential future results.

Loss and loss expenses (benefit) for the three months ended September 30, 2022, were largely driven by the impact of the Settlement Agreement with Bank of America Corporation and certain affiliates thereof of approximately $319.

Losses and loss expenses (benefit) for the nine months ended September 30, 2022, were driven by favorable loss development in domestic public finance (primarily due to the Puerto Rico restructuring), favorable RMBS development due to the positive impact of discount rates, and the impact of the Settlement Agreement with Bank of America Corporation and certain affiliates thereof of $80.

Loss and loss adjustment expenses (benefit) for the three months ended March 31, 2024, was largely driven by the positive impact of discount rates on the structured insurance portfolio, and assumption changes in the public finance and international portfolios.

Loss and loss adjustment expenses (benefit) for the three months ended March 31, 2023, were largely driven by unfavorable loss development in the RMBS portfolio resulting from a decline in discount rates, partially offset by assumption changes in the international portfolio.

G&A Expenses.

Segment G&A expenses increased during the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, primarily due to higher

Segment G&A expenses decreased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to (i) the timing of the reimbursement of expenses paid to the Corporate segment of $4 (2023 was paid in three months ended March 31, 2023 and 2024 will be paid in the second quarter of 2024) ii) lower legal defense costs and lower compensation costs than the prior year period.

These relative reductions in expenses were partially offset by expenses incurred in the first quarter of 2024 related to the strategic review of the Legacy Financial Guarantee segment.

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42 2023 Third Quarter FORM 10-Q |

legal defense costs in the 2023 periods, partially offset by lower compensation costs due to reduced headcount and the timing of incentive compensation performance factor adjustments.

First Quarter 2024 Form 10-Q

Specialty Property and Casualty Insurance

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31, 2024 2023

Gross premiums written $ 96 $ 52

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Net investment gains (losses), including impairments — —

Total 16 6 35 11

Losses and loss expenses incurred 19 5

1 unchanged sentence

General and administrative expenses 4 4

Total 15 7 36 16

EBITDA 2 $ (1)

1 unchanged sentence

Retention Ratio (1)

32.0% 18.9% 23.6% 19.6%

Loss and LAE Ratio (2)

78.0% 65.2% 73.8% 65.7%

Expense Ratio (3)

Combined Ratio (4)

106.5% 147.8% 112.3% 178.8%

Ambac's stockholders

Ambac's stockholders equity (5)

(1) Retention ratio is defined as net premiums written divided by gross premiums written

(2) Loss and LAE ratio is defined as losses and loss expenses incurred divided by net premiums earned

(3) Combined ratio is defined as Loss and LAE ratio plus Expense Ratio.

(3) Expense Ratio is defined as acquisition costs and general and administrative expenses, reduced by program fees divided by net premiums earned

(4) Combined ratio is defined as Loss and LAE ratio plus Expense Ratio

(5) Represents Ambac stockholders equity in the Specialty Property and Casualty Insurance segment, including intercompany eliminations.

The Specialty Property and Casualty Insurance segment has grown significantly since underwriting its first program in May 2021.

Twenty programs were authorized to issue policies as of September 30, 2023.

This includes Everspan participating on one primary workers compensation program as a reinsurer.

Twenty-two programs were authorized to issue policies as of March 31, 2024, including Everspan participating on two programs as a reinsurer.

The growth in both the number and size of these programs has contributed to the increase in gross and net premiums written, net premiums earned and net loss and loss expenses incurred.

Consistent with its strategy to generate sustainable and profitable, long-term specialty property and casualty program insurance business with a focus on diverse classes of risks, Everspan may source programs as a reinsurer.

Accessing programs as a reinsurer provides Everspan the ability to diversify its risk profile, efficiently manage its exposure limits and underwrite programs in

a cost efficient manner, amongst other benefits.

Accessing programs as a reinsurer provides Everspan the ability to diversify its risk profile, efficiently manage its exposure limits and underwrite programs in a cost efficient manner, amongst other benefits.

Everspan may participate as a reinsurer on up to 30% of a program, which is in line with its strategy to generally retain up to 30% per program.

Participation as a reinsurer will affect the retention ratio as Everspan's portion of assumed premiums is reflected fully in both Gross and Net Premiums Written.

Loss and loss expenses incurred increased for the three and nine months ended September 30, 2023, relative to the three and nine months ended September 30, 2022, as a result of a number of factors, including growth of the business and the impact of prior period development from reserve strengthening on certain programs (mostly due to an increase in frequency of claim in commercial auto).

Everspan's selected loss ratio (including ULAE) was 70.9% at September 30, 2023 versus 64.0% at September 30, 2022.

Everspan's loss ratio may shift as the inforce book of business grows and diversifies.

The increase in the Loss and LAE ratio for the three months ended September 30, 2023, compared to September 30, 2022, was partially offset by a benefit to acquisition costs as a result of sliding scale commission arrangements.

Loss and loss expenses incurred increased for the three months ended March 31, 2024, relative to the three months ended March 31, 2023, primarily due to the growth and diversification of the business.

Everspan's loss ratio (including ULAE) was 75.7% at March 31, 2024 versus 66.6% at March 31, 2023, inclusive of prior years development of 4.4% and 0.6%, respectively.

The shift in the loss ratio was driven by commercial auto losses, the addition of personal nonstandard auto (through assumed reinsurance), excess auto claims and other liability claims.

Everspan's loss ratio may fluctuate as the still nascent inforce book of business scales and seeks to diversify.

The increase in the Loss and LAE ratio for the three months ended March 31, 2024, compared to March 31, 2023, was partially offset by a benefit to acquisition costs as a result of sliding scale commission arrangements with program partners.

Such benefit reduced the Specialty Property and Casualty Insurance segments expense ratio by 6.1% and 0.6% for the three months ended March 31, 2024 and 2023, respectively.

Certain Everspan programs were structured to include sliding scale commission arrangements within a loss ratio range.

These sliding scale arrangements mitigate net income volatility.

Loss and loss expenses incurred may be adversely impacted by increasing economic and social inflation, particularly within the commercial auto business.

These sliding scale arrangements help mitigate losses, protect underwriting results and limit earnings volatility.

Loss and loss expenses incurred may be adversely impacted by economic and social inflation.

The impact of inflation on ultimate loss reserves is difficult to estimate, particularly in light of recent disruptions to the judicial system, supply chain and labor markets.

