What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2025-03-06 compared with 2024-02-27 · 384 added, 264 removed, 209 unchanged (76% of the section changed)

Risk Factors ($ in millions)

Risk Factors ($ in thousands)

Capitalized terms used but not defined in this section shall have the meanings ascribed thereto in Part I, Item 1 in this Annual Report on Form 10-K or in Note 1.

2 unchanged sentences

Risks Related to AFG Common Shares 10

Risk Related to Sale of AAC 11

Risk Related to the Company's Business 12

Risks Related to Capital, Liquidity and Markets 23

Risks Related to Capital, Liquidity and Credit Markets 19

Risks Related to Legacy Discontiued Operations 20

Risks Related to AFG Common Shares

The price per share of AFG's common stock may be subject to a high degree of volatility, including significant price declines.

Ambac's Legacy Financial Guarantee Insurance business is in run-off and faces significant risks and uncertainties described elsewhere in Part I, Item 1A.

Risk Factors.

In addition, Ambac's Specialty Property and Casualty Insurance and Insurance Distribution businesses are in the early stages of development and relatively small;

therefore, they are also subject to uncertainties described elsewhere in Part I, Item 1A.

Risk Factors.

Although AFG's common stock is listed on the New York Stock Exchange ("NYSE"), there can be no assurance as to the liquidity of the trading market or the price at which such shares can be sold.

1 unchanged sentence

• adverse developments in our financial condition or results of operations;

• changes in the actual or perceived risk within our Legacy Financial Guarantee ("LFG") insured portfolio;

Ambac Financial Group, Inc 13

2023 Form 10-K

Table of Contents ,

• changes in the actual or perceived risk within our insured portfolio;

• changes to regulatory status;

• changes in investors’ or analysts’ valuation measures for our stock;

• adverse changes in analysts’ recommendations regarding our stock;

• market perceptions of our success, or lack thereof, in pursuing and implementing our Specialty Property and Casualty Insurance and Insurance Distribution businesses and our new business strategy more generally;

• the impact or perceived impact of any acquisition, disposition or other strategic transaction, including entry into a new line of business or the sale of all or a part of the LFG business, on the value or long-term prospects of the Company;

• the impact or perceived impact of any acquisition, dispositions or other strategic transactions, including entry into a new line of business, on the value or long-term prospects of the Company;

• failure to receive regulatory approval for the sale of our Legacy Financial Guarantee ("LFG") business, or failure to complete the sale of our LFG business for any other reason;

• adverse developments in the industries and markets in which we operate, including the property and casualty insurance, underwriting and brokerage industries, or the fixed income and equity capital markets;

2 unchanged sentences

• results and actions of other participants in our industries.

The price of AFG's shares may also be affected by the risks described below, including risks associated with AAC’s ability to deliver value to AFG.

The price of AFG's shares may also be affected by the risks described below.

Investments in AFG's common stock may be subject to a high degree of volatility.

AFG may not be able to realize value from its LFG businesses.

The value of AFG's common stock is partially dependent upon realizing residual value from AAC by means of a full or partial sale and/or the receipt of dividends.

While AFG is exploring strategic options, including the possibility of a full or partial sale of AAC and Ambac UK, AFG can provide no assurance that such a transaction will be consummated or, if consummated, whether the value obtained will ultimately prove to be greater than the value of the LFG business reflected in AFG's common stock or that could be realized in a longer-term run-off scenario.

AFG may be unable to secure a binding offer for the full or partial sale of the LFG business on terms viewed as acceptable by the Board of Directors of AFG or at all.

If an acceptable offer is made and accepted, the closing of the sale would be subject to several conditions, including regulatory and other approvals, which may not be satisfied.

In the absence of a full or partial sale of the LFG business, the Company plans to continue to actively run-off the LFG business.

See Part I, Item I.

Description of Business - Legacy Financial Guarantee Insurance.

There can be no assurance that AFG will be able to realize residual value through receiving dividends from the continued run-off of AAC.

AFG's ability to realize residual value from AAC will depend upon, amongst other considerations, AAC's ability to satisfy all of its obligations that are senior to AFG's equity interests, including obligations to policyholders, surplus note holders and preferred stock holders.

AAC's ability to satisfy all of its obligations that are senior to AFG's equity depends on a number of considerations, including its ability to recover losses previously paid;

avoid material losses from litigation;

losses from its insured portfolio, which is subject to significant risks and uncertainties, including as a result of varying potential perceptions of the value of AAC’s guarantees and securities;

realize material value from its investment in Ambac UK;

and repay and/or restructure its indebtedness in a timely manner such that accruing interest costs are manageable.

Payments of principal and interest on AAC's surplus notes are subject to the express approval of the Wisconsin OCI.

Increased loss development in the LFG insured portfolio, or significant losses from litigation or other events or circumstances may prompt OCI to determine that it is in the best interests of policyholders to initiate rehabilitation proceedings with respect to AAC or to issue supervisory orders that impose restrictions on AAC, either preemptively or in response to any such event or circumstance.

If OCI were to decide to initiate rehabilitation proceedings with respect to AAC, adverse consequences may result, including, without limitation and absent enforceable protective injunctive relief, the assertion of damages by counterparties, the acceleration of losses based on early termination triggers, and the loss of control rights in insured transactions.

Any such consequences may reduce or eliminate any residual value of AAC for AFG.

Additionally, the rehabilitator would assume control of all of AAC’s assets and management of AAC.

In exercising control, the rehabilitator would act solely for the benefit of policyholders, which may result in material adverse consequences for our security holders.

Similar risks would arise if Ambac UK were to become subject to a proceeding to protect the interests of its policyholders, in which case AAC's ability to realize value from Ambac UK (and consequently AFG's ability to realize value from AAC) would diminish.

If OCI were to issue supervisory orders imposing restrictions on AAC, AAC's ability to satisfy its obligations to policyholders or creditors, or its ability to deliver value to AFG, may be significantly constrained.

Due to the above considerations, as well as applicable legal and contractual restrictions described elsewhere herein, substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends.

Ambac is planning to further develop and expand its Specialty Property and Casualty Insurance and Insurance Distribution businesses;

however, such plans may not be realized, or if realized, may not create value and may negatively impact our financial results.

The value of AFG's common stock depends in part upon the ability of Ambac to generate earnings apart from the LFG business.

Ambac is planning to further develop and expand its Specialty Property and Casualty Insurance and Insurance Distribution businesses.

Such plans may involve additional acquisitions of assets or existing businesses and the development of businesses through new or existing subsidiaries.

Currently, it is not possible to fully predict the future prospects or other characteristics of such businesses.

While we expect to conduct business, financial and legal due diligence in connection with the evaluation of any future business or acquisition opportunities, there can be no assurance our due diligence will identify every matter that could have a material adverse effect on us.

Efforts to pursue certain business opportunities may be

Ambac is planning to further develop and expand its Specialty Property and Casualty Insurance and Insurance Distribution

Ambac Financial Group, Inc.

1 unchanged sentence

Table of Contents ,

unsuccessful or require significant financial or other resources, which could have a negative impact on our operating results and financial condition.

Such plans may involve additional acquisitions of assets or existing businesses and the development of businesses through new or existing subsidiaries.

Currently, it is not possible to fully predict the future prospects or other characteristics of such businesses.

We may not be able to successfully identify opportunities, attract specialized underwriting and other talent, and operationalize new Insurance Distribution businesses in a timely or cost-efficient manner.

Efforts to pursue certain business opportunities may be unsuccessful or require significant financial or other resources, which could have a negative impact on our growth plans, operating results and financial condition.

To implement our growth strategy, we must be able to meet our capital needs, expand our systems and our internal controls effectively, allocate our human resources optimally, identify and hire qualified employees and effectively integrate any acquisitions we make in our effort to achieve growth.

1 unchanged sentence

The failure to manage our growth effectively could have a material adverse effect on our business, financial condition and results of operations.

Our business performance and growth plans could be negatively affected if we are not able to, among other things, gain internal efficiencies through the application of effective technology across our businesses, integrate operations, and/or innovate product and operational solutions.

Conversely, investments in internal systems or innovative product offerings may fail to yield sufficient return to cover their investment.

Our ability to successfully manage ongoing organizational changes could impact our business results, where the level of costs and/or disruption may be significant and change over time, and the benefits may be less than we originally expect.

1 unchanged sentence

Any such adjustment or abandonment may have a material adverse effect on our securities.

Risks Related to the Company's Business

Loss reserves for the LFG business may not be adequate to cover potential losses, and changes in loss reserves may result in further volatility of net income and comprehensive income.

LFG loss reserves are established when management has observed credit deterioration in its insured credits.

Loss reserves established with respect to our LFG insurance policies issued to beneficiaries are based upon estimates and judgments by management, including estimates and judgments with respect to the probability of default;

the severity of loss upon default;

management’s ability to execute policy commutations, restructurings and other loss mitigation strategies;

and estimated subrogation and other loss recoveries.

The objective of establishing loss reserve estimates is not to, and our loss reserves do not, reflect the worst possible outcomes.

While our reserving scenarios reflect a wide range of possible outcomes (on a probability weighted basis), reflecting the uncertainty regarding future developments and outcomes, our loss reserves may change materially based on future developments.

As a result of inherent uncertainties in the estimates and judgments made to determine loss reserves, there can be no assurance that either the actual losses in our financial guarantee insurance portfolio will not exceed such reserves or that our reserves will not materially change over time as circumstances, our assumptions, or our models change.

Catastrophic events, including environmental and public health events that result in material disruption of economic activity, loss of human life or significant property damage, can have a materially negative impact on our financial and operational performance.

Such stresses could result in liquidity strains or permanent losses.

Public health crises and/or natural disasters can cause economic and financial disruptions that may adversely affect, our business and results of operations.

For example, AAC insures the obligations of a number of issuers, such as municipalities and securitization vehicles, including those backed by consumer loans such as mortgages and student loans, that may be substantially affected by the prolonged economic effects of pandemics, other public health crises, environmental events or natural disasters.

Municipalities and their authorities, agencies and instrumentalities, especially those dependent on narrow revenue streams flowing from particular economic activities, such as sales taxes, may suffer disproportionately, from depressed revenues due to the lingering negative economic impact brought about by such events.

In response to such events, the U.S.

Federal government and State governments and their agencies may adopt policies or guidelines to provide emergency relief to consumers, such as limiting debt collection efforts, encouraging or requiring extensions, modifications or forbearance with respect to certain loans and fees, and establishing foreclosure and eviction moratoriums.

These or similar types of emergency responses to future events may cause Ambac to experience higher losses in its insured portfolio.

Future environmental or other public health events and natural disasters can result in significant potential liabilities for issuers, that increase the potential for default on obligations insured by AAC and Ambac UK.

Everspan may be exposed to losses arising out of unpredictable catastrophic events.

These include natural catastrophes and other disasters, such as hurricanes, earthquakes, windstorms, floods, wildfires, and severe winter weather.

Catastrophes can also include man-made disasters, such as terrorist attacks and other destructive acts, war, political unrest, explosions, cyber-attacks, nuclear, biological, chemical or radiological events and infrastructure failures.

A severe catastrophe or a series of catastrophes could result in losses exceeding Everspan’s reinsurance protection and may have a material adverse impact on our results of operations or financial condition.

Changing weather patterns and climate change have added to the unpredictability, frequency and severity of weather-related catastrophes incurred by the property and casualty insurance industry in recent years.

These changing weather patterns make it more difficult to predict and model catastrophic events, reducing our ability to accurately price exposure to such events and mitigate its risks.

Further, we use internally developed and third-party vendor tools and models to assess exposure to catastrophe losses.

The models assume various conditions and probability scenarios and may not accurately predict future losses or measure losses currently incurred.

Limitations in these tools and models may

Risks Related to the Sale of AAC

The sale of the common stock of Ambac Assurance Corporation may not be completed as anticipated, or at all.

The closing of the AAC Sale is conditioned on, among other things, the receipt of specified regulatory approvals.

In addition, the purchase agreement relating to the AAC Sale (the "Purchase Agreement") provides for certain termination rights.

Buyer and AFG may terminate the Purchase Agreement by mutual written agreement at any time prior to the closing date.

In addition, either Buyer or AFG may terminate the Purchase Agreement at any time prior to the closing by giving written notice to the other party if

• the closing has not been consummated on or before April 4, 2025 (the "End Date");

provided, however, that if the closing has not occurred solely due to the failure to obtain applicable governmental and regulatory approvals from the authorities including, but not limited to, the OCI, the End Date will be automatically extended for an additional

ninety (90) days and the parties agree to continue to use their respective reasonable best efforts to satisfy such conditions to closing;

provided, further, that the right to terminate the Purchase Agreement for the foregoing is not available to any party whose breach of any provision of the Purchase Agreement results in the failure of the closing to be consummated;

• (i) applicable law makes the consummation of the closing illegal or otherwise prohibited or (ii) any judgment, injunction, order or decree of any governmental authority enjoins Buyer and AFG from consummating the closing.

The Purchase Agreement may be terminated by Buyer by written notice to AFG if a breach of any representation or warranty or failure to perform any covenant or agreement shall have occurred that would cause certain conditions not to be satisfied, and such breach is not cured within sixty (60) days of written notice to AFG or is incapable of being cured by the End Date.

Additionally, the Purchase Agreement may be terminated by Buyer if at any time the AFG Board of Directors effects an Ambac Board Recommendation Change (as defined in the Purchase Agreement).

The Purchase Agreement may be terminated by AFG by written notice if a breach of any representation or warranty or failure to perform any covenant or agreement shall have occurred that would cause certain conditions not to be satisfied, and such breach is not cured within sixty (60) days of written notice to Buyer or is incapable of being cured by the End Date.

The total proceeds realized from the AAC Sale are contingent upon satisfaction of various closing conditions.

There can be no assurance that the conditions will be satisfied.

Any delay in satisfying the closing conditions may increase the risk that the AAC Sale will be terminated, or reduce the benefits we expect to achieve.

The AAC Sale and the other transactions contemplated by the Purchase Agreement, whether or not completed, may adversely affect the retained business.

Transactions such as the AAC Sale are often subject to lawsuits by stockholders.

It is possible that certain common stockholders or other stakeholders will commence or seek to commence litigation against Ambac or the Ambac Board.

Such litigation could result in substantial costs and divert management’s attention from other business concerns, which could adversely affect Ambac's specialty property and casualty insurance and its insurance distribution businesses that Ambac will continue to operate following the completion of the AAC Sale (the "Retained Business").

As a result of the AAC Sale, we may experience higher employee turnover and finding qualified replacements may be more difficult.

The loss of the services of members of our executive and/or senior management teams or our inability to hire and retain other talented personnel could delay or prevent us from succeeding in executing our strategies, which could negatively impact the Retained Business.

Further, while the completion of the AAC Sale is pending, we may be unable to attract and retain key personnel and our management’s focus and attention and employee resources may be diverted from operational matters.

Ambac Financial Group, Inc.

1 unchanged sentence

Table of Contents ,

adversely affect our results of operations and financial condition.

The ultimate impact of a catastrophic event on insurers and their obligations, and the economy in general, is by its very nature uncertain, and will be determined by a number of factors including, but not limited to, the depth and duration of a particular crisis;

the extent to which affected consumers, businesses, municipal entities and other debtors or sources of revenues recover from depressed economic circumstances, and the timelines for such recoveries;

the level and efficacy of government intervention or support for municipal entities, consumers, businesses and the financial markets via emergency relief measures;

the availability of insurance;

the availability of cost-effective financing;

management of public health crisis remediation efforts;

the effectiveness of other public or private crisis management efforts, mitigation measures or support;

and certain socio-economic variables, such as unemployment levels.

Consequently, if following such catastrophic events we do not have sufficient resources or financial flexibility, receive adequate measures of support or realize the appropriate level of economic recovery, our ultimate ability to operate could be materially impaired and we could suffer material permanent losses and therefore may have an adverse effect on our results of operations and financial condition.

Counterparties that service aspects of our business may be similarly impacted and, if their operations are impaired due to a catastrophe, it may be difficult or costly to us to find alternatives to such servicing capabilities.

AAC and Ambac UK are subject to credit and other risks in their insured portfolios;

we are also subject to risks associated with adverse selection as our insured portfolios run off.

Performance of our insured LFG transactions, including (but not limited to) those backed by municipal, utility, sovereign/sub-sovereign, military housing and consumer risk, can be adversely affected by general economic conditions, such as recession, federal budget cuts, decisions of governmental authorities about utilizing assets or facilities, inflation, unemployment levels, underemployment, home price depreciation, increasing foreclosure rates, unavailability of consumer credit, mortgage product attributes, borrower and/or originator fraud or misrepresentations, and asset servicer performance and financial health.

While deterioration in the performance of transactions insured by AAC and Ambac UK, including mortgage and student loan securitizations may occur, the timing, extent and duration of any future deterioration of the credit markets is unknown, as is the impact on potential claim payments and ultimate losses on the securities within our insured LFG portfolio.