In addition, on a going forward basis, we may not be able to offset the impact of inflation on our loss costs with sufficient price increases.

In addition, going forward, we may not be able to offset the impact of inflation on our loss costs with sufficient price increases.

The estimation of loss reserves may also be more difficult during extreme events, such as a pandemic, or during the persistence of volatile or uncertain economic conditions, due to, amongst other reasons, unexpected changes in behavior of judicial decisions, claimants and policyholders, including fraudulent reporting of exposures and/or losses.

Due to the inherent uncertainty underlying loss reserve estimates, the final resolution of the estimated liability for loss and loss expenses will likely be higher or lower than the related loss reserves at the reporting date.

Due to the inherent uncertainty underlying loss reserve estimates, the final resolution of the estimated liability for loss and loss adjustment expenses will likely be higher or lower than the related loss reserves at the reporting date.

In addition, our estimate of losses and loss expenses may change.

These additional liabilities or increases in estimates, or a range of either, could vary significantly from period to period.

General and administrative costs increased for the three and nine months ended September 30, 2023, relative to the three and nine months ended September 30, 2022, primarily resulting from the ramp up in Everspan's staffing and operations.

The impact of growing operations was partially offset for the nine month comparison by costs associated with the acquisition of additional shell insurance companies in January 2022.

General and administrative costs were flat for the three months ended March 31, 2024, relative to the three months ended March 31, 2023, as increases from the ramp up in Everspan's staffing and operations was mostly offset by the timing of incentive compensation accruals.

Ambac Financial Group, Inc.

43 2023 Third Quarter FORM 10-Q |

First Quarter 2024 Form 10-Q

Insurance Distribution

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31, 2024 2023

Premiums placed $ 90 $ 77

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General and administrative expenses (1)

EBITDA 4 2 10 5

Depreciation (1)

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Pretax income (loss) $ 4 $ 4

Ambac's stockholders

Ambac's stockholders equity (2)

(1) The Consolidated Statements of Comprehensive Income presents the sum of these items as General and Administrative Expenses.

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In addition, we are eligible to receive profit sharing contingent commissions on certain programs based on the underwriting results of the policies placed with carriers, which may cause some variability in revenue and earnings.

On August 7, 2023, Ambac acquired a controlling interest (80%) in Riverton Insurance Agency, Corp.

("Riverton") which is expected to add approximately $40 of annual premiums placed to the Insurance Distribution segment.

Riverton is an MGA and retail agency specializing in professional liability insurance programs to licensed architects, engineers, construction managers and real estate professionals.

The Insurance Distribution segment placed premiums for its carriers of approximately $62 and $180 for the three and nine months ended September 30, 2023, up $34 and $83 or 119% and 85.8%, respectively, as compared to the three and nine months ended September 30, 2022.

Higher premiums placed were driven by organic growth at Xchange, the acquisition of All Trans, Capacity Marine and Riverton, and the Employer Stop Loss renewal rights acquisition on April 29, 2022.

The Insurance Distribution segment placed premiums for its carriers of approximately $90 for the three months ended March 31, 2024, up $13 or 17%, respectively, as compared to the three months ended March 31, 2023.

Higher premiums placed were driven by the acquisition of Riverton Insurance Agency and organic growth.

The increase in premiums placed and changes to the mix of business written led to the growth in commission income and commission expense of 22% and 29%, respectively.

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G&A Expenses.

G&A expenses for the three and nine months ended September 30, 2023, increased compared to the three and nine months ended September 30, 2022, primarily as a result of the All Trans, Capacity Marine and Riverton acquisitions.

G&A expenses for the three months ended March 31, 2024, increased compared to the three months ended March 31, 2023, primarily as a result of the Riverton acquisition.

LIQUIDITY AND CAPITAL RESOURCES

($ in millions)

Holding Company Liquidity

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AFG is a holding company with no outstanding debt.

AFG's liquidity is primarily dependent on its net assets, excluding the operating subsidiaries that it owns, totaling $209 as of September 30, 2023, and secondarily on distributions and expense sharing payments from its operating subsidiaries.

AFG's liquidity is primarily dependent on its net assets, excluding the operating subsidiaries that it owns, totaling $209 as of March 31, 2024, and secondarily on

distributions and expense sharing payments from its operating subsidiaries.

• Under an inter-company cost allocation agreement, AFG is reimbursed by AAC for a portion of certain operating costs and expenses and, if approved by OCI, entitled to an additional payment of up to $4 per year to cover expenses not otherwise reimbursed.

The $4 reimbursement for 2022 and 2021 expenses was approved by OCI and paid to AFG during March of 2023 and April of 2022, respectively.

The $4 reimbursement was approved by OCI and will be paid to AFG during the second quarter of 2024.

• Substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends.

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• Cirrata does not have any regulatory restrictions on its ability to make distributions.

AFG received distributions from Cirrata of $5.3 and $4.2 during the nine months ended September 30, 2023 and 2022.

AFG received distributions from Cirrata of $2.9 and $1.9 during the three months ended March 31, 2024 and 2023.

AFG's principal uses of liquidity are:

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In the opinion of the Company’s management the net assets of AFG are sufficient to meet AFG’s current liquidity requirements.

However, events, opportunities or circumstances could arise that may cause AFG to seek additional capital (e.g.

However, events, opportunities, including acquisitions, or circumstances could arise that may cause AFG to seek additional capital (e.g.

through the issuance of debt, equity or hybrid securities).

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investment income and maturities and sales of investments.

| Ambac Financial Group, Inc.

44 2023 Third Quarter FORM 10-Q |

• See Note 6.

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Cash provided from these sources is used primarily for claim payments and commutations, loss expenses and acquisition costs (Specialty Property & Casualty Insurance segment only), debt service on outstanding debt (Legacy Financial Guarantee segment only), G&A expenses, reinsurance payments and purchases of securities and other investments, some of which may not be immediately convertible into cash.

• Interest and principal payments on surplus notes are subject to the approval of OCI, which has full discretion over payments regardless of the liquidity position of AAC.

As discussed more fully in "Results of Operations" above in this Management's Discussion and Analysis, OCI declined AAC's request to pay the principal amount of the surplus notes, plus all accrued and unpaid interest thereon, on June 7, 2023.