In addition, there can be no assurance that any governmental or private sector initiatives designed to address such credit deterioration in the markets will be successful or inure to the benefit of the transactions we insure.

For example, servicer settlements with governmental authorities regarding foreclosure or servicing irregularities are generally designed to protect borrowers and may increase losses on securities we insure.

In particular, the student loan industry and, specifically, trusts with securities insured by AAC have been subject to heightened Consumer Finance Protection Bureau ("CFPB") scrutiny and enforcement action over servicing and collections practices and potential

chain of title issues and, consequently, any settlements, orders or penalties resulting from CFPB actions, or any failure on the part of servicers or other parties asserting claims against delinquent borrowers to establish title to the loans, could lead to increased losses on securities we insure.

Issuers of public finance obligations insured by AAC have reported, or may report, budget shortfalls, significantly underfunded pensions or other fiscal stresses that imperil their ability to pay debt service or will require them to significantly raise taxes and/or cut spending in order to satisfy their obligations.

Furthermore, over time, the consequences of poor public policy decisions by state and local governments or increases in tax burdens can impact demographic trends, such as out-migration from one state or municipality to another, that may negatively impact the creditworthiness of related issuers.

Some issuers of obligations insured by AAC have declared payment moratoriums, defaulted or filed for bankruptcy or similar debt adjustment proceedings, raising concerns about their ultimate ability or willingness to service the debt insured by AAC and AAC's ability to recover claims paid in the future.

If the issuers of the obligations in the public finance portfolio are unable to raise taxes, cut spending, or receive federal or state assistance, or if such issuers default or file for bankruptcy under Chapter 9 or for similar relief under other laws that allow for the adjustment of debts, AAC may experience liquidity claims and/or ultimate losses on those obligations, which could adversely affect the Company's business, financial condition and results of operations.

Issuers in Chapter 9 or similar proceedings may obtain judicial rulings and orders that impair creditors' rights or their ability to collect on amounts owed.

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.

As the runoff of the insured portfolio continues, the proportion of exposures we rate as below investment grade relative to the aggregate insured portfolio may increase, leaving the portfolio increasingly concentrated in higher risk exposures and heightening risks associated with large single risk exposures to particular issuers, losses caused by catastrophic events (including public health crises, terrorist acts and natural disasters), and losses in respect of different, but correlated, credit exposures.

These risks may result in greater volatility or have adverse effects on the Company's results from operations and on our financial condition.

We may not be able to effectively reduce LFG insured exposures;

measures taken to reduce risks may have an adverse effect on the Company's operating results or financial position.

In pursuing the objective of improving our financial position, we are seeking to terminate, commute, reinsure or otherwise reduce LFG insured exposures.

De-risking transactions may not be feasible or economically viable.

We cannot provide any assurance that any such transaction will be consummated in the future, or if it is, as to the timing, terms or conditions of any such transaction.

Even if we consummate one or more of such transactions, doing so may ultimately prove to be unsuccessful in creating value for any or all of our stakeholders and may negatively impact our operating results or financial position.

If we fail to complete the AAC Sale and the other transactions contemplated by the Purchase Agreement, our business and financial performance may be adversely affected, including in the event Ambac is required to pay the Termination Fee.

The completion of the AAC Sale and the other transactions contemplated by the Purchase Agreement is subject to the satisfaction or waiver of various conditions, which may not be satisfied in a timely manner or at all.

If the AAC Sale is not completed, we will not recoup the costs incurred in connection with negotiating the AAC Sale and the other transactions.

Our directors, executive officers and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the AAC Sale, and we will have incurred significant third-party transaction costs, in each case, without any commensurate benefit, which may have a material and adverse effect on our stock price and results of operations.

Furthermore, if the AAC Sale and the other transactions contemplated by the Purchase Agreement are not completed, the announcement of the termination of the Purchase Agreement may adversely affect our relationships with our customers, business partners and employees, which could have a material adverse impact on our ability to effectively operate our business, and we may be required to pay the Termination Fee of $22,000 under certain circumstances, each of which could have further adverse effects on our business, results of operations and the trading price of AFG's common stock.

Additionally, we intend to use the proceeds of the AAC Sale to repay all or a portion of the debt used to fund the acquisition of 60% of the share capital of Beat Capital Partners Limited.

If we do not consummate the AAC Sale then we will need to repay or refinance such debt with other sources of funds, which may not be available on favorable terms or at all.

An inability to repay the debt used to fund the acquisition of Beat from proceeds of the AAC Sale or other sources, or an inability to refinance such debt on favorable terms or at all, may materially negatively affect our business and results of operations.

If the AAC Sale is not approved by AAC’s and Ambac UK’s regulators or if we fail to complete the AAC Sale for any other reason, there may not be any other offer from a potential acquiror that the AFG Board determines to be attractive.

If we fail to complete the AAC Sale, the Board of Directors of AFG, in discharging its fiduciary obligations to our stockholders, may evaluate other strategic alternatives including, but not limited to, continuing to operate AAC and the Legacy Financial Guarantee Insurance business for the foreseeable future or an alternative transaction relating to AAC or Ambac.

An alternative transaction, if available, may yield lower consideration or value than the proposed AAC Sale, be on less favorable terms and conditions than those contained in the Purchase Agreement and involve significant delay.

Any future sale of substantially all of Ambac’s property and assets within the meaning of Section 271 of the Delaware General Corporation Law and related case law or other similar transaction may be subject to stockholder approval, and there is

no guarantee that Ambac would be able to obtain such stockholder approval in favor of any such sale or other transaction.

If the Legacy Financial Guarantee Insurance business is not sold, there can be no assurance that we will realize value at least equivalent to the proceeds of the AAC Sale from the operation of the Legacy Financial Guarantee Insurance business over time, or any value;

nor can we predict the timeline for realizing value, if any, from the Legacy Financial Guarantee Insurance business in the absence of the AAC Sale.

Risks Related to the Company's Business

We are subject to reputational harm if companies with which we do business engage in negligent or fraudulent behaviors and damage to our reputation could materially adversely impact our business.

Our business depends on contractual and working relationships with insurance distribution partners, insurance carriers, reinsurers, policy holders and beneficiaries, third party administrators, and other agents and counterparties.

We could suffer material financial loss, reputational harm and/or a loss of business prospects if a business partner, agent or counterparty engages in negligent or fraudulent conduct, whether directly in our relationship with them or indirectly as a result of their conduct in other business relationships.

Ambac may be adversely impacted by P&C industry market cycles.

Ambac’s P&C businesses are subject to market cycles.

Premium pricing in the commercial property and casualty insurance markets has been historically based on underwriting capacity of insurance carriers, general economic conditions, inflation, and other factors.

In recent years, we have been in a “hard” market whereby carriers have been raising rates.

However, we have observed that in certain lines of business the rate of pricing increase has slowed or begun to decrease.

If carriers lower premium rates more broadly this would be referred to as a “softening” or “soft” market.

Given that Ambac generates revenue from both insurance premiums and commissions that are based on insurance premiums, our revenues are affected by the cyclicality of the markets in which we operate.

If we enter a soft market, absent mitigating factors, we may experience a reduction in revenues and profits.

Loss reserves may not be adequate to cover potential losses, including losses caused by catastrophic events, and changes in loss reserves may result in further volatility of net income and comprehensive income.

The objective of establishing loss reserve estimates is not to, and our loss reserves do not, reflect worst possible outcomes.

As a result of inherent uncertainties in the estimates and judgments made to determine loss reserves, there can be no assurance that either actual losses will not exceed such reserves or that our reserves will not materially change over time as circumstances, events, our assumptions, or our models change.

Catastrophic events, whether natural or man-made, including natural disasters and environmental and public health events that result in material disruption of economic activity, loss of human life or significant property damage, can have a materially negative impact on our financial and operational performance.

Ambac Financial Group, Inc.

1 unchanged sentence

Table of Contents ,

Public health crises and/or natural disasters can cause economic and financial disruptions that may adversely affect, our business and results of operations.

Everspan may be exposed to losses arising out of unpredictable catastrophic events.

These include natural catastrophes and other disasters, such as hurricanes, earthquakes, windstorms, floods, wildfires, and severe winter weather.

Catastrophic events may cause significant volatility in the markets in which we operate in addition to the global financial markets.

Disruptions to these markets could result in a decline in business activity, increased claims, reduced underwriting capacity from insurance companies, reinsurers and other capital providers upon which our P&C businesses are reliant.

Catastrophic events may also interrupt the operations of our agents and business partners that distribute our P&C insurance products.

Profit commissions and contingent commissions related to certain of our P&C business lines may also be adversely impacted my catastrophic losses.

Individually and/or collectively, these results may have a material adverse impact on our results of operations and financial condition.

Further, we use internally developed and third-party vendor tools and models to assess exposure to losses, including catastrophic losses.

The models may not accurately predict future losses or loss development.

Limitations in these tools and models may adversely affect our results of operations and financial condition.

We could realize losses from our cash and investment accounts if one of the financial institutions we use fail or is taken over by regulators

We maintain cash and investment accounts, including premium trust accounts, at depository institutions in amounts in excess of the limits insured by the FDIC and in countries other than the U.S.

If one or more of these institutions were to fail or be taken over by their respective regulators, our access to these funds could be limited and we could experience liquidity problems and potential financial losses.

Ambac's cash balances held at banks was $36,190 thousand as of December 31, 2024, including cash of Ambac's insurance distribution subsidiaries held in regional banks of $35,552 thousand as of December 31, 2024.

Our risk management policies and practices may not adequately identify significant risks.

As described in Part I, Item 1, “Risk Management” in this Annual Report on Form 10-K, we have established risk management policies and practices which seek to mitigate our exposure to credit risk in our legacy financial guarantee insured portfolio.

Ongoing surveillance of credit risks in our legacy financial guarantee insured portfolio is an important component of our risk management process.

These policies and practices in the past have not insulated us from risks that were unforeseen and which had unanticipated loss severity, and such policies and practices may not do so in the future.

There can be no assurance that these policies and practices will be adequate to avoid future losses.

We have established risk management policies and practices which seek to mitigate losses within our insurance programs.

There can be no assurance that these policies and practices will be adequate to avoid future unexpected losses or adverse development within our existing loss reserves.

If we are not able to identify significant risks, we may not be able to timely mitigate such risks, thereby increasing the amount of losses to which we are exposed.

An inability to identify significant risks could also result in the failure to timely establish loss reserves that are sufficient in relation to such risks.

We operate within an enterprise risk management (“ERM”) framework designed to assess and monitor risks.

2 unchanged sentences

Any ineffectiveness in our controls or procedures or failure to manage these risks may have an adverse effect on our results of operations and financial condition.

The Settlement Agreement, Stipulation and Order and OCI's Runoff Capital Framework may impair AAC's ability to pursue its business strategies.

Pursuant to the terms of the Settlement Agreement and Stipulation and Order, AAC must seek prior approval by OCI of certain corporate actions.

The Settlement Agreement and Stipulation and Order also include covenants that restrict the operations of AAC which (i) in the case of the Settlement Agreement, remain in force until the surplus notes that were issued pursuant to the Settlement Agreement have been redeemed, repurchased or repaid in full, and (ii) in the case of the Stipulation and Order, remain in place until the OCI decides to relax such restrictions.

Certain of these restrictions may be waived with the approval of holders of surplus notes and/or OCI.

If we are unable to obtain the required consents under the Settlement Agreement and/or the Stipulation and Order, AAC may not be able to execute its planned business strategies.

In addition, OCI's Runoff Capital Framework and decisions based thereon are expected to affect AAC's ability to reduce financial leverage at AAC, pay dividends to AFG, and/or make payments on surplus notes or AMPS.

OCI has certain enforcement rights with respect to the Settlement Agreement and Stipulation and Order, and retains full discretion over the design of, and assumption utilized in, OCI's Runoff Capital Framework and the implications thereof.

Disputes may arise over the interpretation of such agreements or instruments, the exercise or purported exercise of rights thereunder, the determinations made thereunder, or the performance of or failure or purported failure to adhere to the terms thereof.

Any such dispute could have material adverse

effects on AAC, and the Company more broadly, whether through litigation, administrative proceedings, supervisory orders, failure to execute transactions sought by management, interference with corporate strategies, objectives or prerogatives, inefficient decision-making or execution, forced realignment of resources, increased costs, distractions to management, strained working relationships or otherwise.

Such effects would also increase the risk that OCI would seek to initiate rehabilitation proceedings or issue supervisory orders against AAC.

We use analytical models and tools to help project performance of our insured LFG obligations and our investment portfolio but actual results could differ materially from model and tool outputs and related analyses.

We rely on internally and externally developed complex financial models, including default models related to RMBS and a waterfall tool provided by a nationally recognized vendor for RMBS and student loan exposures, to project performance of our insured LFG obligations and similar securities in our investment portfolio.

These models and tools assume various conditions, probability scenarios, facts and circumstances, and there can be no assurance that such models or tools accurately predict or measure the quantum of losses, loss reserves and timing of losses.

Differences in the models and tools that we employ, uncertainties or flaws in these financial models and tools, or faulty assumptions inherent in these financial models and tools or those determined by management could lead to material changes in projected outcomes, and could include increased losses, loss reserves and/or credit impairments on the investment portfolio.

Moreover, estimates of transaction performance depend in part on the interpretation of contracts and other bases of our legal rights.

Such interpretations may prove to be incorrect or different interpretations may be employed by bond trustees and other transaction participants and, ultimately courts, which could lead to increased losses, loss reserves and/or investment impairments.

We are subject to the risk of litigation and the outcome of proceedings we are or may become involved in could have a material adverse effect on our business, operations, financial position, profitability or cash flows.

AAC is defending or otherwise involved in various lawsuits relating to its LFG business.

Please see Note 19.

Commitments and Contingencies to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for information on various proceedings.

It is not possible to predict the extent to which additional suits involving AFG, AAC or one or more other subsidiaries will be filed, and it is also not possible to predict the outcome of litigation.

It is not possible to predict the extent to which suits involving AFG or one or more other subsidiaries will be filed, and it is also not possible to predict the outcome of litigation.

It is possible that there could be unfavorable outcomes in existing or future proceedings.

1 unchanged sentence

Under some circumstances, adverse results in any such proceedings and/or the incurring of significant litigation or other expenses could be material to our business, operations, financial position, profitability or cash flows.

Ambac Financial Group, Inc 17

2023 Form 10-K

Table of Contents ,

Everspan may be subject to disputes with policyholders regarding the scope and extent of coverage offered under Everspan's policies;

2 unchanged sentences

or enter into commercial disputes with its reinsurers, MGA/Us or TPAs regarding their respective contractual obligations and rights.

Under some circumstances, the results of such disputes or suits may lead to liabilities beyond those which are anticipated or reserved.

Under some circumstances, the results of such disputes or suits may lead to liabilities beyond those which are anticipated or reserved, including extra-contractual liabilities or liabilities in excess of policy limits.

Political developments may materially adversely affect our business.

Our insurance businesses and our results of operations can be materially affected by political developments at the federal, state and/or local or foreign government levels.

Government shutdowns, trade disputes, political turnover, judicial decisions, adverse changes in governmental funding, or poor public policy decision making could disrupt the national, international and local economies where we have insured exposures.

In addition, we are exposed to correlation risk as a result of the possibility that multiple credits, counterparties, or portfolios may concurrently and/or consecutively experience losses or increased stress as a result of any such event or series of events.

Our insurance businesses and our results of operations can be materially affected by political developments at the federal, state, local or foreign government levels.

Risks include adverse changes in rules, regulations, compliance requirements, employment practices, taxes, business services and currencies.

We operate in in a highly regulated industry and our business will be negatively affected if we are not able to anticipate and keep pace with rapid changes in government laws and regulations or if government laws and regulations impair our business or increase our costs.

LFG and Specialty Property and Casualty Insurance subsidiaries are highly regulated as insurance carriers in the States of their domicile and the jurisdictions in which they are licensed.

Our owned MGA/Us and insurance brokerage subsidiaries are also required to maintain certain entity-level licenses as well as licenses of individual officers or representatives that are essential to their ability to conduct business.

Specialty Property and Casualty Insurance subsidiaries are highly regulated as insurance carriers in the States of their domicile and the jurisdictions in which they are licensed.

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

owned MGA/Us and insurance brokerage subsidiaries are also required to maintain certain entity-level licenses in those jurisdictions and/or the international countries in which they operate, as well as licenses of individual officers or representatives that are essential to their ability to conduct business.

Each of the foregoing must also comply with laws generally applicable to insurance entities, including those relating to governance, capital, and operational requirements.

3 unchanged sentences

If we are unable to keep pace with changes in applicable law and regulations, or if we otherwise fail in our compliance efforts, the Company may be subject to fines, sanctions, governmental orders or modifications to business practices that individually or collectively impair our business or increase our costs, possibly materially.