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

• As required by the terms of surplus notes and/or otherwise, AAC will continue to seek OCI’s approval to make payments of principal and interest on its surplus notes.

OCI’s approval of AAC’s requests for surplus note payments 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.

• As discussed more fully in "Results of Operations" above in this Management's Discussion and Analysis, AAC requested approval from OCI to pay principal of, and interest on, the surplus notes on June 7, 2024, but as of the filing of this Form 10-Q, AAC has yet to receive a response from OCI to such request.

Current principal outstanding on AAC's long-term debt consisted of $519 of surplus notes.

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The following table summarizes the net cash flows for the periods presented.

Nine Months Ended September 30, 2023 2022

Three Months Ended March 31, 2024 2023

Cash provided by (used in):

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(1) Because the trusts established under the Puerto Rico restructurings are consolidated VIEs, certain payments made by AAC to accelerate AAC-insured bonds that were deposited into trusts are reflected as payments of VIE liabilities within financing activities.

Cash used in financing activities includes $113 and $274 from such AAC payments, for the nine months ended September 30, 2023 and 2022, respectively.

Cash used in financing activities includes $0 and $108 from such AAC payments, for the three months ended March 31, 2024 and 2023, respectively.

Operating activities

The following represents the significant cash operating activity during the nine months ended September 30, 2023 and 2022:

• Cash provided by (i) gross premiums were $146 and $100 for the nine months ended September 30, 2023 and 2022, respectively;

(ii) interest rate derivatives were $22 and $61 for the nine months ended September 30, 2023 and 2022, respectively;

(iii) investment portfolio income was $69 and $59 for the nine months ended September 30, 2023 and 2022, respectively;

and (iv) cash settlements from the Puerto Rico restructuring transactions to the consolidated trusts was $47 for the nine months ended September 30, 2022.

• Interest payments, including accumulated paid-in-kind interest on the Tier 2 Notes, were $50 for the nine months ended September 30, 2023, and $51 for the nine months ended September 30, 2022.

• Payments related to (i) G&A expenses we re $94 and $75 for the nine months ended September 30, 2023 and 2022, respectively;

and (ii) reinsurance premiums paid were $99 and $43 for the nine months ended September 30, 2023 and 2022, respectively

• Net Legacy Financial Guarantee Insurance loss and loss expenses paid, including commutation payments, during the nine months ended September 30, 2023 and 2022 are detailed below:

Nine Months Ended September 30, 2023 2022

Net loss and loss expenses paid (recovered):

Net losses paid $ 23 $ 239

Net subrogation received (1)

Net loss expenses paid 7 18

Net cash flow $ (139) $ 24

The following represents the significant cash operating activity during the three months ended March 31, 2024 and 2023:

• Cash provided by (i) gross premiums were $64 and $48 for the three months ended March 31, 2024 and 2023, respectively;

and (ii) investment portfolio income was $25 and $20 for the three months ended March 31, 2024 and 2023, respectively.

The increase in gross premiums were driven by the growth in the Specialty Property and Casualty Insurance segment.

• Interest payments, from the accumulated paid-in-kind interest on the Tier 2 Notes, were $50 for the three months ended March 31, 2023.

• Payments related to (i) G&A expenses we re $41 and $37 for the three months ended March 31, 2024 and 2023, respectively;

and (ii) reinsurance premiums paid were $34 and $31 for the three months ended March 31, 2024 and 2023, respectively.

The increase in reinsurance premiums paid were driven by the growth in the Specialty Property and Casualty Insurance segment.

• Net Legacy Financial Guarantee Insurance loss and loss expenses paid (recovered), including commutation payments, during the three months ended March 31, 2024 and 2023 were ($11) and ($140), respectively.

2023 includes Nomura R&W settlement proceeds of $140.

Future operating flows will primarily be impacted by net premium collections and investment coupon receipts, G&A expenses, net claim and loss expense payments and interest payments on outstanding debt.

| Ambac Financial Group, Inc.

45 2023 Third Quarter FORM 10-Q |

Financing Activities

Financing activities for the nine months ended September 30, 2023, included redemption of the Tier 2 Notes of $97, share repurchases of $5, and paydowns and maturities of VIE debt obligations of $285 (including payments for the accelerations of the VIE trusts created from the Puerto Rico restructuring).

Financing activities for the nine months ended September 30, 2022, included payments for extinguishment of surplus notes of $58, share repurchases of $14, and paydowns and maturities of VIE debt obligations of $404 (including payments for the accelerations of the VIE trusts created from the Puerto Rico restructuring).

Financing activities for the three months ended March 31, 2024, included paydowns and maturities of VIE debt obligations of $46.

Financing activities for the three months ended March 31, 2023, included payments for redemption of Tier 2 Notes of $97 and paydowns and maturities of VIE debt obligations of $174 (including payments for the accelerations of the VIE trusts created from the Puerto Rico restructuring).

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

AFS hedged a portion of the interest rate risk in the Legacy Financial Guarantee Insurance segment financial guarantee and investment portfolios, along with legacy customer interest rate swaps, with standardized derivative contracts, which contain collateral or margin requirements.

As of June 30, 2023, AFS's only remaining derivative positions include a limited number of legacy customer swaps and their associated hedges.

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

Under these hedge agreements, AFS is required to post collateral in excess of the derivative unrealized loss amount.

All AFS derivative contracts containing ratings-based downgrade triggers that could result in collateral posting or a termination have been triggered.

AFS may look to re-establish hedge positions resulting in additional collateral obligations.

The amount of additional collateral posted on derivatives contracts will depend on several variables including the degree to which counterparties exercise their termination rights (or agreements terminate automatically) and the terms on which hedges can be replaced.

All collateral obligations are currently met.

Collateral posted by AFS totaled a net amount of $36 (cash and securities collateral of $9 and $27, respectively), including independent amounts, under these contracts at September 30, 2023.

BALANCE SHEET ($ in millions)

Total assets decreased by approximately $125 from December 31, 2022, to $7,847 at September 30, 2023, primarily due to:

(i) the decrease in asset values of VIEs of $77 and (ii) lower non-VIE invested assets of $101, partially offset by increases in premium receivables, reinsurance recoverables and deferred premiums as a result of growth in the specialty P&C businesses.

• During 2023, VIE assets were reduced by maturities / paydowns, the deconsolidation of one VIE and sales of Puerto Rico restructuring VIE assets to fund debt redemptions.