In addition, the Company from time to time receives various regulatory inquiries and requests for information, and its

insurance carrier subsidiaries are subject to examination by regulatory authorities.

It is not possible to predict the extent to which additional regulatory inquiries or requests for information will be made, nor the outcome of inquiries, requests for information or examination, which exposes the Company to potential fines, sanctions, governmental orders or modifications to business practices that individually or collectively impair our business or increase our costs, possibly materially.

Actions of the PRA and FCA could reduce the value of Ambac UK realizable by AAC, which would adversely affect our securityholders.

Ambac’s international business is operated by Ambac UK, which is regulated by the Prudential Regulation Authority (“PRA”) for prudential purposes and the Financial Conduct Authority (“FCA”) for conduct purposes.

The terms of Ambac UK’s regulatory authority are now restricted and Ambac UK is in run-off.

Among other things, Ambac UK may not write any new business, and, with respect to any entity within the Ambac group of affiliates, commute, vary or terminate any existing financial guaranty policy, transfer certain assets, or pay dividends, without the prior approval of the PRA.

The PRA and FCA act generally in the interests of Ambac UK policyholders and will not take into account the interests of AAC or the securityholders of Ambac when considering whether to provide any such approval.

Accordingly, determinations made by the PRA and FCA, in their capacity as Ambac UK’s regulators, could potentially result in adverse consequences for our securityholders and also reduce the value realizable by AAC for Ambac UK.

Regulatory uncertainty in relation to Ambac UK’s capital position could adversely affect the value of Ambac UK and affect our securityholders.

Ambac UK is required to meet certain minimum capital requirements under applicable regulatory capital rules ("Solvency II").

Ambac UK exceeded the required capital thresholds as of December 31, 2023 .

However, there remains a risk that market movements impacting its investments or adverse credit developments impacting loss reserving requirements within its insured portfolio could result in the capital position becoming deficient once again.

Everspan may not be successful in executing its business plans or may experience greater than expected insurance underwriting losses and/or reinsurance counterparty losses, which could result in losses material to Everspan's capital position, a downgrade of its AM Best rating and a loss of its franchise value.

2 unchanged sentences

Its business plan entails establishing programs with program administrators, managing general agents and managing general underwriters ("MGA/Us"), with claims handled by TPAs.

Ambac Financial Group, Inc 18

2023 Form 10-K

Table of Contents ,

Everspan, the quality and creditworthiness of reinsurance obtained with respect to the underlying risks, loss experience over time, premium levels, competition and other factors, some of which are outside Everspan's control.

The success of these programs is dependent upon the quality of insurance risk underwritten by the MGA/Us, the quality of underwriting and operational performance, as well as oversight, of the MGA/Us and TPAs by Everspan, the quality and creditworthiness of reinsurance obtained with respect to the underlying risks, loss experience over time, premium levels, competition and other factors, some of which are outside Everspan's control.

Should Everspan fail in executing its business plans or experience greater than expected losses due to operational issues, poor risk selection, default or failure to perform by reinsurers, failure to timely realize ultimate loss exposure, a departure of qualified MGA/Us from the industry, enhanced scrutiny from regulators or ratings agencies specific to the program business model, failure to collect amounts due to it or other factors, Everspan may suffer losses that are material to its capital position, a downgrade in its AM Best rating and/or a loss of its franchise value.

12 unchanged sentences

If in our Specialty Property and Casualty Insurance business we are unable to accurately underwrite risks and charge competitive yet profitable rates to our clients and policyholders, our business, financial condition and results of operations may be adversely affected.

In general, the premiums for our Specialty Property and Casualty Insurance policies are established at the time a policy is

issued and, therefore, before all of our underlying costs are known.

In general, the premiums for our Specialty Property and Casualty Insurance policies are established at the time a policy is issued and, therefore, before all of our underlying costs are known.

Like other property and casualty insurance companies, Everspan relies on estimates and assumptions in setting its premium rates.

3 unchanged sentences

Alternatively, Everspan could set its premiums too high, which could reduce its competitiveness and lead to lower policyholder retention, resulting in lower revenues.

Pricing is a highly complex exercise involving the acquisition and analysis of historical loss data and the projection of future trends, loss costs, expenses, and inflation trends, among other factors, for each of Everspan's products in multiple risk tiers and many different markets.

Pricing is a highly

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

complex exercise involving the acquisition and analysis of historical loss data and the projection of future trends, loss costs, expenses, and inflation trends, among other factors, for each of Everspan's products in multiple risk tiers and many different markets.

Everspan seeks to implement its pricing accurately in accordance with its assumptions.

14 unchanged sentences

A decline in the availability of reinsurance may increase the cost of reinsurance and materially and adversely affect our business prospects.

Everspan may, at certain times, be forced to incur additional costs for reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms or from

Ambac Financial Group, Inc 19

2023 Form 10-K

Table of Contents ,

reinsurers which satisfy Everspan's criteria as acceptable security.

Everspan may, at certain times, be forced to incur additional costs for reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms or from reinsurers which satisfy Everspan's criteria as acceptable security.

In the latter case, Everspan would have to accept an increase in exposure to risk, reduce the amount of business written by it or seek alternatives in line with Everspan's risk limits, all of which could adversely affect our business, financial condition and results of operations.

Counterparties to whom we outsource functions, including policy and claims administration, such as MGAs and TPAs, may default on their operational and financial obligations to us.

We have outsourced certain processes and functions to third parties over which we have no control and may continue to do so in the future.

We may be adversely affected by failures in services or products provided by third parties.

We outsource and may further outsource certain technology and business process functions, and rely upon third-party vendors, agents and contractual counterparties for other essential services and information.

Outsourcing functions to third parties exposes us to increased risk related to service disruptions.

If we do not effectively develop, implement and monitor our vendor, agency and contractual counterparty relationships and the financial

condition of such third parties, if third party providers do not perform as anticipated, if we experience technological or other problems, or if vendor, agency or other contractual relationships relevant to our business process functions are terminated, we may not realize expected productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business.

Further, we may suffer financial losses if a counterparty defaults on a financial obligation to us, including with respect to insurance agency commissions which adjust over time.

If we do not effectively develop, implement and monitor these relationships and the solvency of our counterparties, the providers do not perform as anticipated, technological or other problems are incurred, or such relationships are terminated, we may not realize expected productivity improvements or cost efficiencies and may experience operational difficulties, increased costs, and a loss of business.

Further, policyholders and claimants may suffer delays or lapses in service levels which may create extra-contractual exposures.

Moreover, policyholders and claimants may suffer delays or lapses in service levels which may create extra-contractual exposures.

The increased risks identified above could expose us to disruption of service, monetary and reputational damages, competitive disadvantage and significant increases in compliance costs.

Our insurance carrier subsidiaries are subject to reinsurance counterparty credit risk.

A material failure by an external service provider, information provider, agent or counterparty, or a material defect or default in the products, services or information provided thereby, could adversely affect our financial condition and results of operations.

Our outsourcing of certain technology and business process functions to third parties may expose us to increased risk related to data security, service disruptions or the effectiveness of our control system.

These risks could increase as vendors increasingly offer cloud-based software services rather than software services which can be run within our data centers or as we choose to move additional functions to the cloud.

Our insurance carriers are subject to reinsurance counterparty credit risk.

Their reinsurers may not pay on losses in a timely fashion, or at all.

8 unchanged sentences

or changes in law and regulation, or in the interpretation of laws and regulations, affects a reinsurance transaction.

These risks my be exacerbated to the extent that our insurance carrier subsidiaries' reinsurance recoverables are overly concentrated with one or a small subset of reinsurers.

The insolvency of one or more of our insurance carrier subsidiaries' reinsurers, or their inability or unwillingness to make timely payments if and when required under the terms of reinsurance contracts, could adversely affect our business, financial condition and results of operations.

These risks may be exacerbated to the extent that our insurance carrier subsidiaries' reinsurance recoverables are overly concentrated with one or a small subset of reinsurers.

The insolvency of one or more of our insurance carrier subsidiaries' reinsurers, or their inability or unwillingness to make timely payments if and when required under the terms of

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

reinsurance contracts, could adversely affect our business, financial condition and results of operations.

Everspan’s insurance carriers may be subject to counterparty credit risk associated with its MGA/U distribution partners.

Everspan may be subject to the risk that its MGA/U program partners fail to meet their financial obligations to Everspan or policyholders as it relates to premiums payable, return premiums, sliding scale commissions and return commissions.

This risk may be exacerbated to the extent that Everspan has financial obligations to its reinsurers under reinsurance agreements that do not absolve Everspan of for credit risk or non-payment by the MGA/U program partner.