Offsetting these decreases was cash collateral received by FG VIEs.

• Reduction in non-VIE investments from December 31, 2022 included the impact of $113 of payments from Ambac Assurance to support partial redemptions of HTA Trust Certificates.

Total liabilities decreased by approximately $141 from December 31, 2022, to $6,507 as of September 30, 2023, primarily due to decreases in the value of VIE liabilities of $168 (consistent factors as noted above in assets, including redemptions of HTA Trust Certificates, and increase in cash collateral payable).

Additional liability increases were driven by higher loss and loss adjustment expense reserves, unearned premiums and ceded premium payables from the specialty P&C businesses.

These increases to total liabilities were partially offset by the redemption of the Tier 2 Notes of $146.

As of September 30, 2023, total stockholders’ equity was $1,318, compared with total stockholders’ equity of $1,305 at December 31, 2022.

This increase was primarily due to total comprehensive income for the nine months ended September 30, 2023.

Collateral posted by AFS totaled a net amount of $44 (cash and securities collateral of $18 and $26, respectively), including independent amounts, under these contracts at March 31, 2024.

BALANCE SHEET

Total assets increased by less than a million dollars from December 31, 2023, to $8,429 at March 31, 2024, primarily due to (i) higher non-VIE invested assets and (ii) increases in premium receivables, reinsurance recoverables and deferred ceded premiums as a result of growth in the specialty P&C businesses;

offset by a decrease in asset values of VIEs and reductions in intangible assets are a result of amortization during the three months ended March 31, 2024.

Total liabilities decreased by approximately $3 from December 31, 2023, to $6,993 as of March 31, 2024, primarily due to decreases in the value of VIE liabilities;

partially offset by (i) higher other liabilities from an increase in payable for securities and (ii) higher unearned premiums, deferred program fees and ceded premium payables from the specialty P&C businesses.

As of March 31, 2024, total stockholders’ equity was $1,418, compared with total stockholders’ equity of $1,415 at December 31, 2023.

This increase was primarily due to total comprehensive income for the three months ended March 31, 2024, of $5.

Investment Portfolio

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Ambac's investment policies and objectives do not apply to the assets of VIEs consolidated as a result of financial guarantees written by its insurance subsidiaries.

The following table summarizes the composition of Ambac’s investment portfolio, excluding VIE investments, at carrying value at September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

The following table summarizes the composition of Ambac’s investment portfolio, excluding VIE investments, at carrying value at March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

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

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$ 2,325 $ 167 $ 4 $ 186 $ 2,682 $ 2,310 $ 162 $ 4 $ 188 $ 2,664

| Ambac Financial Group, Inc.

46 2023 Third Quarter FORM 10-Q |

(1) Includes investments denominated in non-US dollar currencies with a fair value of £329 ($401) and €28 ($29) as of September 30, 2023 and £296 ($357) and €39 ($42) as of December 31, 2022.

(1) Includes investments denominated in non-US dollar currencies with a fair value of £347 ($438) and €22 ($24) as of March 31, 2024 and £342 ($436) and €25 ($27) as of December 31, 2023.

Ambac invests in various asset classes in its fixed maturity securities portfolio.

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Investments to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Form 10-Q for information about fixed maturity securities and pooled funds by asset class.

The following charts provide the ratings (1) distribution of the fixed maturity investment portfolio based on fair value at September 30, 2023 and December 31, 2022:

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

The following charts provide the ratings (1) distribution of the fixed maturity investment portfolio based on fair value at March 31, 2024 and December 31, 2023:

(1) Ratings are based on the lower of Moody’s or S&P ratings.

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If guaranteed, rating represents the higher of the underlying or guarantor’s financial strength rating.

(2) Below investment grade and not rated bonds insured by Ambac represent 20% and 19% of the September 30, 2023, and December 31, 2022, combined fixed maturity portfolio, respectively.

(2) Below investment grade and not rated bonds insured by Ambac represent 18% and 21% of the March 31, 2024, and December 31, 2023, combined fixed maturity portfolio, respectively.

Premium Receivables

Ambac's premium receivables increased to $278 at September 30, 2023, from $269 at December 31, 2022.

As further discussed in Note 6.

Insurance Contracts, the increase is primarily due to growth in the Specialty P&C Insurance Segment, including receivables related to the workers compensation program where Everspan participates as a reinsurer.

At September 30, 2023, Legacy Financial Guarantee Insurance and Specialty P&C premiums receivables were $245 and $33, respectively.

Ambac's premium receivables increased to $299 at March 31, 2024, from $290 at December 31, 2023.

The increase is primarily due to growth in the Specialty P&C Insurance Segment, including receivables related to the programs where Everspan participates as a reinsurer.

At March 31, 2024, Legacy Financial Guarantee Insurance and Specialty P&C premiums receivables were $237 and $62, respectively.

Premium receivables by payment currency were as follows:

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To minimize its exposure to losses from reinsurers, Ambac (i) monitors the financial condition of its reinsurers;

(ii) is entitled to receive collateral from its reinsurance

counterparties under certain reinsurance contracts;

(ii) is entitled to receive collateral from its reinsurance counterparties under certain reinsurance contracts;

and (iii) has certain cancellation rights that can be exercised in the event of rating agency downgrades of a reinsurer (among other events and circumstances).

Those reinsurance counterparties that do not currently post collateral are well capitalized, highly rated, authorized capacity providers.

Ambac benefited from letters of credit and collateral amounting to approximately $119 from its reinsurers at September 30, 2023.

Additionally, while legacy liabilities from the 21st Century Companies and PWIC acquisitions were fully ceded to certain reinsurers, Everspan also benefits from an unlimited, uncapped indemnity from the respective sellers to mitigate any residual risk to these reinsurers.

As of September 30, 2023 and December 31, 2022, reinsurance recoverable on paid and unpaid losses were $172 and $115, respectively primarily due to growth in the Specialty P&C Insurance Segment.

Ambac benefited from letters of credit and collateral amounting to approximately $127 from its reinsurers at March 31, 2024.

Additionally, while legacy liabilities from the recent Specialty P&C acquisitions were fully

ceded to certain reinsurers, Everspan also benefits from an unlimited, uncapped indemnity from the respective sellers to mitigate any residual risk to these reinsurers.