The insolvency of one or more of our MGA/U program partners, or their inability or unwillingness to make timely payments if and when required under the terms of program agreements, could adversely affect our business, financial condition and results of operations.

If actual claims exceed loss and loss adjustment expense reserves for Everspan, or if changes in the estimated level of loss and loss adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal/tort, regulatory and economic environments in which Everspan operates, our financial results could be materially and adversely affected.

14 unchanged sentences

If Everspan does not effectively and timely source, evaluate and onboard new MGA/Us, including assisting such MGA/Us to quickly resolve any post-onboarding matters and provide effective ongoing support, Everspan's ability to add new MGA/Us and its relationships with its existing Program Partners could be adversely affected.

Additionally, Everspan's

Ambac Financial Group, Inc 20

2023 Form 10-K

Table of Contents ,

reputation with potential new MGA/Us could be damaged if it fails to effectively onboard MGA/Us with whom it has signed definitive legal agreements.

Additionally, Everspan's reputation with potential new MGA/Us could be damaged if it fails to effectively onboard MGA/Us with whom it has signed definitive legal agreements.

Such reputational damage could make it more difficult for Everspan to attract new and retain existing program partners, which could have an adverse effect on our business, financial condition and results of operations.

2 unchanged sentences

During periods of intense competition for premium, in particular, our Specialty Property and Casualty Insurance and Insurance Distribution businesses may be challenged to maintain competitiveness with other companies that may seek to write policies without the same regard for risk and profitability targeted by our Specialty Property and Casualty Insurance and Insurance Distribution businesses.

During these times, it may be difficult for Everspan or our MGA/Us to grow or maintain premium volume without lowering underwriting standards, sacrificing income, or both.

In addition, our Specialty Property and Casualty Insurance and Insurance Distribution businesses face competition from a wide range of specialty insurance companies, underwriting agencies and intermediaries, as well as diversified financial services companies that are significantly larger than our specialty property and casualty insurance and insurance distribution businesses are and that have significantly larger financial, marketing, management and other resources.

Some of these competitors also have longer standing and better established market recognition than Everspan does.

During these times, it may be difficult for Everspan or our MGA/Us to grow or maintain premium volume without the unattractive options of lowering underwriting standards, sacrificing income, or both.

In addition, our Specialty Property and Casualty Insurance and Insurance Distribution businesses face competition from a wide range of specialty insurance companies, underwriting agencies and intermediaries that are significantly larger than our Specialty Property and Casualty Insurance and Insurance Distribution businesses are and that have significantly larger financial, marketing, management and other resources.

Some of these competitors also have longer standing and better established market recognition than Ambac's group companies.

The greater resources or market presence that these competitors possess may enable them to avoid or defray particular costs, employ greater pricing flexibility, have a higher tolerance for risk or loss, or exploit other advantages that may make it more difficult for us to compete.

1 unchanged sentence

If we are unable to compete effectively in the markets in which our Specialty Property and Casualty Insurance and Insurance Distribution businesses operate or expand into, our underwriting revenues may decline, as well as overall business results.

Other competitive concerns include the entrance of technology companies into the insurance distribution business and the

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

direct-to-consumer insurance carriers that do not utilize third party agents and brokers as production sources.

Additionally, the insurance industry may experience consolidation, and therefore we may experience increased competition from insurance companies and the financial services industry, as a growing number of larger financial institutions increasingly, and aggressively, offer a wider variety of financial services, including insurance distribution services.

While we collaborate and compete in these segments on a fee-for-service basis, we cannot be certain that such alternative markets will provide the same level of insurance coverage or profitability as traditional insurance markets.

Technological changes to the way insurance is distributed, underwritten, and administered also present competitive risks.

For example, our competitive position could be impacted if we are unable to cost-effectively deploy technology, such as machine learning and artificial intelligence, which collects and analyzes large sets of data to make underwriting or other decisions, or if our competitors collect and use data which we do not have the ability to access or use.

In addition, usage-based methods of determining premiums (e.g., telematics) can impact product pricing and design and are becoming an increasingly important competitive factor.

The landscape of law and regulation governing these areas presents additional risk to the extent we are unable to timely adapt to ensure compliance.

Impairment of intangible assets and goodwill, resulting from acquisitions, could adversely affect our results of operations.

In connection with Ambac’s acquisition of insurance distribution businesses (MGA/Us and brokers), Ambac recorded the fair value of identifiable intangible assets (primarily related to distribution relationships) and goodwill.

In connection with Ambac’s acquisition of insurance distribution businesses, Ambac recorded the fair value of identifiable intangible assets (primarily related to distribution relationships) and goodwill.

The intangible assets will be amortized over their remaining useful lives.

2 unchanged sentences

Intangible asset and goodwill impairments are driven by a variety of factors, which could include, among other things, declining future cash flows of the acquired business as addressed in other risk factors related to the Insurance Distribution Business.

Any intangible asset or goodwill

impairment could adversely affect the Company's operating results and financial condition.

Our Insurance Distribution businesses derive a significant portion of their commission revenues from a limited number of insurance companies, the loss of any of which could result in lower commissions or loss of business production.

The commissions of our MGA/Us and insurance broker were derived from insurance policies underwritten by a limited number of insurance companies.

Should one or more of these insurance companies terminate its arrangements with our Insurance Distribution businesses or otherwise decrease the number of insurance policies underwritten for it, we may lose significant commission revenues or lose significant business production while seeking other insurance companies to underwrite the business.

Any intangible asset or goodwill impairment could adversely affect the Company's operating results and financial condition.

Our Insurance Distribution businesses derive a significant portion of their commission revenues from a limited number of insurance companies and Lloyd's syndicates, the loss of any of which could result in lower commissions or loss of business production.

The commissions of our MGA/Us and insurance broker are derived from insurance policies underwritten on behalf of a limited number of capacity providers, including insurance and reinsurance companies, Lloyd’s syndicates and other capital providers.

Should one or more of these capacity providers terminate its arrangements with our Insurance Distribution businesses or otherwise decrease the amount of capacity provided, we may lose significant commission revenues or lose

significant business production while seeking other sources of capacity.

A number of our MGA/Us have material relationships with Lloyd’s Syndicates 4242, and to a lesser extent Cadenza Re Limited, which are risk carriers that are serviced by Ambac group entities.

A reduction in scale and/or appetite of these carriers whether in response to underwriting performance, regulatory considerations, availability of underwriting capital support, or otherwise may result in a loss of significant commission revenues.

Furthermore, these carriers form the cornerstone capacity for some of our MGA/Us new launches and hence a deterioration in their activities will further inhibit new MGA/U launches.

Our Insurance Distribution businesses, results of operations, financial condition and liquidity may be materially adversely affected by certain potential claims or proceedings.

6 unchanged sentences

Risks associated with such endeavors could adversely affect our growth and results of operations.

Acquisitions have been an important contributor of growth in the Insurance Distribution business and we believe that additional acquisitions will be important to maintaining future growth.

Failure to successfully identify and complete acquisitions likely would result in us achieving slower growth.

Acquisitions have been an important contributor of growth in the Insurance Distribution business and we believe that additional acquisitions will be important to future growth, building further operational scale and diversifying our sources of revenue.

Failure to successfully identify and complete acquisitions likely would result in us achieving slower growth and less operating scale.

Moreover, the failure of acquisition targets to achieve anticipated revenue and earnings levels could result in slower than anticipated growth and result in intangible asset or goodwill impairment charges.

2 unchanged sentences

Table of Contents ,

The current market share of our Insurance Distribution businesses may decrease because of increased competition from insurance companies, technology companies and the financial services industry, as well as the shift away from traditional insurance markets.

The insurance distribution business is highly competitive and we actively compete with numerous firms for customers and insurance companies, many of which have relationships with insurance companies or have a significant presence in niche insurance markets that may give them an advantage.

Other competitive concerns may include pricing, the entrance of technology companies into the insurance distribution business and the direct-to-consumer insurance carriers that do not utilize third party agents and brokers as production sources.

Technological changes to the way insurance is distributed, underwritten, and administered also present competitive risks.

In addition, usage-based methods of determining premiums (e.g., telematics) can impact product pricing and design and are becoming an increasingly important competitive factor.

The landscape of law and regulation governing these areas presents additional risk to the extent we are unable to timely adapt to ensure compliance.

Changes in law or in the functioning of the healthcare market could significantly impair Xchange’s business and therefore negatively impact Ambac’s financial condition and results of operations.

Ambac may not be able to realize expected synergies from acquisitions.

Ambac’s assessment of acquisitions often includes an estimate of the value of revenue, expense and operating synergies that may be created from the acquisition.