As of March 31, 2024 and December 31, 2023, reinsurance recoverable on paid and unpaid losses were $224 and $195, respectively primarily due to growth in the Specialty P&C Insurance Segment.

Intangible Assets

Intangible assets primarily include (i) an insurance intangible asset that was established at AFG's emergence from bankruptcy (Legacy Financial Guarantee Insurance Segment) in 2013, representing the difference between the fair value and aggregate carrying value of the financial guarantee insurance and reinsurance assets and liabilities of $249 at September 30, 2023, (ii) intangible assets established as part of acquisitions in the Insurance Distribution business of $48 at September 30, 2023,

| Ambac Financial Group, Inc.

47 2023 Third Quarter FORM 10-Q |

(iii) indefinite-lived intangible assets in the Specialty P&C business as part of its acquisitions of $14 at September 30, 2023.

As of September 30, 2023 and December 31, 2022, intangible assets were $312 and $326, respectively.

The decline is driven by amortization;

partially offset by translation gains from the consolidation of Ambac's foreign subsidiary (Ambac UK) and established intangibles from the acquisition of Riverton.

Derivative Assets and Liabilities

The interest rate derivative portfolio was positioned to benefit from rising rates, until the early part of the second quarter 2023, as a partial economic hedge against interest rate exposure in the Legacy Financial Guarantee insurance and investment portfolios.

As of September 30, 2023, AFS' only remaining derivative positions include a limited number of legacy customer swaps and their associated hedges.

Derivative assets decreased from $27 at December 31, 2022, to $15 as of September 30, 2023.

Derivative liabilities decreased from $38 at December 31, 2022, to $22 as of September 30, 2023.

Decreases in derivative asset and liability values since December 31, 2022 resulted from declines in fair value driven by rising interest rates.

Intangible assets primarily include (i) an insurance intangible asset that was established at AFG's emergence from bankruptcy (Legacy Financial Guarantee Insurance Segment) in 2013, representing the difference between the fair value and aggregate carrying value of the financial guarantee insurance and reinsurance assets and liabilities of $233 at March 31, 2024, (ii) intangible assets established as part of acquisitions in the Insurance Distribution business of $46 at March 31, 2024, (iii) indefinite-lived intangible assets in the Specialty P&C business as part of its acquisitions of $14 at March 31, 2024.

As of March 31, 2024 and December 31, 2023, intangible assets were $293 and $307, respectively.

The decline is primarily driven by amortization during the three months ended March 31, 2024.

Loss and Loss Expense Reserves and Subrogation Recoverable

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The evaluation process for determining the level of reserves is subject to certain estimates and judgments.

Refer to the "Critical Accounting Policies and Estimates" and “Results of Operations” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations, in addition to Basis of Presentation and Significant Accounting Policies and Loss Reserves sections included in Note 2.

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

Presentation and Significant Accounting Policies and Loss Reserves sections included in Note 2.

Basis of Presentation and Significant Accounting Policies and Note 8.

Insurance Contracts, respectively, of the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, for further information on loss and loss expenses.

The loss and loss expense reserves, net of subrogation recoverables and before reinsurance as of September 30, 2023 and December 31, 2022, were $670 and $534, respectively.

Loss and loss expense reserves are included in the Unaudited Consolidated Balance Sheets as follows:

September 30, 2023:

The loss and loss expense reserves, net of subrogation recoverables and before reinsurance as of March 31, 2024 and December 31, 2023, were $721 and $756, respectively.

Loss and loss adjustment expense reserves are included in the Unaudited Consolidated Balance Sheets as follows:

March 31, 2024:

December 31, 2023:

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Reserves Claims and

Loss Expenses Recoveries (1)

Gross Loss and Loss Expense

Loss Expenses Recoveries Gross Loss and Loss Expense

Reserves Claims and

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Totals $ 237 $ 695 $ (187) $ (24) $ 721 $ 197 $ 780 $ (194) $ (28) $ 756

(1) Present value of future recoveries includes R&W subrogation recoveries of $0 and $140 at September 30, 2023 and December 31, 2022, respectively.

Legacy Financial Guarantee Insurance:

Ambac has exposure to various bond types issued in the debt capital markets.

Our experience has shown that, for the majority of bond types, we have not experienced significant claims.

The bond types that have experienced significant claims, including through commutations, are residential mortgage-backed securities (“RMBS”), student loan securities and public finance securities.

These bond types represent 91% of our ever-to-date insurance claims recorded, with RMBS comprising 60%.

The table below indicates gross par outstanding and the components of gross loss and loss expense reserves related to policies in Ambac’s gross loss and loss expense reserves at September 30, 2023 and December 31, 2022:

September 30, 2023:

The table below indicates gross par outstanding and the components of gross loss and loss expense reserves related to policies in Ambac’s gross loss and loss expense reserves at March 31, 2024 and December 31, 2023:

March 31, 2024:

December 31, 2023:

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Totals $ 3,801 $ 695 $ (187) $ (24) $ 484 $ 3,838 $ 780 $ (194) $ (28) $ 559

(1) Ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves were $399 and $32 respectively, at September 30, 2023, and $472 and $33, respectively at December 31, 2022.

(1) Ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves were $366 and $25 respectively, at March 31, 2024, and $362 and $30 , respectively at December 31, 2023.

Recoverable ceded loss and loss expense reserves are included in Reinsurance recoverable on paid and unpaid losses on the balance sheet.

(2) Loss reserves are included in the balance sheet as Loss and loss expense reserves or Subrogation recoverable dependent on if a policy is in a net liability or net recoverable position.

| Ambac Financial Group, Inc.

48 2023 Third Quarter FORM 10-Q |

Variability of Expected Losses and Recoveries

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Accordingly, it is possible that our estimated loss reserves, gross of reinsurance, for financial guarantee insurance policies could be understated.

We have attempted to identify possible cash flows related to losses and recoveries using more stressful assumptions than the probability-weighted outcome recorded.

The possible net cash flows consider the highest stress scenario that was utilized in the development of our probability-weighted expected loss at September 30, 2023, and assumes an inability to execute any commutation transactions with issuers and/or investors.

We have attempted to identify possible cash flows related to losses and recoveries using more stressful assumptions than the

probability-weighted outcome recorded.