If due to market, economic, technological, cultural, regulatory or other reasons Ambac is not able to fully realize expected synergies or its valuation of such synergies otherwise proves incorrect, we may not realize the full expected value of an acquisition, which in turn may lead to lower than expected profits, material adverse results from operations and/or a weakened financial condition.

Changes in law or in the functioning of the healthcare market could significantly impair our Accident & Health insurance business and therefore negatively impact Ambac’s financial condition and results of operations.

Adoption of a single payer healthcare system or a public health insurance option would likely adversely impact the entire healthcare industry.

While Xchange has historically demonstrated an ability to adjust its products to major changes in the healthcare industry, given its focus on Accident and Health products, Xchange would likely be adversely impacted by such a material change in the U.S.

While our Accident & Health insurance business has historically demonstrated an ability to adjust its products to major changes in the healthcare industry, such business would likely be adversely impacted by such a material change in the U.S.

healthcare system particularly if private health insurance is eliminated, materially limited, or is rendered noncompetitive.

Material adverse developments to Xchange's business would have a negative impact on Ambac's financial condition and results of operations which could be material.

Our Insurance Distribution businesses and their results of operations and financial condition may be adversely affected by conditions that result in reduced insurer capacity.

Our Insurance Distribution business results of operations depend on the continued capacity of insurance carriers to underwrite risk and provide coverage, which depends in turn on those insurance companies’ ability to procure reinsurance.

Capacity among insurance carriers and reinsurers may diminish because of our performance or due to factors outside our control.

Material adverse developments to our Accident & Health insurance business would have a negative impact on Ambac's financial condition and results of operations which could be material.

Our Insurance Distribution businesses and their results of operations and financial condition may be adversely affected by conditions that result in reduced insurance capacity.

Our Insurance Distribution business results of operations depend on the capacity of insurance carriers (including Llyod’s of London), reinsurers and other capital providers to assume risk and provide coverage.

Capacity among insurance carriers, reinsurers and other capital providers may diminish because of our performance or due to factors outside our control.

For example, capacity could be reduced by insurance companies failing or withdrawing from writing certain coverages that our Insurance Distribution businesses offer to their customers.

2 unchanged sentences

Commission income can vary quarterly or annually due to the timing of policy renewals and the net effect of new and lost business production.

We do not control the factors that cause these variations.

We do not solely control the factors that cause these variations.

Specifically, customers’ demand for insurance products can influence the timing of renewals, new business and lost business (which includes policies that are not renewed), and cancellations.

Quarterly and annual fluctuations in revenues based upon increases and decreases associated with the timing of new business, policy renewals and payments from insurance companies may adversely affect our financial condition, results of operations and cash flows.

Quarterly and annual fluctuations in revenues based upon increases and decreases associated with

the timing of new business, policy renewals and payments from insurance companies may adversely affect our financial condition, results of operations and cash flows.

Variations in contingent commissions that results from the effects of insurance loss activity on portfolios may result in significant variations in revenues.

Profit-sharing contingent commissions are paid by insurance companies based upon the profitability of the business placed with such companies.

5 unchanged sentences

Computer hackers may be able to penetrate our network’s system security, or the network's security system of a vendor or contractual counterparty, and misappropriate or compromise confidential information, create system disruptions or cause shutdowns.

The ability of hackers to infiltrate and compromise our information

Ambac Financial Group, Inc 22

2023 Form 10-K

Table of Contents ,

systems or the contents thereof may be enhanced by generative artificial intelligence, which may be more difficult to detect and defend.

The ability of hackers to infiltrate and compromise our and our vendors' and contractual counterparties' information systems or the contents thereof may be enhanced by generative artificial intelligence, which may be more difficult to detect and defend.

In addition to our own confidential information, we and our vendors and contractual counterparties sometimes receive and are required to protect confidential information obtained from third parties (including us in the case of a vendor or contractual counterparty) and personally identifiable information of individuals.

2 unchanged sentences

Moreover, although we have incident response, disaster recovery and business continuity plans in place, we may not be able to adequately execute these plans in a timely fashion in the event of a disruption to our information technology and application systems.

Additionally, we are an acquisitive organization and the process of integrating the information systems of the businesses we acquire is complex and exposes us to additional risk as we might not adequately identify weaknesses in the targets’ information systems, which could expose us to unexpected liabilities or make our own systems more vulnerable to attack.

We may be adversely affected by failures in services or products provided by third parties.

We outsource and may further outsource certain technology and business process functions, and rely upon third-party vendors and contractual counterparties for other essential services and information, such as the provision of data used in setting loss reserves.

If we do not effectively develop, implement and monitor our vendor and contractual counterparty relationships, if third party providers do not perform as anticipated, if we experience technological or other problems, or if vendor or other contractual relationships relevant to our business process functions are terminated, we may not realize expected productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business .

A material failure by an external service or information provider or a material defect in the products, services or information provided thereby could adversely affect our financial condition and results of operations.

Additionally, we are an acquisitive organization and the process of integrating the information systems of the businesses we acquire is complex and exposes us

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

to additional risk as we might not adequately identify weaknesses in the targets’ information systems, which could expose us to unexpected liabilities or make our own systems more vulnerable to attack.

The application of innovative and solution-based technology is required to facilitate effective operations and to realize internal efficiencies;

however, the investment required in technology may not yield sufficient returns and the implementation of new or modified technology may be a material distraction to management.

Conversely, investments in internal systems or innovative product offerings may fail to yield sufficient return to cover their investment.

To the extent our investments in technology fail to provide sufficient returns or achieve their stated business objectives, we may experience lower productivity and/or operational effectiveness, which could adversely impact our financial results and prevent us from meeting our strategic objectives.

Our ability to attract and retain qualified executives, senior managers and other employees or the loss of any of these personnel could negatively impact our business.

3 unchanged sentences

The market for qualified executives, senior managers and other employees has become very competitive.

As a result of the run-off status of AAC and the early-stage status of AFG's other businesses, we may experience higher employee turnover and finding qualified replacements may be more difficult.

As a result of competition for talent we may experience higher employee turnover and finding qualified replacements may be more difficult.

The loss of the services of members of our executive and/or senior management teams, our inability to hire and retain other talented personnel and/or the absence of effective management succession plans could delay or prevent us from succeeding in executing our strategies, which could negatively impact our business.

Our business could be negatively affected by actions of stakeholders whose interests may not be aligned with the broader interests of our stockholders.

1 unchanged sentence

Such activities could interfere with our ability to execute on our strategic plans.

We are exposed to foreign exchange risk, which may adversely affect our financial condition and results of operation.

A significant portion of our Insurance Distribution business is operated out of the U.K where our functional currency is the British pound (“GBP”).

However, the majority of our revenues are generated in U.S.

dollars (“USD”).

As a result, movements in the rate of exchange between GBP and USD may materially distort our financial results and cause losses that are not attributable to the underlying business.

We frequently hedge this foreign exchange risk through forward contracts;

however, these hedges may not completely negate the adverse impact of foreign exchange movements.

Risks Related to Capital, Liquidity and Credit Markets

AAC has substantial indebtedness, which could adversely affect our financial condition, operational flexibility and our ability to obtain financing in the future.

AFG and Cirrata have substantial indebtedness, which could adversely affect our financial condition, operational flexibility and our ability to obtain financing in the future

Cirrata financed its acquisition of Beat in part through the issuance of $150,000 of new indebtedness, which is guaranteed by AFG (the “Credit Facility”).

The debt incurred under the Credit Facility matures on July 31, 2025.

The obligations of AFG and its subsidiaries under the Credit Facility are secured on a first-priority basis by (i) a pledge by AFG of all of the capital stock of Everspan Holdings, LLC and (ii) a pledge of all of the capital stock of Beat held by Cirrata and its subsidiaries.

The Company intends to pay off the Credit Facility with the proceeds of the AAC Sale.

In the event that the AAC Sale did not occur, due to factors described elsewhere in these Risk Factors or for any other reason, the Company would need to seek to refinance the Credit Facility through the public or private credit markets.

Alternatively the Company would seek to raise additional capital or restructure the debt.

There is no guaranty that the Company could refinance or restructure the Credit Facility or raise additional capital at commercially reasonable terms or at all.

In addition, if the Company were able to refinance or restructure the Credit Facility or raise additional capital it may incur a higher rate of interest or suffer more restrictive covenants, which could cause a material adverse impact on the Company’s results of operations and financial condition.

Furthermore, raising additional capital through the issuance of equity would depend on market and economic conditions, dilute the ownership of existing stockholders and potentially diminish the ability of the Company to access the capital markets in the future.