The possible net cash flows consider the highest stress scenario that was utilized in the development of our probability-weighted expected loss at March 31, 2024, and assumes an inability to execute any commutation transactions with issuers and/or investors.

Such stress scenarios are developed based on management’s view about all possible outcomes relating to losses and recoveries.

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Although we do not believe it is possible to have stressed outcomes in all cases, it is possible that we could have stress case outcomes in some or even many cases.

See “Risk Factors” in Part I, Item 1A as well as the descriptions of "RMBS Variability," "Public Finance Variability," "Student Loan Variability," and "Other Credits, including Ambac UK, Variability" in Part II, Item 7 of the Company's 2022 Annual Report on Form 10-K, and Part II, Item1A "Risk Factors" of this Quarterly Report, for further discussion of the risks relating to future losses and recoveries that could result in more highly stressed outcomes, as well as the descriptions of "Structured Finance Variability," "Domestic Public Finance Variability," and "Other Variability" appearing below.

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

7 of the Company's 2023 Annual Report on Form 10-K, and Part II, Item1A "Risk Factors" of this Quarterly Report, for further discussion of the risks relating to future losses and recoveries that could result in more highly stressed outcomes.

The occurrence of these stressed outcomes individually or collectively would have a material adverse effect on our results of operations and financial condition and may result in materially adverse consequence for Ambac, including (without limitation) impairing the ability of AAC to honor its financial obligations, particularly its outstanding surplus note and preferred stock obligations;

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Changes to assumptions that could make our reserves under-estimated include an increase in interest rates, deterioration in housing prices, poor servicing, government intervention into the functioning of the mortgage market and the general effect of a weakened economy characterized by growing unemployment and wage pressures.

During the first quarter of 2023, Ambac revised the model it uses to project RMBS collateral losses considering the seasoning of our RMBS exposure and management’s view

that the most relevant determinant of prospective collateral performance is borrower payment status.

During the first quarter of 2023, Ambac revised the model it uses to project RMBS collateral losses considering the seasoning of our RMBS exposure and management’s view that the most relevant determinant of prospective collateral performance is borrower payment status.

Individual home price appreciation/depreciation has become less critical a determinant of performance considering the general appreciation in home values over the past few years as well as the impact of loan modifications.

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Such factors may also include lower recoveries on defaulted loans or additional losses on collateral or trust assets, including as a result of any enforcement actions by the Consumer Finance Protection Bureau.

During the second quarter of 2023, we revised our approach to projecting future defaults to reflect the student loan collateral's seasoning.

Structured Finance Variability:

Using the approaches described above, the possible increase in loss reserves for structured finance credits for which we have an estimate of expected loss at September 30, 2023, could be approximately $60.

There can be no assurance that losses may not exceed such amounts.

Due to the uncertainties related to risks associated with structured finance credits, there can be no assurance that losses may not exceed our stress case estimates.

Using the approaches described above, the possible increase in loss reserves for structured finance credits for which we have an estimate of expected loss at March 31, 2024, could be approximately $55 and there can be no assurance that losses may not exceed such amounts.

Domestic Public Finance Variability:

public finance portfolio consists of municipal bonds such as general and revenue obligations and lease and tax-backed obligations of state and local government entities;

public finance portfolio consists of municipal bonds such as general and revenue obligations and lease and tax-

backed obligations of state and local government entities;

however, the portfolio also includes a wide array of non-municipal types of bonds, including transactions with public and private elements, which generally finance infrastructure, housing and other public purpose facilities and interests, the largest sector of which is U.S.

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Our experience with the city of Detroit's bankruptcy and Commonwealth of Puerto Rico's Title III proceedings as well as other municipal bankruptcies demonstrates the preferential treatment of certain creditor classes, especially public pensions.

The cost of pensions and the need to address frequently sizable unfunded or underfunded pensions is often a key driver of stress for many municipalities and their related authorities, including

| Ambac Financial Group, Inc.

49 2023 Third Quarter FORM 10-Q |

entities to whom we have exposure, such as Chicago's school district, the State of New Jersey and others.

The cost of pensions and the need to address frequently sizable unfunded or underfunded pensions is often a key driver of stress for many municipalities and their related authorities, including entities to whom we have exposure, such as Chicago's school district, the State of New Jersey and others.

Less severe treatment of pension obligations in bankruptcy may lead to worse outcomes for traditional debt creditors.

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In certain cases, judicial decisions may be contrary to AAC's expectations or understanding of the law or its rights thereunder, which may lead to worse outcomes in Chapter 9 or similar proceedings than anticipated at the outset.

Another potentially adverse development that could cause the loss reserves on our public finance credits to be underestimated is deterioration in the municipal bond market, resulting from reduced or limited access to alternative forms of credit (such as bank loans) or other exogenous factors, such as changes in tax law that could reduce certain municipal investors' appetite for tax-exempt municipal bonds or put pressure on issuers in states with high state and local taxes.

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

law that could reduce certain municipal investors' appetite for tax-exempt municipal bonds or put pressure on issuers in states with high state and local taxes.

These factors could deprive issuers access to funding at a level necessary to avoid defaulting on their obligations.

For the public finance credits for which we have an estimate of expected loss at September 30, 2023, the sum of all the highest stress case loss scenarios is $125 and there can be no assurance that losses may not exceed such amounts.

For the public finance credits for which we have an estimate of expected loss at March 31, 2024, the sum of all the highest stress case loss scenarios is $120 and there can be no assurance that losses may not exceed such amounts.

Other Credits, including International Finance Variability:

It is possible our loss reserves on other types of credits, including those insured by Ambac UK, may be under-estimated because of various risks that vary widely, including the risk that we may not be able to recover or mitigate losses through our remediation processes.

For all other credits, including Ambac UK, for which we have an estimate of expected loss, the sum of all the highest stress case loss scenarios is approximately $320 greater than the

loss reserves at September 30, 2023.

For all other credits, including Ambac UK, for which we have an estimate of expected loss, the sum of all the highest stress case loss scenarios is approximately $75 greater than the loss reserves at March 31, 2024.

There can be no assurance that losses may not exceed such amounts.

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All long-term debt relates to the Legacy Financial Guarantee segment.