Moreover, raising additional capital through the sale of assets would depend on market and economic conditions;

the availability of buyers;

the requirements and conditions of local law, including regulatory restrictions;

and other factors that may result in the Company or a party enforcing rights against the Company to be unable to receive proceeds sufficient to discharge the Company’s obligations.

Because of these and other factors beyond our control, the Company may be unable to pay or discharge the principal or interest on the indebtedness incurred under the Credit Facility on economic terms or at all, which would materially impair the value of the Company.

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

The Credit Facility includes covenants that restrict our ability to manage capital resources by limiting, among other actions, the issuance of additional debt or capital stock;

the creation of liens;

the disposition of assets;

engaging in transactions with affiliates;

making restricted payments, including dividends and the purchase or redemption of capital stock;

and making acquisitions and other investments.

The Credit Facility also requires the prepayment of the borrowings thereunder with proceeds of certain debt or equity issuances and certain asset sales, including the AAC Sale.

These requirements will impact our financial and operational flexibility while the Credit Facility remains in place.

The Company’s substantial indebtedness could have other significant consequences for our financial condition and operational flexibility.

For example, it could:

• increase our vulnerability to general adverse economic, competitive and industry conditions;

• limit our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes on satisfactory terms or at all;

• require the Company to dedicate a substantial portion of its cash flow from operations to the payment of interest on its indebtedness, thereby reducing the funds available for operations and to fund the execution of key strategies;

• limit or restrict the Company from making strategic acquisitions or cause us to make non-strategic divestitures;

• limit the Company's ability, or increase the costs, to refinance its indebtedness or repay indebtedness due to ongoing interest payment obligations;

• limit our ability to attract and retain key employees.

While restrictive covenants in the Credit Facility may limit the amount of additional indebtedness the Company may incur, we may obtain waivers of those restrictions and incur additional indebtedness in the future.

In addition, if the Company incurred indebtedness, its ability to make scheduled payments on, or refinance, any such indebtedness may depend on the ability of our subsidiaries to make distributions or pay dividends, which in turn will depend on their future operating performance and contractual, legal and regulatory restrictions on the payment of distributions or dividends to which they may be subject.

There can be no assurance that any such dividends or distributions would be made.

This could further exacerbate the risks associated with the Company’s substantial leverage.

Our P&C businesses rely on a limited number of retail and wholesale brokers to generate revenue and the loss of one or more of these key partners could adversely impact our results of operations and growth objectives.

Our relationship with retail and wholesale brokers and other trading partners (collectively, “Brokers”) are nonexclusive and may be discontinued at any time by either party.

In addition, any of these parties may change the terms of our relationship which would cause our commission expense to increase.

The loss of a Broker could reduce the number of submissions we receive which could result in reduced commission revenue.

business could also be harmed if we fail to develop relationships with new Brokers or other sources of business.

A reduction in the number of Brokers, whether as a result of the termination of relationships, consolidation or otherwise, may leave us more vulnerable to adverse changes in our relationships with other Brokers, particularly in geographies or lines of business where we offer insurance products through a relatively small number of Brokers.

We may have future capital needs and may not be able to obtain third-party financing or raise additional third-party capital on acceptable terms, or at all.

An inability to obtain third-party debt financing or raise additional third-party capital, when required by us or when business conditions warrant, could have a material adverse effect on our business, financial condition and results of operations, and could adversely impact our ability to achieve our strategic objectives.

Our financial condition, the Risk Factors described elsewhere herein, as well as other factors, may constrain our financing abilities.

Our ability to secure third-party financing will depend upon our future operating performance, regulatory conditions, the availability of credit generally, economic conditions and financial, business and other factors, many of which are beyond our control.

The market conditions and the macroeconomic conditions that affect our business could have a material adverse effect on our ability to secure third-party financing on favorable terms, if at all.

If third-party financing is not available when needed, or is available on unfavorable terms, we may be unable to take advantage of business opportunities, respond to competitive pressures or effectively and efficiently manage our balance sheet, any of which could have a material adverse effect on our business, financial condition and results of operations.

Changes in prevailing interest rate levels and market conditions could adversely impact our business results and prospects.

Increases in prevailing interest rate levels can adversely affect the value of our investment portfolio and, therefore, our financial strength.

In the event that investments must be sold in order to pay claims, to pay debt obligations, or to meet other liquidity needs, such investments would likely be sold at discounted prices.

Our investment portfolios may also be adversely affected by credit rating downgrades, spread volatility and credit losses.

These losses may have a material adverse affect on our results of operations and financial condition.

Risks Related to the Discontinued Operations

AFG may not be able to realize value from AAC in the absence of a sale of AAC.

In the absence of a sale of AAC, the Company would continue to actively run-off the Discontinued Operations.

In that event, there could be no assurance that AFG would be able to realize residual value through receiving dividends from the continued run-off of AAC.

In the absence of a sale, AFG's ability to realize

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

residual value from AAC would depend upon, amongst other considerations, AAC's ability to satisfy all of its obligations that are senior to AFG's equity interests, including obligations to policyholders, surplus note holders and preferred stock holders.

AAC's ability to satisfy all of its obligations that are senior to AFG's equity depends on a number of considerations, including its ability to recover losses previously paid;

avoid material losses from litigation;

mitigate losses from its insured portfolio, which is subject to significant risks and uncertainties, including as a result of varying potential perceptions of the value of AAC’s guarantees and securities;

realize material value from its investment in Ambac UK;

and repay and/or restructure its indebtedness in a timely manner such that accruing interest costs are manageable.

Increased loss development in the Discontinued Operations insured portfolios, or significant losses from litigation or other events or circumstances could prompt OCI to determine that it is in the best interests of policyholders to initiate rehabilitation proceedings with respect to AAC or to issue supervisory orders that impose restrictions on AAC.

If OCI were to decide to initiate rehabilitation proceedings with respect to AAC, adverse consequences could result, including, without limitation, the assertion of damages by counterparties, the acceleration of losses based on early termination triggers, the loss of control rights in insured transactions, and the loss of operational control to OCI.

The rehabilitator would act solely for the benefit of policyholders, which could result in material adverse consequences for our security holders and significantly reduce or eliminate any residual value of AAC for AFG.

Due to the foregoing considerations, the risk factors described herein, and applicable legal and contractual restrictions described elsewhere herein and in our Annual Report on Form 10-K, substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends.

AAC and Ambac UK are subject to credit and other risks in their insured portfolios;

we are also subject to risks associated with adverse selection as our insured LFG portfolios run off.

Performance of our insured LFG transactions, including (but not limited to) those backed by municipal, utility, sovereign/sub-sovereign, military housing and consumer risk such as mortgages and student loans, can be adversely affected by general economic conditions, such as recession, federal budget cuts, decisions of governmental authorities about utilizing assets or facilities, inflation, unemployment levels, underemployment, home price depreciation, increasing foreclosure rates, unavailability of consumer credit, mortgage product attributes, borrower and/or originator fraud or misrepresentations, and asset servicer performance and financial health.

While deterioration in the performance of transactions insured by AAC and Ambac UK may occur, the timing, extent and duration of any future deterioration of the credit markets is not predictable, as is the impact on potential claim payments and ultimate losses on the securities within our insured LFG portfolio.

Issuers in Chapter 9 or similar proceedings may obtain judicial rulings and orders that impair creditors' rights or their ability to collect on amounts owed.

These risks may result in greater volatility or have adverse effects on the Company's results from discontinued operations and on our financial condition.

LFG loss reserves are established when management has observed credit deterioration in its insured credits.

the severity of loss upon default;

management’s ability to execute policy commutations, restructurings and other loss mitigation strategies;

and estimated subrogation and other loss recoveries.

The objective of establishing loss reserve estimates is not to, and our loss reserves do not, reflect the worst possible outcomes.

As a result of inherent uncertainties in the estimates and judgments made to determine loss reserves, there can be no assurance that either the actual losses in our f inancial guarantee insurance portfolio will not exceed such reserves or that our reserves will

Ambac Financial Group, Inc.

2024 Form 10-K

Table of Contents ,

not materially change over time as circumstances, our assumptions, or our models change.

Such stresses could result in liquidity strains or permanent losses.

Public health crises and/or natural disasters can cause economic and financial disruptions that may adversely affect, our business and results of operations.

AAC insures the obligations of a number of issuers, such as municipalities and securitization vehicles, including those backed by consumer loans such as mortgages and student loans, that may be substantially affected by the prolonged economic effects of pandemics, other public health crises, environmental events or natural disasters.