The carrying value of each of these as of September 30, 2023 and December 31, 2022 is below:

September 30,

The carrying value of each of these as of March 31, 2024 and December 31, 2023 is below:

2024 December 31, 2023

Surplus notes $ 495 $ 491

Tier 2 notes — 146

Ambac UK debt 17 17

Total Long-term Debt $ 512 $ 508

The decrease in long-term debt from December 31, 2022, resulted from redemption of the Tier 2 Notes during the quarter ended March 31, 2023, partially offset by accretion on the carrying value of surplus notes and Ambac UK debt.

Background and Business Description in the Notes to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for further details on the redemption of the Tier 2 Notes.

The increase in long-term debt from December 31, 2023, resulted from accretion on the carrying value of surplus notes and Ambac UK debt.

VARIABLE INTEREST ENTITIES

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There are no new accounting standards applicable to Ambac that have been issued but not yet adopted.

INSURANCE STATUTORY BASIS FINANCIAL RESULTS ($ in million)

insurance subsidiaries prepare financial statements under accounting practices prescribed or permitted by its domiciliary state regulator (“SAP”) for determining and reporting the financial condition and results of operations of an insurance company.

INSURANCE STATUTORY BASIS FINANCIAL RESULTS

insurance subsidiaries prepare financial statements under accounting practices prescribed or permitted by its

domiciliary state regulator (“SAP”) for determining and reporting the financial condition and results of operations of an insurance company.

The National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures manual (“NAIC SAP”) is adopted as a component of prescribed practices by each domiciliary state.

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Insurance Regulatory Restrictions to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

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50 2023 Third Quarter FORM 10-Q |

Ambac Assurance Corporation

AAC’s statutory policyholder surplus and qualified statutory capital (defined as the sum of policyholders surplus and mandatory contingency reserves) were $575 and $1,176 at September 30, 2023, respectively, as compared to $598 and $1,191 at December 31, 2022, respectively.

As of September 30, 2023, statutory policyholder surplus and qualified statutory capital included $519 principal balance of surplus notes outstanding and $115 liquidation preference of preferred stock outstanding.

AAC’s statutory policyholder surplus and qualified statutory capital (defined as the sum of policyholders surplus and mandatory contingency reserves) were $878 and $1,181 at March 31, 2024, respectively, as compared to $897 and $1,201 at December 31, 2023, respectively.

As of March 31, 2024, statutory policyholder surplus and qualified statutory capital included $519 principal balance of surplus notes outstanding and $115 liquidation preference of preferred stock outstanding.

These surplus notes (in addition to related accrued interest of $487 that is not recorded under statutory basis accounting principles);

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and all other liabilities, including insurance claims are obligations that, individually and collectively, have claims on the resources of AAC that are senior to AFG's equity and therefore impede AFG's ability to realize residual value and/or receive dividends from AAC.

The drivers to the net decrease in policyholder surplus were the statutory net loss of $14 for the nine months ended September 30, 2023, a contingency reserve contribution of $8, and the investment valuation changes that are direct charges to surplus of $4.

The drivers to the net decrease in policyholder surplus were the statutory net loss of $25 for the three months ended March 31, 2024, partially offset by investment valuation changes that are direct increases (decreases) to surplus of $6.

The statutory net loss for the three months ended March 31, 2024, was driven by the de-risking of certain student loan exposures,

AAC's statutory surplus and therefore AFG's ultimate ability to realize residual value and/or dividends from AAC is sensitive to multiple factors, including:

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Everspan Indemnity Insurance Company

Everspan Indemnity Insurance Company’s statutory policyholder surplus was $109 at September 30, 2023, as compared to $108 at December 31, 2022.

The significant drivers to the increase were capital contributions of $6.5 partially offset by a net loss at Everspan Indemnity Insurance Company, including its subsidiaries, of $5.4 during the nine months ended September 30, 2023, primarily driven by loss reserve strengthening and by net acquisition costs.

Acquisition costs, primarily commissions, are generally expensed immediately whereas the related premium is recognized over the life of the policy.

AMBAC UK FINANCIAL RESULTS UNDER UK ACCOUNTING PRINCIPLES (£ in millions)

Ambac UK is required to prepare financial statements under FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland." Ambac UK’s shareholder funds under UK GAAP were £489 at September 30, 2023, as compared to

£468 at December 31, 2022.

At September 30, 2023, the carrying value of cash and investments was £531, a increase from £508 at December 31, 2022.

The increase in shareholders’ funds and cash and investments was primarily due to the continued receipt of premiums and investment gains, partially offset by foreign exchange losses, general and administrative expenses and tax payments.

Everspan Indemnity Insurance Company’s statutory policyholder surplus was $108 at March 31, 2024, as compared to $108 at December 31, 2023.

The drivers within the period was net income at Everspan Indemnity Insurance Company, including its

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

subsidiaries, of $1 during the three months ended March 31, 2024, offset by a reduction in policyholders surplus for changes in capital contributions, primarily related to incentive compensation awards.

AMBAC UK FINANCIAL RESULTS UNDER UK ACCOUNTING PRINCIPLES

At March 31, 2024, the carrying value of cash and investments was £546, a increase from £535 at December 31, 2023.

The increase in shareholders’ funds and cash and investments was primarily due to the continued receipt of premiums, investment gains and foreign exchange gains, partially offset by general and administrative expenses and tax payments.

Ambac UK is also required to prepare financial information in accordance with the Solvency II Directive.

The basis of preparation of this information is significantly different from both US GAAP and UK GAAP.

Available capital resources under Solvency II were £361 at June 30, 2023, the most recently published position, of which £355 were eligible to meet solvency capital requirements.

Eligible capital resources at June 30, 2023, were in comparison to regulatory capital requirements of £217.

Therefore, Ambac UK was in a surplus position in terms of compliance with applicable regulatory capital requirements by £138 at June 30, 2023.

Despite, Ambac UK being in an surplus capital position as of June 30, 2023, there can be no guarantee that it will be able to pay any dividends or other capital distributions to AAC in the near term.

All dividends and capital distributions from Ambac UK are subject to the judgement and approval of the Prudential Regulatory Authority.

Available and eligible capital resources under Solvency II, to meet solvency capital requirements, were £430 at December 31, 2023, the most recently published position.

Eligible capital resources at December 31, 2023 were in comparison to regulatory capital requirements of £220.

Therefore, Ambac UK was in a surplus position in terms of compliance with applicable regulatory capital requirements by £210 at December 31, 2023.

NON-GAAP FINANCIAL MEASURES

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These non-GAAP financial measures are not substitutes for the Company’s GAAP reporting, should not be viewed in isolation and may differ from similar reporting provided by other companies, which may define non-GAAP measures differently.

Beginning January 1, 2023, Ambac replaced the non-GAAP measure Adjusted Earnings with a new non-GAAP measure Adjusted Net Income to better align with other participants in the Property & Casualty insurance industry, including insurance carriers and other peers in the insurance distribution business.

We are presenting Adjusted Net Income for the current and prior periods contained within this Form 10-Q so this non-GAAP financial measure compares both periods on the same basis.

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51 2023 Third Quarter FORM 10-Q |

The following paragraphs define each non-GAAP financial measure.

A tabular reconciliation of the non-GAAP financial measure and the most comparable GAAP financial measure is also presented below.

EBITDA — We define EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization of

intangible assets.

EBITDA — We define EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization of intangible assets.

The following table reconciles net income (loss) to the non-GAAP measure, EBITDA on a consolidation and segment basis for all periods presented:

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022

Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated Legacy Financial Guarantee Insurance Specialty Property & Casualty Insurance Insurance Distribution Corporate & Other Consoli-dated

Net income (loss) $ 66 $ — $ 2 $ (2) $ 66 $ 346 $ (2) $ 1 $ (6) $ 340

Interest expense 16 — — — 16 49 — — — 49

Income taxes 3 — — (2) 1 2 — — — 2

Depreciation — — — — — — — — — —

Amortization of intangible assets 6 — 1 — 7 5 — 1 — 6

$ 91 $ — $ 4 $ (4) $ 91 $ 403 $ (1) $ 2 $ (6) $ 397

(1) EBITDA is prior to the impact of noncontrolling interests, and relates to subsidiaries where Ambac does not own 100% in the amounts, of $1 and $0 for the three months ended September 30, 2023 and 2022, respectively.

These noncontrolling interests are primarily in the Insurance Distribution segment.

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

Three Months Ended March 31, 2024 Three Months Ended March 31, 2023

Net income (loss) $ 20 $ 2 $ 4 $ (5) $ 21 $ (36) $ (1) $ 3 $ — $ (33)

$ 21 $ (1) $ 7 $ (6) $ 21 $ 358 $ (6) $ 3 $ (8) $ 348

Interest expense 16 — — — 16 16 — — — 16

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Amortization of intangible assets 11 — 1 — 12 6 — 1 — 7

$ 96 $ (1) $ 10 $ (8) $ 98 $ 533 $ (5) $ 5 $ (8) $ 524

(1) EBITDA is prior to the impact of noncontrolling interests, and relates to subsidiaries where Ambac does not own 100% in the amounts, of $2 and $1 for the nine months ended September 30, 2023 and 2022, respectively.

EBITDA $ 52 $ 2 $ 5 $ (5) $ 55 $ (9) $ (1) $ 5 $ — $ (5)

(1) EBITDA is prior to the impact of noncontrolling interests, and relates to subsidiaries where Ambac does not own 100% in the amounts, of $0.9 and $0.9 for the three months ended March 31, 2024 and 2023, respectively.

These noncontrolling interests are primarily in the Insurance Distribution segment.

Ambac Financial Group, Inc.

First Quarter 2024 Form 10-Q

Adjusted Net Income (Loss) — We define Adjusted Net Income (Loss) as net income (loss) attributable to common stockholders adjusted to reflect the following items:

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The following table reconciles net income (loss) attributable to common stockholders to the non-GAAP measure, Adjusted net income:

Three Months Ended September 30,

($ in millions, except share data) $ Amount Per Share $ Amount Per Share

Net income (loss) attributable to common shareholders $ 66 $ 1.41 $ 340 7.41

Net investment (gains) losses, including impairments (1) (0.02) (14) (0.31)

Intangible amortization 7 0.15 6 0.13

Litigation costs 21 0.44 4 0.08

Foreign exchange (gains) losses 1 0.01 2 0.05

Workforce change costs — — — 0.01

Pretax adjusted net income (loss) 94 $ 1.99 338 $ 7.37

Income tax effects — 0.01 2 0.03

Net (gains) attributable to noncontrolling interests — — — —

Adjusted Net Income (Loss) $ 94 $ 2.00 $ 339 $ 7.40

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52 2023 Third Quarter FORM 10-Q |

Nine Months Ended September 30,

Three Months Ended March 31, 2024 2023

($ in millions, except share data) $ Amount Per Share $ Amount Per Share

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Workforce change costs — — 1 0.02

Net (gain) loss on extinguishment of debt — — (57) (1.23)

Pretax adjusted net income (loss) 39 $ 0.82 (13) $ (0.28)

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However, when expected losses are less than UPR for a financial guarantee contract, neither expected losses nor UPR have an impact on stockholders’ equity.

This non-GAAP adjustment adds UPR in excess of expected losses, net of reinsurance, to stockholders’ equity for financial guarantee contracts where expected losses are less than UPR.

This non-GAAP adjustment adds UPR in excess of expected losses,

net of reinsurance, to stockholders’ equity for financial guarantee contracts where expected losses are less than UPR.

This adjustment is only made for financial guarantee contracts since such premiums are non-refundable.

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stockholders’ equity to the non-GAAP measure Adjusted Book Value on a dollar amount and per share basis, for all periods presented:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

($ in millions, except share data) $ Amount Per Share $ Amount Per Share

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Adjusted book value 1,313 $ 29.03 $ 1,299 $ 28.74

The decrease in Adjusted Book Value since December 31, 2022 was primarily attributable to Ambac's net income (excluding earned premium previously included in Adjusted Book Value) and the impact of the reinsurance de-risking transaction executed during the quarter ended June 30, 2023, at AAC, partially offset by the positive effect foreign exchange rates.

The increase in Adjusted Book Value since December 31, 2023 was primarily attributable to Ambac's net income (excluding earned premium previously included in Adjusted Book Value), partially offset by the negative effect foreign exchange rates.

Quantitative and Qualitative Disclosure About Market Risk

As of September 30, 2023, there were no material changes in the market risks that the Company is exposed to since December 31, 2022.

As of March 31, 2024, there were no material changes in the market risks that the Company is exposed to since December 31, 2023.

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-Q

Item 2. Management’s Discussion and Analysis